PAYROLL AND PERSONNEL CYCLE

Payroll and Personnel Cycle

Payroll and Personnel Cycle

Introduction

The first objective in the payroll and personnel cycle is to confirm existence meaning that it should be confirmed that the payments were made to actual employees. In order to accomplish this, a review of any unusual amounts in the payroll journal and earnings records should be completed. Details of cancelled checks should be confirmed to match the payroll journals. Additionally cancelled checks should be reviewed to determine if they have proper endorsements and are consistent with personnel records (Arens et. al., 2006).

The next objective that should be tested is completeness. The first test that should be completed is that payroll disbursements in the journal should equal those on the payroll bank statements. Finally, a reconciliation of bank statements should be completed (Arens et. al., 2006).

The next objective that should be tested is accuracy. The first step is that hours, gross pay and net pay should be recomputed using the time cards to ensure the correct amounts were paid. Pay records should be compared to any union contracts or other contracts. Next pay withholdings should be confirmed to make sure they adhere to the tables (Arens et. al., 2006).

The remaining objectives to be tested are confirming that transactions are properly classified, that the correct timing is reflected and that payroll transactions are properly reflected in the payroll master files. To confirm classification, the auditor should review transactions to ensure they are consistently reflected to the appropriate accounts in the chart of accounts. Transactions should be reviewed to determine if the expenses are reflected in the appropriate periods by comparing the dates recorded on the checks with the payroll journal (Arens et. al., 2006).

Summary

Substantive Tests of Transactions

Substantive tests of transactions have similarities and differences in the sales and collection cycle, payroll and personnel cycle and acquisition and payment cycle. In each cycle, transaction-related audit objectives should be identified and substantive tests should be designed to determine if the objective is met. Tests completed before the balance sheet date must follow the procedures set forth by the Public Company Accounting Oversight Board in AU Section 313. Below is a listing of the substantive tests for each cycle.

Sales and Collection Cycle

Under the sales and collection cycle, sales and cash receipts or collections are distinctive pieces requiring separate tests. The first key audit objective under sales is to determine whether or not recorded sales are related to shipments that were actually made to customers. As noted in the initial testing, there are areas of concern surrounding invoices that should be explored further (Louwers & Reynolds, 2006). In order to test this, the auditor should perform a test to account for a sequence of invoices. The next test to confirm recorded sales is a review of the journals for unusual transactions. Finally, the auditor should confirm existence of appropriate sales documentation such as sales orders, bills of lading and other documentation (Arens, Elder & Beasley, 2006).

The next objective that should be confirmed is completeness meaning that ...