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Accounting

Chapter Three outlines the importance of payroll audits for ensuring accuracy and compliance in compensation processes. It details the payroll cycle, records to review, risk analysis, internal controls, control testing, audit techniques, and procedures for fraud prevention. The chapter emphasizes the need for thorough documentation and validation to maintain integrity in payroll operations.

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27 views3 pages

Accounting

Chapter Three outlines the importance of payroll audits for ensuring accuracy and compliance in compensation processes. It details the payroll cycle, records to review, risk analysis, internal controls, control testing, audit techniques, and procedures for fraud prevention. The chapter emphasizes the need for thorough documentation and validation to maintain integrity in payroll operations.

Uploaded by

endriasmeskele2015
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Note on Chapter Three: Conducting Payroll Audits

Objective
Payroll audits ensure the accuracy, compliance, and integrity of compensation processes,
focusing on payments and deductions. Given the high cost of labor, audits are essential for fraud
prevention and regulatory alignment.

Payroll Cycle Description


The payroll cycle encompasses all stages of employee compensation, from recruitment to
financial reporting. This system governs wage calculations, processing, and documentation.
Audits evaluate compliance with internal and external standards.

Records to Review
Auditors must examine:

 Personnel Documentation: Employee details, salary structures, and contracts.

 Deduction Authorizations: Approvals for taxes, benefits, and other withholdings.

 Time and Attendance Data: Records of hours worked for accurate payroll.

 Disbursement Evidence: Payment records, including checks and transfers.

 Payroll Summaries: Reports detailing calculations and net payments.

Risk Analysis
Auditors assess risks related to:

 Payment Accuracy: Ensuring completeness, authenticity, and correct timing.

 Payroll Liabilities: Verifying proper valuation and completeness.

 Financial Disclosures: Confirming accurate reporting of payroll expenses.

Internal Controls
Organizations must establish:

 Secure record management.


 Independent time log verification.

 Segregation of payroll responsibilities.

 Timely deduction remittances.

 Contract-aligned payments.

Control Testing
Auditors test controls by:

 Reviewing approval protocols.

 Recalculating deductions and payments.

 Confirming duty segregation.

Audit Techniques
Apply the following:

 Trend Analysis: Compare historical and current data for anomalies.

 Transaction Validation:

 Verify payment legitimacy.

 Reconcile with bank records.

 Confirm payment timeliness.

 Fraud Detection:

 Scrutinize employee records.

 Investigate unclaimed wages.

Expense Verification
Reconcile payroll liabilities to ensure compliance with accounting standards.
Audit Procedures
To achieve fraud prevention and compliance:

 Review documentation thoroughly.

 Validate hours worked.

 Reconcile payroll distributions systematically.

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