Question

20-20 (Objectives 20-2, 20-3) Following are some of the tests of controls and substantive tests of transactions procedures often performed in the payroll and personnel cycle.

• 1. Reconcile the monthly payroll total for direct manufacturing labor with the labor cost distribution.
• 2. Examine the time card for the approval of a foreman.
• 3. Recompute hours on the time card and compare the total with the total hours for which the employee has been paid.
• 4. Perform a surprise payroll payoff and observe employees picking up and signing for their checks.
• 5. Compare the employee name, date, check number, and amounts on cancelled checks with the payroll journal.
• 6. Trace the hours from the employee time cards to job tickets to make sure that the total reconciles, and trace each job ticket to the job-cost record.
• 7. Use audit software to account for the sequence of payroll checks in the payroll journal.

Required

• a. Identify whether each of the procedures is primarily a test of control or a substantive test of transactions.
• b. Identify the transaction-related audit objective(s) of each of the procedures.

Answer 1

Page No: 1 Date : Solution: following are some of the and substantive tests of procedures often performed and personnel cycle : tests of controls transactions in the payroll direct Reconsile the manufacturing distribution monthly labor payroll total for with the labor cost Sol (a) Substantive tests of transactions. (0) Accuracy Explanation : To accertain the monthly payroll costs have been appropriately allocated. time card for the approval Examine the of a foreman sol a Test of control. (b) occurrence Explanation : To ascertain the documented transactions of payroll are for Job actually performed by current employees.

- 3. Recompute compare for which hours on the the total with the employee time card the total has been and hours paid. sol @ Substantive test of transactions - (6 accuracy. Explanation ? To ascertain ou paid for the work worked. that employees hours they 4. perform observe for their the surprise payroll employees picking up chectes. pay off and and signing Sol (a) Substantive test of transactions. (6) Accuracy and timing. Explanation : To ascertain that authorized person is paid and, time and amount is correck

Compare the number, and checks with employee name, amounts on the payroll date, check- cancelled Journal 4 a substantive test of Transactions (6 classification and accuracy. Euplanation : To Job is and properly ascertain that appropriali charged for labor amount is documented for each job. G. Trace the hours from the employee to job ticleets to make sure the total reconciles, and trace ficket to the Job cost record. time cards that each Job sol (a) Test of control. completeness Explanation : all cheeks To ascertain payroll are that noted of

7. to use audit Software Sequence of payroll payroll Journal. account checks for the the in Sol: (a) substantive test of transactions (6) Accuracy and completeness Explanation : To ascertain that terminated employees (if any) were not paid for subsequent work not peeformed along with any obligations left for a Severance pay. Notes: a Indicates that identifying the each transaction requires audit procedures whether it is primarily a test of controls com a substantive test of transactione. (6) Indicates - related audit the procederes. that identifying objectives of the transactions each of