What are the assertions of payroll system?

{"appState":{"pageLoadApiCallsStatus":true},"articleState":{"article":{"headers":{"creationTime":"2016-03-26T20:52:38+00:00","modifiedTime":"2016-03-26T20:52:38+00:00","timestamp":"2022-09-14T18:09:17+00:00"},"data":{"breadcrumbs":[{"name":"Business, Careers, & Money","_links":{"self":"//dummies-api.dummies.com/v2/categories/34224"},"slug":"business-careers-money","categoryId":34224},{"name":"Business","_links":{"self":"//dummies-api.dummies.com/v2/categories/34225"},"slug":"business","categoryId":34225},{"name":"Accounting","_links":{"self":"//dummies-api.dummies.com/v2/categories/34226"},"slug":"accounting","categoryId":34226},{"name":"Audits","_links":{"self":"//dummies-api.dummies.com/v2/categories/34227"},"slug":"audits","categoryId":34227}],"title":"How to Test Payroll Expense Transactions","strippedTitle":"how to test payroll expense transactions","slug":"how-to-test-payroll-expense-transactions","canonicalUrl":"","seo":{"metaDescription":"During an audit, testing payroll transactions includes sniffing out employees paid who shouldn’t have been and making sure valid employees are paid the correct ","noIndex":0,"noFollow":0},"content":"<p>During an audit, testing payroll transactions includes sniffing out employees paid who shouldn’t have been and making sure valid employees are paid the correct amount. Auditors also need to make sure the payroll transactions are reflected in the correct financial statement accounts.</p>\n<p>During your audit, you need to test management financial statement assertions. For payroll expense transactions test these five assertions:</p>\n<ul class=\"level-one\">\n <li><p class=\"first-para\"><b>Occurrence</b>: Occurrence tests if the payment transactions actually took place. Check that payroll expenses and payroll tax expenses the company records are for employees who exist and work during the pay period. Also, all accrued payroll and payroll tax liability balances should represent amounts the company owes at the date of the balance sheet.</p>\n<p class=\"child-para\">To test this assertion, you regularly perform two procedures:</p>\n <ul class=\"level-two\">\n <li><p class=\"first-para\"><b>Testing for terminated employees:</b> To make sure no terminated employees are being paid, select a sample of the client’s terminated employees and trace them back to the payroll register.</p>\n </li>\n <li><p class=\"first-para\"><b>Verifying new employee information: </b>Select a sample of employees hired in the year under audit. Review the personnel file and make sure each new employee has appropriate documentation according to the audit client’s human resources procedure and policy manual.</p>\n </li>\n </ul>\n </li>\n <li><p class=\"first-para\"><b>Completeness:</b> In the payroll process, understatement isn’t a major concern because most employees will notify employers if they don’t get a paycheck. Regardless, you do need to perform some testing to make sure the audit client isn’t understating payroll expense.</p>\n<p class=\"child-para\">Test the completeness assertion by securing a list of current employees from human resources. Select a sample of current employees and trace them to the payroll register, making sure each current employee has been paid.</p>\n </li>\n <li><p class=\"first-para\"><b>Authorization:</b> This step addresses whether your audit client management and staff follow proper internal control or other company authorization procedures when handling payroll transactions. You need to make sure that personnel file updates and time sheets have proper authorization.</p>\n<p class=\"child-para\">To test authorizations for both, select a sample of employees from the payroll register. Inspect time sheets, checking that an appropriate level of management approves hours for which the employee is paid. Trace employees back to their personnel file to make sure the facts reflecting in the payroll register are the same as in the personnel folder. These facts include both rate of pay and appropriate payroll deductions.</p>\n </li>\n <li><p class=\"first-para\"><b>Accuracy:</b> Testing accuracy addresses whether transactions are free from error. For payroll, you must check the amount paid and account classifications to make sure they’re correct.</p>\n </li>\n <li><p class=\"first-para\"><b>Cutoff:</b> Clients may try to move accounting transactions from one year to another to show more positive results. Your job as an auditor is to have reasonable assurance the company records all payroll-related transactions when they are incurred. The best way to check for proper cutoffs is to test accruals.