Once the auditor has a solid understanding of the payroll cycle, the auditor can identify (a) significant accounts and (b) relevant assertions. An account is significant if there is a reasonable chance it could contain a material misstatement. Significant accounts for the payroll cycle include: • Cash • Labor expense (direct labor, indirect labor, sales commission expense, G&A expense) • Inventory • Cost of goods sold • Payroll-related liabilities The auditor should also identify the relevant assertions management is making about payroll transactions and significant accounts. An assertion is relevant if there is a reasonable chance it could contain a misstatement that leads to the financial statements being materially misstated. Assertions about account balances include existence, rights and obligations, completeness, valuation, and classification. Assertions about payroll transactions include occurrence, completeness, authorization, accuracy, cutoff, and classification. 0:00 Introduction 0:24 Significant accounts 1:01 Considerations for manufacturers 2:09 Stock-based compensation expense 2:45 Relevant …
