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Substantive audit procedures for payroll

By | 11.07.2020

They are designed to generate evidence about the financial statement assertions. Types of Substantive audit procedures. Tests of detail: Tests of detail include verification on transactions, account balances and disclosures. Analytical Procedures : Analytical procedures consist of evaluations of financial information through analysis of plausible relationships among financial as well as non-financial data. Analytical procedures also encompass investigation of identified fluctuations or relationships that are inconsistent with other relevant information or that differ from expected values by a significant amount.

Substantive audit procedures for some account balances and account transactions. List the substantive audit procedures that may be performed by an auditor to verify Payroll. List the substantive audit procedures that may be performed by an auditor to verify material purchase. Substantive Procedures for Raw material purchases:.

For more information about this topic keep exploring auditorforum. We are keen to know your feedback in comments. Types of Substantive audit procedures Tests of detail Analytical procedures Tests of detail: Tests of detail include verification on transactions, account balances and disclosures. Substantive audit procedures for some account balances and account transactions List the substantive audit procedures that may be performed by an auditor to verify Payroll From the payroll record: Select a sample of newly appointed staff and check their salaries with the appointment letter.

Select a sample of other staff appointed in previous years and check their salaries with the increment letter. Select a sample of payroll summaries and: Check that payroll summary has been approved by an appropriate authority. Trace totals of payroll summaries to appropriate general ledger accounts.

List the substantive audit procedures that may be performed by an auditor to verify material purchase Substantive Procedures for Raw material purchases: Select a sample of transactions and carryout the following tests.

Check the relevant invoices. Match invoices with goods receiving notes to ensure that goods have been received for all billings made by supplier. Rates and quantities mentioned on the invoice are same as those mentioned on the purchase order.

Perform cut-off procedures on purchases. Perform analytical procedures on purchases made during the year by comparing current year purchases with the last year and investigate significant differences, if any. Related Posts.Following payroll best practices includes having a payroll process and putting together a payroll audit procedure to ensure that process is performing as it should.

Payroll managers keep track of a lot of numbers going in and out of an organization. As a good record keeping practice, payroll audit procedures can help:. Make your internal payroll audit a part of your regular business practice. Use this payroll audit checklist as a guide to help you get started. Remember that every organization has different needs so not all payroll audits will look the same. To start off, confirm that the pay rate listed in the system is correct for each employee in your payroll records.

Pay rates change. Employees get promotions, raises, and bonuses.

Auditing Payroll: The Why and How Guide

Be sure everything is accurate for the specific pay period. In this step, check overtime hours, sick days, and vacation time. Confirm proper pay rate and eligibility for paid time off like sick days and vacation time.

Review anything a manager may have overlooked that could result in overtimes hours exceeding the payroll budget. Verify that everyone who received a paycheck for the prior pay periods actually worked during those pay periods. If your company utilizes a contingent workforce or relies on vendors for certain goods and services, you want to confirm the status of the contracts for the pay period. Check that the totals from gross payroll expenses, withheld taxes, and net check amount all matchup with the general ledger records.

Review any large or unusual amounts. Compare your bank account with internal ledgers. Be sure the balances align and all checks cleared for the amount they were issued.

substantive audit procedures for payroll

Are you submitting the proper amount of business and employment taxes? Reconcile the expenses involved with payroll taxes by comparing your tax remittance reports against your own payroll system reports.Substantive Procedures for Cash Outflow Irregularities Substantive Procedures for Cash Outflow Irregularities Apollo Shoes has recognized that there is a risk of loss due to irregularities in cash outflows, accounts payable, and payroll.

Substantive procedures for cash outflows, accounts payable, and payroll are needed to detect irregularities in each of these. Failure to implement appropriate procedures will lead to loss irregularities. Substantive Procedures to Evaluate Cash An audit program will be designed according to the three cycles that will be outlined below. The first cycle that will be discussed is cash, then accounts payable and finally the payroll function. These cycles will be evaluated for substantive procedures for Apollo Shoes Apollo is the designing of an audit program, which will detail substantive procedures for detecting irregularities in the accounts receivable, inventory, and fixed assets audit cycles.

The most common schemes Payroll stores complete It also helps human to solve and understand complex problem and analysis such us the computational need of humans. Especially to business establishment or corporation processing Employees need to be able to rely on being paid on a consistent basis without delays.

Payroll affects every aspects of a small business from the morale of employees to the financial stability of the company. In order to pay their employees for services rendered, employers must devise a payroll system. Through this system the employer performs payroll processing, which must be done in a timely and accurate manner to ensure Occurrence: Define: transactions and events that have been recorded have occurred and pertain to the entity. Explain: sales and purchases shown in the income statement belong to the company and are real, that is they actually took place.

