6. TYPICAL TESTS OF CONTROL AND SUBSTANTIVE TESTS
Interim audit
The type of test performed will depend on the particular features of the wages system and the auditor’s evaluation of controls.
a) To ensure that employees are only paid for work done.
Test of control – observe clocking on procedures and the level of supervision.
Substantive procedure – select a sample of employees from the payroll and agree hours paid to individual clock cards.
b) To ensure that wages are only paid to valid employees.
Test of control - attend the wages pay out.
Substantive procedure – select a sample of employees from the payroll and vouch to individual contracts of employment in HR department.
c) To ensure that all wages are authorised.
Test of control – review overtime forms/lists for authorised signatures.
Substantive procedure – compare overtime costs each month with the prior year and investigate significant variances.
d) To ensure wages are paid at the correct rates of pay.
Test of control – review log of amendments to master file for evidence of independent review.
Substantive procedure – obtain printout of employee wage rates and compare to HR records.
e) To ensure that errors do not occur in payroll calculations.
Test of control – review payrolls for signatures as evidence of independentcalculation checks.
Substantive procedure – select a sample of employees and check calculations of gross and net pay.
7. FINAL AUDIT
Tests to ensure the accuracy and completeness of balances in respect of wage costs and payroll deductions (Control objectives 5, 6 and 7) are normally substantive in nature and conducted as part the final audit.
A substantive audit programme should include:
• Agree total wages and deductions per selected payrolls to the amounts recorded in the individual general (nominal) ledger accounts
• Perform analytical procedures such as proof in total by using number of employees and average wage. Investigate any significant fluctuations.
• Carry out month-by-month comparisons of total wages with prior year/budgets and investigate differences.
• Agree sundry payables for tax outstanding at the year end to the payroll records and check subsequent payment to cash book.
Computer assisted audit techniques
Use the computer as an audit tool and the most common examples are test data and audit software. These could be employed during the interim and final audit of wages.
Test data consists of data submitted by the auditor to test the operation of application controls such as data-validation (edit) checks. Test data should be input using valid and invalid transactions to check the operation of these controls. Examples include:
• Input employee numbers that do not exist or are in an incorrect format – to ensure these items are rejected and included on an error report.
• Input a gross weekly pay exceeding $2,000 – to ensure these employees are included on an exception report.
• Input overtime hours exceeding 30 hours per week – to ensure these employees are also included on an exception report.
Audit software is normally used by the auditor for substantive testing and can interrogate a client’s computer files, re-perform calculations or extract items for further investigation. Examples include:
• Re-perform calculations of gross wage, deductions and casts on selected payrolls.
• Compare the payroll file at the beginning and end of the period to identify starters and leavers, which could then be checked to appropriate documentation.
• Comparing employee records on payroll file and HR files.
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