</p>\n </li>\n</ul>","description":"<p>During an audit, testing payroll transactions includes sniffing out employees paid who shouldn’t have been and making sure valid employees are paid the correct amount. Auditors also need to make sure the payroll transactions are reflected in the correct financial statement accounts.</p>\n<p>During your audit, you need to test management financial statement assertions. For payroll expense transactions test these five assertions:</p>\n<ul class=\"level-one\">\n <li><p class=\"first-para\"><b>Occurrence</b>: Occurrence tests if the payment transactions actually took place. Check that payroll expenses and payroll tax expenses the company records are for employees who exist and work during the pay period. Also, all accrued payroll and payroll tax liability balances should represent amounts the company owes at the date of the balance sheet.</p>\n<p class=\"child-para\">To test this assertion, you regularly perform two procedures:</p>\n <ul class=\"level-two\">\n <li><p class=\"first-para\"><b>Testing for terminated employees:</b> To make sure no terminated employees are being paid, select a sample of the client’s terminated employees and trace them back to the payroll register.</p>\n </li>\n <li><p class=\"first-para\"><b>Verifying new employee information: </b>Select a sample of employees hired in the year under audit. Review the personnel file and make sure each new employee has appropriate documentation according to the audit client’s human resources procedure and policy manual.</p>\n </li>\n </ul>\n </li>\n <li><p class=\"first-para\"><b>Completeness:</b> In the payroll process, understatement isn’t a major concern because most employees will notify employers if they don’t get a paycheck. Regardless, you do need to perform some testing to make sure the audit client isn’t understating payroll expense.</p>\n<p class=\"child-para\">Test the completeness assertion by securing a list of current employees from human resources. Select a sample of current employees and trace them to the payroll register, making sure each current employee has been paid.</p>\n </li>\n <li><p class=\"first-para\"><b>Authorization:</b> This step addresses whether your audit client management and staff follow proper internal control or other company authorization procedures when handling payroll transactions. You need to make sure that personnel file updates and time sheets have proper authorization.</p>\n<p class=\"child-para\">To test authorizations for both, select a sample of employees from the payroll register. Inspect time sheets, checking that an appropriate level of management approves hours for which the employee is paid. Trace employees back to their personnel file to make sure the facts reflecting in the payroll register are the same as in the personnel folder. These facts include both rate of pay and appropriate payroll deductions.</p>\n </li>\n <li><p class=\"first-para\"><b>Accuracy:</b> Testing accuracy addresses whether transactions are free from error. For payroll, you must check the amount paid and account classifications to make sure they’re correct.</p>\n </li>\n <li><p class=\"first-para\"><b>Cutoff:</b> Clients may try to move accounting transactions from one year to another to show more positive results. Your job as an auditor is to have reasonable assurance the company records all payroll-related transactions when they are incurred. The best way to check for proper cutoffs is to test accruals.</p>\n </li>\n</ul>","blurb":"","authors":[{"authorId":9470,"name":"Maire Loughran","slug":"maire-loughran","description":" <b>Maire Loughran</b> is a self-employed certified public accountant (CPA) who has prepared compilation, review, and audit reports for fifteen years. Additionally, she is a university professor of undergraduate- and graduate-level accounting classes.","hasArticle":false,"_links":{"self":"//dummies-api.dummies.com/v2/authors/9470"}}],"primaryCategoryTaxonomy":{"categoryId":34227,"title":"Audits","slug":"audits","_links":{"self":"//dummies-api.dummies.com/v2/categories/34227"}},"secondaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"tertiaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"trendingArticles":null,"inThisArticle":[],"relatedArticles":{"fromBook":[{"articleId":209016,"title":"Auditing For Dummies Cheat Sheet","slug":"auditing-for-dummies-cheat-sheet","categoryList":["business-careers-money","business","accounting","audits"],"_links":{"self":"//dummies-api.dummies.com/v2/articles/209016"}},{"articleId":192476,"title":"Important Auditing Vocabulary and Key