Completeness: Define: all transactions and events that should have been recorded have been recorded. Explain: all the individual transactions making up the balances in the income statement are recorded; no sales The grievance procedures differ from organization to organization. Open door policy 2. Step-ladder policy Open door policy: Under this policy, the aggrieved employee is free to meet the top executives of the organization and get his grievances redressed.

Such a policy works well only in small organizations. However, in bigger organizations Sign Up. Sign In. Sign Up Sign In. Substantive Procedures For Payroll Substantive Procedures for Cash Outflow Irregularities Substantive Procedures for Cash Outflow Irregularities Apollo Shoes has recognized that there is a risk of loss due to irregularities in cash outflows, accounts payable, and payroll.

Proposal payroll that currently using the manual payroll experience a lot of challenges. Payroll System of the most important tasks in running a small business is completing payroll.Payroll auditing should take place at least once a year, but once every six months is the ideal way to stay on top of your processing without having to make huge corrections if you identify mistakes.

Verify each person that worked for your company during the work time period that is listed on your payroll ledger. Ensure that each person worked the proper number of hours, and pay special attention to overtime, vacation days, and sick pay. Make sure that the pay rate for each of your employees is accurate. Track all the pay increases you gave to your employees due to a promotion, and make sure that the pay rate matches that increase.

This is also important if your employees work on a bonus or commission system. Every pay rate increase needs to have some type of documentation and paperwork to simplify your auditing. Whether you use a time clock system or some other type of system that tracks when your employees arrived at work and when they clocked out, compare the hours you paid your staff with the tracking system.

Focus on overtime pay and verify that the amount you paid in overtime matches the written records. Look for any discrepancies between what you paid and what you actually owed. Pay attention to special items such as paid vacation, and verify that employees that received vacation pay were eligible for it. Most small businesses use vendors and independent contractors. Review the payments you made to vendors and contractors, and determine whether those services were absolutely essential.

Make sure the total from your payroll reports, which includes withheld taxes, gross payroll expenses, and net check amount are in sync with general ledger records. If you divide your payroll into staff specializations such as managerial payroll and marketing payroll, make sure each payroll expense matches with each of these payroll categories. Compare the checks that cleared in your bank reconciliation documents with the information in your payroll report.

You may also discover that a check you wrote for a specific amount was cashed for a greater amount, which will require further investigation. When you run payroll, you have to factor business taxes such as social security, state and federal unemployment taxes, and healthcare taxes.

Sampson Quain is an experienced content writer with a wide range of expertise in small business, digital marketing, SEO marketing, SEM marketing, and social media outreach. He has written primarily for the EHow brand of Demand Studios as well as business strategy sites such as Digital Authority.

Conducting an Internal Payroll Audit. Share on Facebook. Confirm the Number of Employees Verify each person that worked for your company during the work time period that is listed on your payroll ledger. Confirm Pay Rates Make sure that the pay rate for each of your employees is accurate. Verify Payments to Vendors and Contractors Most small businesses use vendors and independent contractors.Substantive procedures are intended to create evidence that an auditor assembles to support the assertion that there are no material misstatements in regard to the completeness, validity, and accuracy of the financial records of an entity.

Thus, substantive procedures are performed by an auditor to detect whether there are any material misstatements in accounting transactions. Substantive procedures include the following general categories of activity:. Testing classes of transactions, account balancesand disclosures.

substantive audit procedures for payroll

Agreeing the financial statements and accompanying notes to the underlying accounting records. Examining material journal entries and other adjustments made during the preparation of the financial statements. At a general level, substantive procedures related to testing transactions can include the following:. Examining documentation indicating that a procedure was performed. Reperforming a procedure to ensure that the procedure functions as planned.

Bank confirmation. Accounts receivable confirmation. Inquire of management regarding the collectibility of customer accounts. Match customer orders to invoices billed. Observe a physical inventory count. Observe fixed assets. Match purchase orders and supplier invoices to fixed asset records. Confirm accounts payable. Confirm debt. Analytical analysis of assetsliabilitiesrevenueand expenses.

Thus, an auditor who is testing a validity assertion regarding a company's fixed assets could conduct a physical observation of the assets, and then test for record accuracy by evaluating whether there is an asset impairment. Substantive procedures are included in the audit plan around which an audit is structured.

Substantive procedures in Auditing

If the results of substantive procedures are not as expected, additional procedures may be added to the audit plan. Books Listed by Title.By Charles Hall Auditing. While payroll is often seen as a low-risk area, considerable losses can occur here. So, knowing how to audit payroll is important. Payroll exceeds fifty percent of total expenses in many governments, nonprofits, and small businesses. Therefore, it is often a significant transaction area.

To assist you in understanding how to audit payroll, let me provide you with an overview of a typical payroll process. First, understand that entities have payroll cycles e. Then, payments are made at the end of this period e. Also, understand that most organizations have salaried and hourly employees.

