Chapter 17
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Learning Objective 1 Identify the accounts and transactions in the payroll and personnel cycle.
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The overall objective in the audit of the payroll and personnel cycle is to evaluate whether the account balances affected by the cycle are fairly stated in accordance with generally accepted accounting principles.
2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley
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Direct Labor
Separate operating accounts for payroll also normally include officers salaries and bonuses, office salaries, sales salaries and commissions, and indirect manufacturing labor.
2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley
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These accounts have the same relationship to accrued wages and withheld taxes and other deductions that is shown for direct labor.
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Learning Objective 2 Describe the business functions and the related documents and records in the payroll and personnel cycle.
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The payroll and personnel cycle begins with the hiring of personnel and ends with payment to the employees for the services performed and to the government and other institutions for the withheld and accrued payroll taxes and benefits.
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Payroll Journal
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Payment of Payroll
Payroll check Payroll bank account reconciliation
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Learning Objective 3 Understand internal control and design and perform tests of controls and substantive tests of transactions for the payroll and personnel cycle.
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Adequate separation of duties Proper authorization Adequate documents and records Physical control over assets and records Independent checks on performance
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Payment of the payroll taxes withheld and other withholdings on a timely basis
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Design tests of details of payroll accounts balances to satisfy balance-related audit objectives.
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Learning Objective 4 Design and perform analytical procedures for the payroll and personnel cycle.
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Possible Misstatement
Misstatement of payroll expense accounts
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Possible Misstatement
Misstatement of payroll tax expense and payroll tax liability Misstatement of accrued payroll taxes and payroll tax expense
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Learning Objective 5 Design and perform tests of details of balances for accounts in the payroll and personnel cycles.
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Accrued commissions
Accrued bonuses Accrued vacation pay, sick pay, or other benefits
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Payroll Liabilities
Ending balance
Audited by AP and TDP
Ending balance
Audited by AP and TDP
End of Chapter 17
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