Terms","slug":"important-auditing-vocabulary-and-key-terms","categoryList":["business-careers-money","business","accounting","audits"],"_links":{"self":"//dummies-api.dummies.com/v2/articles/192476"}},{"articleId":192477,"title":"Generally Accepted Auditing Standards","slug":"generally-accepted-auditing-standards","categoryList":["business-careers-money","business","accounting","audits"],"_links":{"self":"//dummies-api.dummies.com/v2/articles/192477"}},{"articleId":192475,"title":"The Four Concepts of Audit Evidence","slug":"the-four-concepts-of-audit-evidence","categoryList":["business-careers-money","business","accounting","audits"],"_links":{"self":"//dummies-api.dummies.com/v2/articles/192475"}},{"articleId":192473,"title":"Gathering Audit Evidence","slug":"gathering-audit-evidence","categoryList":["business-careers-money","business","accounting","audits"],"_links":{"self":"//dummies-api.dummies.com/v2/articles/192473"}}],"fromCategory":[{"articleId":209222,"title":"Sarbanes-Oxley For Dummies Cheat Sheet","slug":"sarbanes-oxley-for-dummies-cheat-sheet","categoryList":["business-careers-money","business","accounting","audits"],"_links":{"self":"//dummies-api.dummies.com/v2/articles/209222"}},{"articleId":209016,"title":"Auditing For Dummies Cheat Sheet","slug":"auditing-for-dummies-cheat-sheet","categoryList":["business-careers-money","business","accounting","audits"],"_links":{"self":"//dummies-api.dummies.com/v2/articles/209016"}},{"articleId":199122,"title":"Taking a Look at a Sarbanes-Oxley Overview","slug":"taking-a-look-at-a-sarbanes-oxley-overview","categoryList":["business-careers-money","business","accounting","audits"],"_links":{"self":"//dummies-api.dummies.com/v2/articles/199122"}},{"articleId":197953,"title":"Watching for Illegal Accounting Practices in Your Business","slug":"watching-for-illegal-accounting-practices-in-your-business","categoryList":["business-careers-money","business","accounting","audits"],"_links":{"self":"//dummies-api.dummies.com/v2/articles/197953"}},{"articleId":197915,"title":"How to Decide Whether Your Business Needs an Audit","slug":"how-to-decide-whether-your-business-needs-an-audit","categoryList":["business-careers-money","business","accounting","audits"],"_links":{"self":"//dummies-api.dummies.com/v2/articles/197915"}}]},"hasRelatedBookFromSearch":false,"relatedBook":{"bookId":281966,"slug":"auditing-for-dummies","isbn":"9780470530719","categoryList":["business-careers-money","business","accounting","audits"],"amazon":{"default":"//www.amazon.com/gp/product/0470530715/ref=as_li_tl?ie=UTF8&tag=wiley01-20","ca":"//www.amazon.ca/gp/product/0470530715/ref=as_li_tl?ie=UTF8&tag=wiley01-20","indigo_ca":"//www.tkqlhce.com/click-9208661-13710633?url=//www.chapters.indigo.ca/en-ca/books/product/0470530715-item.html&cjsku=978111945484","gb":"//www.amazon.co.uk/gp/product/0470530715/ref=as_li_tl?ie=UTF8&tag=wiley01-20","de":"//www.amazon.de/gp/product/0470530715/ref=as_li_tl?ie=UTF8&tag=wiley01-20"},"image":{"src":"//www.dummies.com/wp-content/uploads/auditing-for-dummies-cover-9780470530719-202x255.jpg","width":202,"height":255},"title":"Auditing For Dummies","testBankPinActivationLink":"","bookOutOfPrint":false,"authorsInfo":"<b data-author-id=\"9470\">Maire Loughran</b> is a self-employed certified public accountant (CPA) who has prepared compilation, review, and audit reports for fifteen years. 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Category","mainCategoryUrl":"/category/articles/level-0-category-0"}}},"navigationCategoriesLoadedStatus":"success"},"searchState":{"searchList":[],"searchStatus":"initial","relatedArticlesList":{"term":"189607","count":5,"total":385,"topCategory":0,"items":[{"objectType":"article","id":189607,"data":{"title":"How to Test Payroll Expense Transactions","slug":"how-to-test-payroll-expense-transactions","update_time":"2016-03-26T20:52:38+00:00","object_type":"article","image":null,"breadcrumbs":[{"name":"Business, Careers, & Money","slug":"business-careers-money","categoryId":34224},{"name":"Business","slug":"business","categoryId":34225},{"name":"Accounting","slug":"accounting","categoryId":34226},{"name":"Audits","slug":"audits","categoryId":34227}],"description":"During an audit, testing payroll transactions includes sniffing out employees paid who shouldn’t have been and making sure valid employees are paid the correct amount. Auditors also need to make sure the payroll transactions are reflected in the correct financial statement accounts.