Salaried personnel are paid a standard amount each payroll, and hourly employees earn their wages based on time. Second, an authorized person e. Third, human resources assists the new-hire with the completion of payroll forms, including tax forms and elections to purchase additional benefits such as life insurance. Fourth, a payroll department employee enters the approved wage in the accounting system.

Fifth, employees clock in and out so that time can be recorded. Sixth, once the payroll period is complete, a person e. Seventh, a second person e. Eighth, the payroll department processes payments.

Direct deposit payments are made and everyone is happy. I believe—in general—completeness and cutoff for accrued payroll liabilities and occurrence for payroll expenses are the most important payroll assertions.

When a company accrues payroll liabilities at period-end, it is asserting that they are complete and that they are recorded in the right period. Additionally, the company is saying that recorded payroll expenses are legitimate. I do so with a payroll walkthrough. Perform a walkthrough of payroll to see if there are any control weaknesses.

Walk transactions from the beginning the hiring of an employee to the end a payroll payment and posting. And ask questions such as the following:. Moreover, as we ask these questions, we need to inspect documents e. If controls weaknesses exist, we create audit procedures to respond to them. For example, during the walkthrough, if we see that one person prints and signs checks, records payments, and reconciles the bank statement, then we will plan fraud-related substantive procedures.

When payroll fraud occurs, understatements or overstatements of payroll expense may exist. If a company desires to inflate its profit, it can—using bookkeeping tricks—understate its expenses. As reported costs go down, profits go up. On the other hand, overstatements of payroll can occur when theft is present.

For example, if a payroll accountant pays himself twice, payroll expenses are higher than they should be.

Designing audit procedures - some examples

Mistakes also lead to payroll misstatements. Payroll errors can occur when payroll personnel lack sufficient knowledge to carry out their duties. Additionally, misstatements occur when employees fail to perform internal control procedures such as reconciling bank statements. The directional risk for payroll is an understatement.

So, audit for completeness determining that all payroll is recorded. Nevertheless, when payroll theft occurs e. As you think about these risks, consider the control deficiencies that allow payroll misstatements.Bakslap (8) FANCY NICKERS placed last start at Muswellbrook and down in weight, well placed. ZIGAMORE will come to hand quickly and a winner when last second-up at Taree, could threaten. HIPPY HIGH HO faded to finish on the winners' heels last start at Port Macquarie and won once this prep at Port Macquarie two runs back, cannot be ruled out.

substantive audit procedures for payroll

BAKSLAP drops 1kg from last run and Robert Thompson a bonus, dangerous. Serious Dancer (6) 3. Komachi Force (9) ANDRIANA last start winner to break maiden at Muswellbrook and has had a flying start to their career, major contender. MARATHON in strong form with two wins from six attempts this campaign and has a lot of early speed, capable of getting into the money.

KOMACHI FORCE faded from front position to finish just off the winner last start at Grafton and carrying less weight, place hope. Sworn In (6) 5.

Yulong Baohu (9) 16. SWORN IN has two placings from seven runs this prep and returns to shorter trip, in with a chance. YULONG BAOHU came on to finish midfield last start at Port Macquarie and likely to get a nice run behind the speed, each-way claims.

GOLDEN WORDS in the money last start running third at Grafton and has six placings from 11 runs this prep, strong place chance. I Am Twisted (4) 1. Christmas Cheer (13) 2. Patriot (10) Nightmare race to analyse as very open.

I AM TWISTED a winner at first outing this prep and only just missed last start, finishing a neck back from the winner at Port Macquarie, commands respect.

CHRISTMAS CHEER ran two lengths back from the winner last start at Cessnock and should run fitter for past attempts, looks threatening. LONFINO has placed in two attempts this campaign and placed at long odds last start at Port Macquarie on a soft track, could threaten. PATRIOT winner at Geelong and placed once this campaign, still in this. Brave Master (4) 14. Mosh Vain (10) 7.

Goldylux (13) CACCINI placed when fresh and won't be far away in the run, the testing material. BRAVE MASTER has shown early speed in races to date, place hope. MOSH VAIN expected to settle on speed, quinella. GOLDYLUX has the speed to overcome a very wide draw and has three placings from four runs this prep, needs the breaks. Miss Polly Beat (1) 8. Monsoon Charlie (3) 5. Pay the Ones (6) Will be a close run race between the top picks. TRYING on a seven day back-up and chased well to fall just short last start at Sapphire Coast, should go well.

MISS POLLY BEAT 2 wins from nine attempts this campaign and drawn perfectly, right in this. MONSOON CHARLIE in the money last start running third at Wagga Wagga on a soft track and returns to shorter trip, in with a chance. PAY THE ONES surprised punters to win at long odds last start at Wagga Wagga and returns to shorter trip, could upset.

Paris Sizzler (4) 1. Kappy Cino (8) 8.

substantive audit procedures for payroll

Emerald Ice (7) PARIS SIZZLER a winner at first outing this prep and ran six lengths back from the winner last start at Goulburn, key chance.


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