Timely Payment of the Payroll Taxes

Withheld and Other Withholdings

It is desirable to test whether the client has
fulfilled its legal obligation in submitting
payments for all payroll withholdings as a part
of the payroll tests even though the payments
are usually made from general cash
disbursements.
 Relationship Between Payroll and
Inventory Valuation
When payroll is a significant portion of
inventory, which is common for manufacturing
and construction companies, the improper
account classification of payroll can materially
affect asset valuation for accounts such as
work in process, finished goods, or
construction in process.
 Tests for Nonexistent Employees
Usually, the person committing this type of
embezzlement is a payroll clerk, foreman,
fellow employee, or perhaps the former
employee. Under some systems, a foreman
can clock in daily for an employee and
approve the time card at the end of the time
period.
 Tests for Fraudulent Hours
Fraudulent hours occur when an employee
reports more time than was actually worked.
Because of the lack of available evidence, it is
usually difficult for an auditor to discover
fraudulent hours.
 Methodology for Designing Tests of
Details of Balances
Identify Client Business Risks Affecting Payroll
(Phase I)
Set Tolerable Misstatement and Assess
Inherent Risk (Phase I)
Assess Control Risk and Perform Related Tests
(Phases I and II)
Perform Analytical Procedures (Phase
III)