After the auditor has learned about the design of a company’s internal controls for its payroll cycle, the auditor needs to test the operating effectiveness of the internal controls for payroll.
The auditor must determine whether each internal control:
• Is operating as designed
• Is being performed by an employee who has both the ability and authorization to perform the control
There are several ways for an auditor to test internal controls. These include:
• Inquiry
• Observing the client applying the control
• Inspecting the client’s documents
• Reperforming the control
• Walkthrough (this would include several of the steps listed above)
When testing controls, the auditor should perform dual-direction tests (aka dual-purpose procedures). For example, to ensure that the client is paying actual employees for actual time worked, the auditor should both:
• Test the existence assertion (did all recorded liabilities occur?)
by vouching a sample of paychecks back to the time sheets
• Test the completeness assertion (have all liabilities been recorded?)
by tracing a sample of time sheets to the related entries in the payroll journal
0:00 Introduction
0:26 Ways to test controls
0:50 Dual-direction tests
2:29 Occurrence
5:41 Completeness
6:08 Authorization
6:46 Accuracy
7:42 Cutoff
7:50 Classification
8:38 Setting the achieved level of control risk
—
Edspira is the creation of Michael McLaughlin, an award-winning professor who went from teenage homelessness to a PhD. Edspira’s mission is to make a high-quality business education freely available to the world.
—
SUBSCRIBE FOR A FREE 53-PAGE GUIDE TO THE FINANCIAL STATEMENTS, PLUS:
• A 23-PAGE GUIDE TO MANAGERIAL ACCOUNTING
• A 44-PAGE GUIDE TO U.S. TAXATION
• A 75-PAGE GUIDE TO FINANCIAL STATEMENT ANALYSIS
• MANY MORE FREE PDF GUIDES AND SPREADSHEETS
* http://eepurl.com/dIaa5z
—
SUPPORT EDSPIRA ON PATREON
*https://www.patreon.com/prof_mclaughlin
—
GET CERTIFIED IN FINANCIAL STATEMENT ANALYSIS, IFRS 16, AND ASSET-LIABILITY MANAGEMENT
* https://edspira.thinkific.com
—
LISTEN TO THE SCHEME PODCAST
* Apple Podcasts: https://podcasts.apple.com/us/podcast/scheme/id1522352725
* Spotify: https://open.spotify.com/show/4WaNTqVFxISHlgcSWNT1kc
* Website: https://www.edspira.com/podcast-2/
—
GET TAX TIPS ON TIKTOK
* https://www.tiktok.com/@prof_mclaughlin
—
ACCESS INDEX OF VIDEOS
* https://www.edspira.com/index
—
CONNECT WITH EDSPIRA
* Facebook: https://www.facebook.com/Edspira
* Instagram: https://www.instagram.com/edspiradotcom
* LinkedIn: https://www.linkedin.com/company/edspira
—
CONNECT WITH MICHAEL
* Twitter: https://www.twitter.com/Prof_McLaughlin
* LinkedIn: https://www.linkedin.com/in/prof-michael-mclaughlin
—
ABOUT EDSPIRA AND ITS CREATOR
* https://www.edspira.com/about/
* https://michaelmclaughlin.com