O - CHELTUIELI OPERATIONALE - SALARII / Operational expenses - Payroll

Done/ No/

paper ref.
Not appl.
Working
Task description

1. Perform substantive analytical procedures (C, A, O, CO, V)

Perform, to an extent to achieve the desired degree of assurance (depending on the natural limitations of analytical procedures
and the rigor with which we apply the test), substantive analytical procedures: (a) develop an expectation, based on appropriate
data (assess the reliability of data, considering the extent of comfort from controls); (b) determine the variation amount or %
(threshold) to be used in the investigation of differences from expectations; (c) compute the differences between recorded
amounts and the expectations; and (d) investigate variations from expectations by seeking relevant explanations from
management or appropriate corroborating evidence.
Examples of analytical procedures: perform a fluctuation analysis based on schedules categorized by subsidiary, product line,
division, etc. and/or reported weekly, monthly or quarterly; scrutinizing journal entries for unusual transactions; comparing payroll
expense by category (i.e. direct, indirect, sales, commission) to total sales and units produced; comparing the number of
employees on a monthly, quarterly, annual basis to payroll expense; comparing prior year total payroll expense adjusted for
known increases in pay rates and changes in personnel numbers and any other variables which might be relevant (e.g. overtime
paid) to the total payroll expense amount recorded in the income statement; where an independent source can be identified for
average annual pay by each pay classification and number of employees per pay classification, multiply the average annual pay
by the number of employees for each classification and compare amounts to payroll recorded in the income statement account
for reasonableness.
2. Verify validity of payroll costs (A, E)
Select a number of months from the year (usually three or four) for which obtain the payroll calculation. Check that the monthly
payroll was properly approved (by person preparing it and by person authorizing it, usually the general manager or
administrator). Verify that the total for gross wages and company contributions are correctly recorded in the general ledger.
Agree the total of net wages to the bank transfer amount or payroll disbursement. Test the mathematical accuracy of the payroll
(check that the totals add up). From each payroll select employees to obtain the desired level of assurance (usually 2-3 from
each selected payroll) and perform the following: (a) confirm that entries are in respect of a genuine employee by reference to
personnel records; for new employees inspect evidence of their hiring, job description and pay rates are properly authorized
(labor contract). If deemed appropriate, physically verify existence by locating employee at the client’s place of business; check
the calculation of gross pay by reference to authorized records or pay rates (e.g. labor contract, addenda) and authorized time
record (approved timesheet, approved overtime); check the calculation of contributions and verify that they are in accordance
with regulations; check that voluntary deductions, if any, are authorized by the employee; inspect documentation supporting
individual payment to employee.

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A = accuracy / C= completeness / E = existence / V= valuation/ CO = cut off / PD = presentation & disclosure / RO = rights & obligations