12-3

1. Payroll Register
A payroll register is a detailed document that summarizes information about employee compensation over
a specific time period, usually a pay period. It includes information like employee names, hours worked,
wages earned, deductions, and net pay. This document assists employers in tracking and managing
payroll expenses, as well as ensuring that employees receive accurate payments.
2. Payroll Master File
The payroll master file is a comprehensive database or electronic record that includes detailed
information about each employee in an organization. Personal information (name, address, social security
number) is typically included, as well as employment information (job title, department, hire date),
compensation details (salary, hourly rate), tax withholding information, and other relevant data. The
payroll master file is a central repository for all employee-related payroll information and is used to
ensure that payroll is processed accurately and efficiently.
3. Payroll Master File Changes Report
This report is a document that summarizes any changes or updates made to the payroll master file within
a specific timeframe. It includes information about new hires, terminations, promotions, salary
adjustments, tax withholding changes, and any other changes to employee information. The payroll
master file changes report promotes data accuracy and integrity by keeping track of all changes made to
employee payroll information over time.

12-5
Here are some important segregations of duties in the HR management process:
Hiring and Personnel Activities: The responsibility for approving new hires and changes in employment
status should be separate from that of processing payroll.
Payroll Processing: Individuals in charge of entering employee hours, calculating wages, and disbursing
payments should be separate from those who have access to change employee records or approve payroll
transactions.
Benefit Management: Payroll transactions shouldn’t be approved or modified by those in charge of
managing employee benefits, like health insurance or retirement plans.
Maintenance of Employee Records: It is not appropriate for the staff members who oversee employee
records—which include payroll and personal data—to also approve alterations to those records.
Pay and Performance Review: Payroll processing and employee record-altering personnel should be
kept apart from the people who conduct performance reviews and decide on bonus or salary adjustments.

If these responsibilities are not properly divided, several mistakes or fraudulent actions may take place.
Payroll Theft: If there isn't enough separation of roles, people who have access to employee records
could be able to tamper with payroll information, which could result in false payroll additions,
unapproved pay raises, or inflated hours worked.
Absentee Workers: When duties are not properly segregated, it can result in the addition of imaginary
workers to the payroll and payments being made to people who are not really employed by the company.
This is known as the "ghost employee" problem.
Unauthorized Disclosure of Private Data: The possibility of illegal access to private employee data,
including social security numbers, is increased when there is a lack of separation of duties. This could
result in identity theft or other privacy violations.
Errors in the Administration of Benefits: Inadequate segregation can result in mistakes in benefit
administration, such as making the wrong deductions or forgetting to sign up eligible workers for benefit
plans, which can aggravate workers and put the company in legal hot water.
Conflicts of Interest: The integrity and fairness of HR procedures may be jeopardized by conflicts of
interest resulting from inadequate separation of duties, wherein those in charge of approving employment
decisions also have a personal stake in the result.

12-11
To provide audit evidence pertaining to payroll expense accounts and payroll-related liabilities, two
substantive analytical procedures that are applicable are.
Trend Evaluation:
To find any notable variations or anomalies, trend analysis compares the payroll liabilities and expenses
of the current period to those of earlier periods. To evaluate consistency and reasonableness, auditors can
examine trends in payroll liabilities and expenses over a number of time periods. Notable departures from
past trends could point to mistakes, anomalies, or modifications in company procedures that need more
research.
Ratio Interpretation:
The process of ratio analysis entails computing and evaluating important financial ratios pertaining to
liabilities and payroll costs. Auditors might compute ratios like payroll-related liabilities as a percentage
of total assets or equity, payroll expense as a percentage of total revenue, or payroll expense per
employee. These ratios shed light on the effectiveness of the labor cost structure of the business, the
sufficiency of provisions made for liabilities related to payroll, and the efficiency of payroll management.
Considerable departures from historical averages or industry benchmarks could point to potential
problems that need closer examination by an auditor.
Auditors can obtain important audit evidence about the completeness, accuracy, and reasonableness of
payroll expenses and liabilities by carrying out substantive analytical procedures like trend analysis and
ratio analysis. This helps to maintain the integrity of the financial statements.
12-27
a. To verify the information in the payroll input form, James should perform the following
procedures:
Examine Data Accuracy: James needs to confirm that all of the information provided on the payroll
input form is true and correct. This involves making certain that all pertinent information is accurately
recorded, including employee names, social security numbers, hourly rates, regular and overtime hours
worked, and any unique deductions.
Compare to Source Documents: To verify the accuracy of the data entered, James should compare the
information on the payroll input form with any supporting source documents, such as timecards or
attendance records.
Verify New Employee Information: James should check supporting documents, such as employment
contracts or personnel files, to confirm the accuracy of any new employees' personal and payroll data that
are listed on the payroll input form.
Verify Authorization: Before sending the payroll input form to the service center for processing, James
should make sure that it has been duly authorized and approved by Talbert Corporation authorized
personnel.
b. To examine the November payroll register, James should follow these procedures:
Examine Accuracy of Payroll Register: James should check the accuracy of the payroll register first to
make sure that all employee payroll data is appropriately entered. The names, social security numbers,
hourly rates, regular and overtime hours worked, gross wages, and any deductions or withholdings of the
employees must all be verified.
Trace to Payroll Input Form: To verify that the data was correctly transferred from the input form to the
payroll register, James should trace the payroll information in the register back to the payroll input form.
Verify Calculations: James should run some sample calculations to make sure the amounts listed in the
payroll register for gross wages, deductions, and net pay are appropriately computed based on the data
supplied.
Examine Authorization: Before payroll checks are sent to employees, James should make sure the
payroll register has been duly authorized and approved by Talbert Corporation authorized personnel.

