PAYROLL AND PERSONNEL CYCLE

PRESENTED BY :

NAME MATRIC NO.

NADHIRAH BINTI ISMAIL 2018801824

NURUL NADIA BINTI MUHAMAD 2018226198

NURUL ZAHIRAH BT AZEMI 2018802044

NOR SHAHIRAH BINTI NUZI 2018249288

SITI NUR AYUNIE BT ZAWAWI 2018659888

SITI SALIHAH BT AHMAD NAZLI 2018660028

 ACCOUNTS AND TRANSACTIONS IN THE
PAYROLL AND PERSONNEL CYCLE

Accounts in the payrolls and personnel cycle

- Evaluate whether the

OVERALL OBJECTIVE account balances affected
IN THE AUDIT OF THE by the cycle are fairy
PAYROLL AND stated in accordance with
PERSONNEL CYCLE : applicable accounting
standards.

y
 There is only one class of
transactions for payroll

Differences
characteristic
between the payroll
and personnel cycle Transactions are
Internal controls over and other personnel generally far more
payroll are effective for
cycle significant than
almost company
related balance sheet
account
 Business Functions in circle and related
documents and records

Preparation of Payroll Tax

Human Resources & Timekeeping and Return and Payment of
Payment of Payroll
Employment Payroll Preparation
Taxes
• Human resource • Time record • Payroll direct • EA Form
records • Job time ticket deposit or check • Payroll tax return
• Deduction • Payroll transaction • Payroll bank
authorization form file account
• Rate authorization • Payroll journal or reconciliation
form listing
• Payroll master file
Internal Control
Objective
 Internal control
Class of transaction and -proper segregation of duties between
relevant account processing and personnel
-Payroll journal function,adequate personnel files are
-General ledger maintained and work/time record are
approve by person appropriate level

Occurrence
-To record payroll payments
are work actually performed
Audit Evidence
by existing employees Audit Procedure -Payroll listing
-Test of control -Bank account
-Substantive control -Financial statement

Possible Misstatement
-misstatement of direct labor and
inventory
-misstatement of commission
expenses and payroll tax
 Internal Control
Class of transaction and -Procedure require recording
relevant account transaction as soon as
-Bank account possible after the payroll is
-Payroll master file paid. Dates are internally
verified

Timing
-Payroll transaction are recorded
on the correct dates Audit Evidence
Audit Procedure -payroll journal and
-common test of control listing.
-payroll master file

Possible Misstatement
-Pay checks were not printed
on time
 Class of Transaction and Internal Control
Relevant Account - Internal verification to ensure
-accrued wages that the calculation of wages
-salaries and salaries in agreement with
-payment for salaries record of word performed and
Direct labour term of employment
Accuracy
- To check whether recorded
payroll transaction are for the
amount of time sincerely labored
and the proper pay fees, Audit evidence
Audit Procedure
withholding is correctly -payroll direct deposit or
-Test of control
calculated check
-substantive controls
-payroll bank account
reconciliation

Possible Misstatement
-Misstatement of payroll
expense account
 Class of Transaction and
Internal Control
Relevant Account
-Proper internal verification and
-cash in bank
approval for accounts charged to
-accrued payroll
payroll
-salaries and commission

Classification
-payroll transaction are
correctly classified
Audit Procedure Audit evidence
-Test of control -Payroll master file
-Substantive controls -Payroll transaction file

Possible Misstatement
-Misstatement of direct labour
and inventory
-Misstatement of payroll
expense account
 Class of Transaction and Internal Control
Relevant Account -Payroll master file contents are
-Sales internally verified
-cash receipt -payroll master file totals are
-Acquisitions of goods and compared with general ledger
services totals

Posting and summarization Audit evidence

-Payroll transaction are correctly Audit Procedure -Customer master file
included in the payroll master - common test of control -Account receivable master
file and are correctly summarized - Substantive controls file
-Sales journal
-General ledge

Possible Misstatement
-Sales transaction recorded in
the wrong customer’s record
or at wrong amount in the
master file or sum of all sales
transaction is inaccurate
 Internal Control
Class of Transaction and
-Payroll checks are
Relevant Account
prenumbered and accounted
-Salaries and wages cost in
for
respect of all personnel have
-Bank account are
been fully accounted
independently reconciled

Completeness
-Cash account shows all
transactions on close of the
year Audit evidence
Audit Procedure -Bank statement
-common test of control -Bank account
-Financial Statement

Possible Misstatement
-Unrecorded liabilities, expense fraud
and duplicate payment could happen
anytime if there are no proper and
strong control procedures in place for
expense and account payable.
 METHODOLOGY FOR DESIGNING TEST OF DETAILS
BALANCES

PHASE I
• Identify client business risk affecting payroll
• Set tolerable misstatement and assess inherent risk
• Assess control risk and perform related test

PHASE • Design and perform test of control and substantive test of transactions for the payroll and

II
personnel cycle

PHASE • Perform analytical procedures

III
• Design and perform tests of details of balances for liability and expense account
Case study based on this topic :
 ANSWERS:
1. All employee was expected to hold his/her own punch card and submits it to
the accounts clerk at the end of each month
2. Verbally authorize any of the employees to work extra hours whenever
necessary (improper authorization)
3. The cashier and the account clerk take turn to calculate and process the
monthly salary. There was no segregation of duties between the cashier and
account clerk. Based on the punch card, any one of them would prepare a
payroll master schedule.
4. No other record is maintained
5. Either the cashier or the account clerk would prepare a cheque
6. When the cheques of salaries are then distributed to the employees by the
cashier