Beruflich Dokumente
Kultur Dokumente
Activity#1: "For those paid on an hourly basis, many companies use a time card which is used to
record the hours worked. The time card also includes the total hours worked for a pay period."
Identification of Risk of Material Misstatement (ROMM or “What Could Go Wrong?”):
Some employees may manipulate their time-ins and time-outs, resulting to number of hours
worked being misstated and consequently, payroll amounts being inaccurately computed.
Control Activity that addresses ROMM: (The control that addresses ROMM is the control to
be relied upon by the auditor)
“Payroll processing can be made more efficient by collecting employee time and attendance data
electronically instead of on paper documents. Those data are then automatically fed to the payroll
processing system. Also, electronic time clocks can transmit time and attendance data directly to
the payroll processing system.”
Operating Effectiveness:
1. Conduct a walkthrough to test the control's operating effectiveness by performing the following:
a. Reperform how an employee inputs an information into the system and trace the whole
process. Note any significant deficiencies in the system.
b. Observe how employees or personnel perform the processes of the system. Consider the
competence of personnel.
c. In case paper trails are generated, match supporting documents from sample transactions
in terms of time and signatories.
2. Determine if identified controls are operating effectively.
3. Evaluate the results and conclude.
Activity#2: Once payslips have been prepared, the payroll register is sent to the accounts payable
department for review and approval. A disbursement voucher is then prepared to authorize the
transfer of funds from the company’s general checking account to its payroll bank account. The
disbursement voucher and payroll register are then sent to the cashier.
Control Activity that addresses ROMM: (The control that addresses ROMM is the control to
be relied upon by the auditor)
The cashier reviews the payroll register and disbursement voucher and then prepares and signs a
check transferring funds to the company’s payroll bank account. The cashier also reviews, signs,
and distributes the employee paychecks.
Operating Effectiveness:
1. Conduct a walkthrough to test the control's operating effectiveness by performing the following:
a. Inspect sample supporting documents for the whole year under audit. Perform a three-
way matching of disbursement voucher, payroll register, and check/payroll slips.
2. Determine if identified controls are operating effectively.
3. Evaluate the results and conclude.
Activity#3: "The next step is actual disbursement of paychecks to employees. Most employees
are paid by either cheque [...]"
Identification of Risk of Material Misstatement (ROMM or “What Could Go Wrong?”):
ROMM_1: Checks may not be directly handed to employees, resulting to ghost ones as
may be created by the payroll cashier.
ROMM_2: Checks may be stolen if not received by employees and are placed in
unsecured locations
Control Activity that addresses ROMM: (The control that addresses ROMM is the control to
be relied upon by the auditor)
“Direct deposit is one way to improve the efficiency and reduce the costs of payroll processing.
Direct deposit provides savings to employers by eliminating the cost of purchasing, processing,
and distributing paper checks, not to mention reducing bank fees and postage.”
Operating Effectiveness:
1. Conduct a walkthrough to test the control's operating effectiveness by performing the following:
a. Observe personnel perform the authorization of bank transfers and their subsequent
review. Consider their competence.
b. Obtain sample disbursement vouchers for direct deposits and trace them to the updated
payroll master file. Check for the possibility of ghost employees or terminated employees, still
getting paid.
2. Determine if identified controls are operating effectively.
3. Evaluate the results and conclude.
References:
Auditing Payroll: The Why and How Guide. (n.d.). Retrieved February 6, 2018 from http://cpa-
scribo.com/auditing-payroll/
Le, Kim. (2016). #24 | Part 8 – Controls Testing, Design Effectiveness and Operating
Effectiveness in Demystifying SOX 404 – Auditing Standard 5. Retrieved February 6, 2018 from
https://www.a2q2.com/blog/sox/part-8-controls-testing-design-effectiveness-and-operating-
effectiveness-demystifying-sox-404-auditing-standard-5/