\nDuring your audit, you need to test management financial statement assertions. For payroll expense transactions test these five assertions:\n\n Occurrence: Occurrence tests if the payment transactions actually took place. Check that payroll expenses and payroll tax expenses the company records are for employees who exist and work during the pay period. Also, all accrued payroll and payroll tax liability balances should represent amounts the company owes at the date of the balance sheet.\nTo test this assertion, you regularly perform two procedures:\n \n Testing for terminated employees: To make sure no terminated employees are being paid, select a sample of the client’s terminated employees and trace them back to the payroll register.\n \n Verifying new employee information: Select a sample of employees hired in the year under audit. Review the personnel file and make sure each new employee has appropriate documentation according to the audit client’s human resources procedure and policy manual.\n \n \n \n Completeness: In the payroll process, understatement isn’t a major concern because most employees will notify employers if they don’t get a paycheck. Regardless, you do need to perform some testing to make sure the audit client isn’t understating payroll expense.\nTest the completeness assertion by securing a list of current employees from human resources. Select a sample of current employees and trace them to the payroll register, making sure each current employee has been paid.\n \n Authorization: This step addresses whether your audit client management and staff follow proper internal control or other company authorization procedures when handling payroll transactions. You need to make sure that personnel file updates and time sheets have proper authorization.\nTo test authorizations for both, select a sample of employees from the payroll register. Inspect time sheets, checking that an appropriate level of management approves hours for which the employee is paid. Trace employees back to their personnel file to make sure the facts reflecting in the payroll register are the same as in the personnel folder. These facts include both rate of pay and appropriate payroll deductions.\n \n Accuracy: Testing accuracy addresses whether transactions are free from error. For payroll, you must check the amount paid and account classifications to make sure they’re correct.\n \n Cutoff: Clients may try to move accounting transactions from one year to another to show more positive results. Your job as an auditor is to have reasonable assurance the company records all payroll-related transactions when they are incurred. The best way to check for proper cutoffs is to test accruals.\n \n","item_vector":null},"titleHighlight":null,"descriptionHighlights":null,"headers":null,"categoryList":["business-careers-money","business","accounting","audits"],"title":"How to Test Payroll Expense Transactions","slug":"how-to-test-payroll-expense-transactions","articleId":189607},{"objectType":"article","id":189608,"data":{"title":"How to Test Employee Payroll Taxes","slug":"how-to-test-employee-payroll-taxes","update_time":"2016-03-26T20:52:38+00:00","object_type":"article","image":null,"breadcrumbs":[{"name":"Business, Careers, & Money","slug":"business-careers-money","categoryId":34224},{"name":"Business","slug":"business","categoryId":34225},{"name":"Accounting","slug":"accounting","categoryId":34226},{"name":"Audits","slug":"audits","categoryId":34227}],"description":"One way auditors test employee payroll-related items is to make sure the related employer expenses are properly accounted for on the books. It’s the auditor’s responsibility during the audit to sample and test employer payroll taxes, accrued employer payroll taxes, and employer benefit expenses to make sure the income statement and balance sheet are materially correct.\nAfter a company runs payroll, it records tax and other deductions made from the employees’ checks as short-term liabilities until the company remits those amounts to the proper agency. The employer has a payroll tax expense based on the employees’ gross wages. These items are recorded as short-term liabilities as well:\n\n FICA: The employer is obligated to match each employee’s contribution dollar for dollar.\n \n State Unemployment Tax Act (SUTA): This tax percentage varies based on employers’ unemployment claim experience, as well as each state’s rates. The tax is assessed on the first $7,000 of wages each year.\n \n Federal Unemployment Tax Act (FUTA): The employer pays FUTA tax at 6.2 percent of the first $7,000 of wages each year. In times of catastrophic unemployment, FUTA kicks in to pay unemployment claims after SUTA is exhausted. Employers in good standing with their state (they’re current with all state tax obligations) can claim an offset credit against FUTA, which can reduce FUTA to .8%.