- Describe the internal control procedures (strengths) related to payroll processing.For each strength, list a test of controls you could perform to test the effectiveness of the control.
Assignment # 9 Payroll Processing and Accrued Liabilities The information that follows is grouped into two categories : 1 ) Internal Control and 2 ) Substantive Audit Procedures . This information is to be used to complete the exercises for this assignment . Do the optional exercises only if told to do so by your instructor .* Relevant Information Internal Control Review the internal control questionnaire completed for you by Jasper Parsons . As you read through the questionnaire , keep in mind the six categories of control procedures : ( 1 ) segregation of duties , ( 2 ) access , ( 3 ) authorization , ( 4 ) input controls , ( 5 ) processing controls , and ( 6 ) output controls . Then try to determine the possible errors or irregularities that could occur . Note that the most important controls over payroll are an adequate segregation of functions and proper supervision . Your firm has found that the personnel involved in the payroll area are generally competent .* Possible errors or irregularities in the payroll area include :" Wages , salaries , and related amounts may have been debited to the wrong account . Payroll may have been incorrectly calculated .* Hours may have been recorded incorrectly and payments made for work not performed . 4 . Employees may have been underpaid and payroll therefore understated .* 5 . Employees may have been overpaid ( e .8. , incorrect wage rate ) and payroll therefore overstated 6 . Fictitious employees may have been included on the payroll . Internal Control Questionnaire - - Payroll System \\1 - 1 KSA 3 , 157 } testhe L - ( Yes / NO ~ ~ Weakness ( 7- 1) TOC ) Comments Timekeeping a and personnel functions 1 . Are the personnel , timekeeping , payroll , and are performed by disbursement functions independent ? Louise Mc Whorter .` 2 . Does the person who handles the personnel records notify the payroll clerk of personnel changes? 3 . Are checks prepared by personnel who do not prepare payroll or have access to the payroll records ?" Controller signs checks , also has Are the checks signed by personnel who do not have access to payroll access to the payroll records ? * records ._ 5 . Is a timeclock employed for hourly employees ? Premember , of Strength 2156 . Are time cards and time reports approved by supervisors ?" 7 . Are all hires and terminations approved by a responsible official ?* - President initials 8 . Are all wage rates approved by a responsible official ?" President initials* 9 . Are all employees paid by checks that are prenumbered ?` 10. Is the payroll recalculated for mechanical accuracy as to hours worked , wage rates , and deductions ? Payroll software is used . 1 1 . Does a responsible official approve the payroll prior to payment ? I measurer initials .'1:1. 19 4 2. 1 12 . Are paychecks distributed by someone who has no other payroll responsibilities ? 13 . Is a separate payroll bank account employed ? Reconciliation is performed by 14 . Is this account reconciled by someone who does not treasurer , who also have payroll responsibilities ?* signs checks . Substantive Audit Procedures - - Accrued Liabilities At December 31 , 2003 , Apple Blossom Cologne Company had several types of accrued liabilities . Each of them is a different account and each is treated separately below . Study the 2002 working papers before you* begin your audit work ." Accrued Payrolls and Payroll Taxes An analysis of the Accrued Payroll Taxes accounts has been prepared by Donald Mckenna . This schedule is referenced HI - I in the working papers . Salaried employees are paid on the first day of every month for the previous month's work . Since January I is a holiday , payday for salaried employees was Friday , January 2 . Hourly employees are paid each week on Friday for the previous week's work . The hourly employees ' time is spread evenly over a 5-day week , Monday through Friday . Gross wages and salaries for 2003 were $1 , 618 , 643 . The company had between 35 and 41 employees throughout the first three quarters of the year . From the beginning of the fourth quarter through the end of the year , Apple Blossom had 38 employees . During the year there was one employee earning in excess of $76 , 200 annually . The total excess , which is not subject to F .L. C. A. taxes , amounted to $1 29 , 500 . All 4 1 employees who worked for Apple Blossom during 2003 exceeded the $7,000 maximum salary base for unemployment taxes . 216