Review Controls: James needs to evaluate the internal controls pertaining to the payroll processing
function to make sure that proper authorization protocols, review processes, and work separation are in
place to reduce the possibility of fraud or errors.
13-3
Examine Authorization: Before payroll checks are sent to employees, James should confirm that the
payroll register has been duly authorized and approved by Talbert Corporation authorized personnel. This
guarantees that only valid payroll transactions are handled and paid out.
Review Controls: James must assess how well the internal controls pertaining to the payroll processing
function are working. This involves determining whether the right authorization processes—such as
written approval processes for payroll transactions—are in place. James should also make sure that
distinct people oversee initiating, approving, processing, and reviewing payroll transactions by looking
over the division of labor within the payroll process. It's also important to have adequate review
procedures in place to identify and stop fraud or mistakes. James can evaluate the accuracy of financial
reporting related to payroll as well as the dependability and integrity of the payroll process by analyzing
these controls.
13-11
The auditor should perform the following procedures:
Organizing and Getting Ready: To learn how inventory is counted, valued, and recorded, review the
inventory policies and procedures of the client. Find out about the internal inventory controls that the
client has in place and evaluate the possibility of material misstatement. Create a plan for the inventory
count, including the date, the extent, and the location of the count.
Observation and Engagement: Participate in the inventory count process in person by sending a
representative auditor or by being present during the count. Watch the staff members of the client perform
the count to make sure they adhere to the correct protocols and directives. Check to make sure inventory
counts are accurate and compliant with the policies and procedures of the client.
Carry out test counts: The accuracy of the client's count can be confirmed by selecting a sample of
inventory items and independently counting them. To find any inconsistencies or mistakes, compare the
counts provided by the auditor and the client. Examine any notable discrepancies in the counts provided
by the auditor and the client to identify the reason and evaluate the effects on inventory valuation.
Examine the inventory documentation: Examine any labels, tags, or other records used for inventory
tracking and identification. Make sure the paperwork accurately reflects the actual inventory count and
that the inventory items are appropriately labeled and tagged.
Verify the Ownership and Existence: Verify inventory by physically examining items and confirming
that they are in the location that the client has specified. Verify that the items in the inventory belong to
the client and are not consigned or owned by other parties to establish ownership.
Adhere to Cut-Off Protocols: Make sure that no inventory transactions are recorded before or after the
count date, and that inventory counts include all items in stock on that date. To avoid inaccuracies in
inventory balances, confirm that the client's cut-off procedures for documenting inventory transactions are
adhered to precisely.
Record your observations and conclusions: Record the auditor's observations, together with any
inconsistencies or problems found during the inventory count. To back up the auditor's findings and offer
proof of the steps taken during the inventory count, keep thorough working documents.

13-Last Question

Company Existence Risk Completeness Ownership Valuation Risk Presentation

Risk Risk Risk

Retailer of Damaged or Because overvaluing incorrectly

Furniture outdated perishable goods outdated or classifying
inventory that cause inventory slowly moving damaged
is listed as levels to be inventory goods as
existing underestimated tradable
Jewelry Unrecorded Stock that is overestimation
Store shrinkage of included but is because of
inventory not owned by market
because of loss the company volatility
or theft

Food Store products that Inventory

are spoiled or obsolescence
past their because of
expiration date inadequate
inventory
control

Car Inventory Owned Overvaluing in

Dealership includes inventory the absence of
automobiles includes depreciation or
that are in route consigned aging
or being vehicles. adjustments
demonstrated.

Retailer of Not keeping Consignment Consignment

Fashion track of inventory inventory was
Clothes consigned overvaluation incorrectly
inventory classified as
owned.