\n \n Employer benefits: Additionally, the employer has an expense for the company portion of healthcare, 401(k) match, and any other benefit programs provided by the company.\n \n\nThe federal withholding tax and FICA tax the company withholds from each employee’s check is known as the trust fund portion of the payroll deposits. The trust fund is not an expense to the employer, nor is it free money for the company to spend as it pleases. This money belongs to the employee from whom the company deducts it.\nThe IRS assesses extremely high penalties if payroll tax deposits are not made on time. The agency is particularly humorless about the trust fund portion of the tax deposit. Depending on the employer, payroll taxes may be deposited on the 15th day of the month following the pay period or even earlier.","item_vector":null},"titleHighlight":null,"descriptionHighlights":null,"headers":null,"categoryList":["business-careers-money","business","accounting","audits"],"title":"How to Test Employee Payroll Taxes","slug":"how-to-test-employee-payroll-taxes","articleId":189608},{"objectType":"article","id":189610,"data":{"title":"How to Detect Errors and Fraud in Payroll","slug":"how-to-detect-errors-and-fraud-in-payroll","update_time":"2016-03-26T20:52:39+00:00","object_type":"article","image":null,"breadcrumbs":[{"name":"Business, Careers, & Money","slug":"business-careers-money","categoryId":34224},{"name":"Business","slug":"business","categoryId":34225},{"name":"Accounting","slug":"accounting","categoryId":34226},{"name":"Audits","slug":"audits","categoryId":34227}],"description":"If payroll fraud exists, it is likely to occur in one of three ways: During an audit you can use the following methods to detect all three circumstances of payroll error and fraud: through paying fictitious employees, employees who haven’t worked or employees who no longer work for the company. To find these types of errors when performing an audit take the following precautions:\n\n Review payroll registers: A department manager needs to review and approve the payroll register, a summary of who’s getting paid and how much, prior to being forwarded to the payroll department. Check the registers looking for names of terminated employees, duplicate names, duplicate mailing addresses, duplicate Social Security numbers, or unusual hours worked. If the employee normally works Monday through Friday and you see some Saturday or Sunday hours, follow up.\nHuman resources needs to enter a termination date into the system because employees leaving a company usually receive their final check after their last day of work. A great accounting computer system allows payment up to but not after the termination date. After that date, any payment to the ex-employee should be stopped because the payroll clerk won’t be able to access the employee record. If a department manager sees payroll info for a terminated employee on the payroll register, the manager should correct it both at the department level and at the human resources level.\n \n Examine canceled checks: Look at the front and back of any available paper checks clearing through the audit client’s bank for unusual looking checks and signatures. For example, if the payroll register has the employee as John E. Doe, and the check is payable to JE Doe, find out why. The check could possibly be cashed by nonemployee Jennifer Ellen Doe working in collusion with another employee.\n \n Observe payroll processing: It’s always nice to be able to observe from soup to nuts the running of one complete pay period. You’ll be able to detect any breakdown in controls listed in the payroll procedure manual.\nIf you have the thrill of watching paychecks being handed out to employees, make sure that each employee has ID, such as a company badge, and that the name on the payroll check matches the badge. Check to see that each employee gets only one check and unclaimed checks are safeguarded.\n \n\nThe following separations of duties should eliminate any unauthorized payments (unless many employees are committing the fraud together):\n\n Human resources should initiate updating any new or existing personnel records only after the updates have been appropriately authorized by the proper level of operating department management. The proper authorization level is something you’ll find out while questioning management and by reading the personnel policy manual.