Audit of payroll and PPE-1 PDF

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Substantive procedures for payroll transactions Analytical Procedures –

Compare the total payroll expense to the prior year and investigate any significant differences.

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Review monthly payroll charges, compare this to the prior year and budgets and discuss with management any significant variances.

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Perform a proof in total of total wages and salaries, incorporating joiners and leavers and the pay increase. Compare this to the actual wages and salaries in the financial statements and investigate any significant differences.

Test of Details➔ 1. Cast a sample of payroll records to confirm completeness and accuracy of the payroll expense. 2. For a sample of employees, recalculate the gross and net pay and agree to the payroll records to verify accuracy. 3. For a sample of employees, recalculate statutory deductions to confirm whether correct deductions have been included within the payroll expense. 4. For a sample of employees, agree wages per hour (for factory workers) and salary (for fixed salary staff) in the payroll report to the personnel records. 5. For a sample of factory workers, agree hours worked in the payroll report to the clocking in cards. 6. For salaries, agree the total net pay per the payroll records to the bank transfer listing of payments and to the cashbook. 7. Trace the totals (total gross pay, total deductions, total net pay) to the general ledger to ensure they are posted to appropriate accounts to ensure correct classification.

Substantive Procedures – PPE (1)

Valuation of property, plant and equipment (PPE):

Cost –

For a sample of the new asset additions vouch the cost to a recent purchase invoice.

Depreciation – reasonable rates –

Review depreciation policies for reasonableness by comparison to: • • • •

prior year, industry practices, the entity’s replacement policy and the profits/losses arising on disposal of assets.

Depreciation - computation –

For a sample of assets recalculate the depreciation charge for the year and agree to the entity asset register.

Depreciation - Substantive analytical procedures – proof-in-total –

Perform a proof in total calculation of depreciation, considering the timing of additions and disposals and

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compare this expectation to the actual charge, and investigate any significant differences.

Revaluation –

Reliance on expert ➔ assess the reasonableness of the valuer: • • • •

experience, (how many years of relevant experience and how many similar properties have been valued) independence (not related to audit client and not dependent on audit client), methods and data used (based on market price and considered location and size of properties) and assumptions used (e.g. projected cash flow from rental income and rental growth rate; discount rates used in discount cash flow to present value).

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Agree the revalued amounts to a valuation report

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Recalculate the revaluation surplus and agree to the revaluation reserve.

Substantive Procedures – PPE (ii)

Rights and obligations of PPE:

Land and building –

Verify ownership of property via inspection of title deeds and land registration documents.

Vehicles –

Inspect vehicle registration documents to confirm ownership of motor vehicles.

Other assets –

For a sample of additions agree to purchase invoices to verify invoice relates to the entity (i.e. the assets were bought the company).

(iii)

Completeness of PPE:

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Select a sample of assets physically present at the entity’s premises and inspect the asset register to ensure that these are included.

(iv)

Existence of PPE: Select a sample of assets in the asset register and physically inspect the assets to ensure they exist....