\nMany small companies don’t have a formal human resources department, so this first step is handled by the accounting department. Even so, some sort of separation in duties should exist so that one payroll clerk isn’t responsible for both authorizing payroll changes and processing payroll.\n \n As payroll clerks input the payment information, they should check that all new hires and pay raises have been authorized by human resources. Payroll clerks shouldn’t have the authority to change employee master file information. (The master file contains all payroll-related facts about the employee such as name, wage, and withholding.) So if a payroll clerk receives a payroll register with info not in the system, he’ll have to contact human resources to see what’s up with the orphan employee.\n \n","item_vector":null},"titleHighlight":null,"descriptionHighlights":null,"headers":null,"categoryList":["business-careers-money","business","accounting","audits"],"title":"How to Detect Errors and Fraud in Payroll","slug":"how-to-detect-errors-and-fraud-in-payroll","articleId":189610},{"objectType":"article","id":189609,"data":{"title":"How to Test Accrued Payroll Liabilities","slug":"how-to-test-accrued-payroll-liabilities","update_time":"2016-03-26T20:52:38+00:00","object_type":"article","image":null,"breadcrumbs":[{"name":"Business, Careers, & Money","slug":"business-careers-money","categoryId":34224},{"name":"Business","slug":"business","categoryId":34225},{"name":"Accounting","slug":"accounting","categoryId":34226},{"name":"Audits","slug":"audits","categoryId":34227}],"description":"Making sure the company books its payroll accruals properly is fairly easy. By the time you conduct your audit, all employees whose unpaid payroll transactions should have been accrued have been paid. All you have to do is get payroll records for the first pay period of the new year and pro-rate them.\nThe concept of accruals is easier to understand when you consider how you personally get paid. Regardless of how often a company pays its employees, paychecks are usually in arrears.\nHere’s a typical scenario: You’re paid every two weeks with two weeks in arrears. A paycheck with a date of October 15 is for work you did from September 16 to September 30. Companies pay this way mostly because doing so is easier. It gives the payroll clerks two weeks from receiving the timecards to enter payroll items, investigate any weird reporting, run paychecks, and get them signed (or, in the case of electronically paid employees, get the payroll amounts approved).\nWhen you start a new job, you normally have to wait a pay cycle to get your first paycheck. At the end of the year you receive a W-2 reporting your payroll with the employer for all completed payroll cycles.\nHere are the accounts normally debited and credited when accruing payroll transactions, with the affected financial statement in parentheses:\n\n Debit wage expense (income statement)\n \n Credit wages payable (balance sheet)\n \n Credit taxes withheld from the employee’s check (balance sheet)\n \n Credit any optional deductions from the employee’s checks, such as the employee contribution to a pension plan (balance sheet)\n \n\nAnd here are the accounts affected when accruing payroll tax expense:\n\n Debit payroll tax expense for all mandatory employer taxes. This includes the FICA match and any taxes for which the employer is solely liable, such as state and federal unemployment tax (income statement).\n \n Credit payroll taxes payable for the same amount as the debit (balance sheet)\n \n\nFinally, here some accounts affected by other accruals such as accrued vacation pay and accrued postretirement benefits:\n\n Debit the related expense account such as wages or the annual postretirement expense\n \n Credit a liability such as accrued vacation or prepaid/accrued postretirement cost\n \n\nIf a company is trying to cook the books related to the payroll process, it normally understates accruals, which is the reason why completeness is the primary assertion in this area. If accruals are understated, total liabilities are similarly understated, which throws off any ratio analysis (you may plan to do. The understatement of expenses also serves to overstate net income, which isn’t good.","item_vector":null},"titleHighlight":null,"descriptionHighlights":null,"headers":null,"categoryList":["business-careers-money","business","accounting","audits"],"title":"How to Test Accrued Payroll Liabilities","slug":"how-to-test-accrued-payroll-liabilities","articleId":189609},{"objectType":"article","id":189594,"data":{"title":"How to Test Cash Disbursement Transactions","slug":"how-to-test-cash-disbursement-transactions","update_time":"2016-03-26T20:52:33+00:00","object_type":"article","image":null,"breadcrumbs":[{"name":"Business, Careers, & Money","slug":"business-careers-money","categoryId":34224},{"name":"Business","slug":"business","categoryId":34225},{"name":"Accounting","slug":"accounting","categoryId":34226},{"name":"Audits","slug":"audits","categoryId":34227}],"description":"During your audit, you need to test management financial statement assertions. When you test cash disbursements during an audit, your first job is to figure out how your audit client pays its invoices. For cash disbursement transactions you need to test five assertions: occurrence, completeness, authorization, accuracy, and cutoff.\n\n Occurrence: Occurrence tests whether the payment transactions actually took place. Here’s what you’re looking for:\n \n Did the company record the payment in the books but never cut the check?\n \n Did the company prepare the check but never mail it to the vendor?\n \n \nTo test this assertion, select a sample of the client’s vendor statements and vouch them back to the vendor’s accounts payable. \n \n Completeness: Completeness evaluates the management assertion opposite of occurrence. In the purchasing and payable process, understatement is your highest risk. \nDiscovering this problem is kind of a no-brainer. Say the client is on a calendar year-end. You take the December bank statement and trace a sampling of checks or electronic funds transfers (EFTs) clearing on the bank statement to the books. (Normally, auditors use transactions over a certain dollar amount to select a sample.) Next, see whether any payments reflected on the January bank statements have December issuing dates. If so, trace those back to the books too.\n \n Authorization: This step addresses whether your client’s management and staff follow proper internal controls or other company authorization procedures when handling revenue transactions. Cash disbursements should be approved by the appropriate level of management. To test this assertion, select a sample of payments and check that all payments have proper authorization.\nA further step is to vouch the cash disbursement back to the source document. In larger companies, an employee in the originating department may authorize an invoice for payment. In that case, check that different types of expenses are being approved by individuals who would be familiar with the type of expense. For example, approval for an advertising expense should come from an employee in marketing, not an employee in manufacturing.\n \n Accuracy: Testing accuracy addresses whether transactions are free from error. For cash disbursements transactions, three potential issues exist. If you find errors in any of the three, the client can easily correct them:\n \n Dollar amount: Did the company record the payment for the correct dollar amount? If not, have the client edit the payment by entering the correct amount.\n \n Client posting: Was the correct vendor account reduced? If the payment posts to the wrong vendor, have the client edit the affected vendor ledgers.\n \n Account posting: Was the payment taken to the correct financial statement account? Once again, having the client take the payment to the correct account is a quick fix.\n \n \n \n Cutoff: Clients may try to move accounting transactions from one year to another to show more positive results. Your job as an auditor is to have reasonable assurance the company records payables and payments when they’re incurred.\nYou test for cutoff by selecting a sample of receiving reports and making sure the client records the associated vendor invoice. You can also select a sample of vendor invoices and trace them back to the client’s books. Make sure the invoice date matches the date the invoice is recorded.\n \n","item_vector":null},"titleHighlight":null,"descriptionHighlights":null,"headers":null,"categoryList":["business-careers-money","business","accounting","audits"],"title":"How to Test Cash Disbursement Transactions","slug":"how-to-test-cash-disbursement-transactions","articleId":189594}]},"relatedArticlesStatus":"success"},"routeState":{"name":"Article4","path":"/article/business-careers-money/business/accounting/audits/how-to-test-payroll-expense-transactions-189607/","hash":"","query":{},"params":{"category1":"business-careers-money","category2":"business","category3":"accounting","category4":"audits","article":"how-to-test-payroll-expense-transactions-189607"},"fullPath":"/article/business-careers-money/business/accounting/audits/how-to-test-payroll-expense-transactions-189607/","meta":{"routeType":"article","breadcrumbInfo":{"suffix":"Articles","baseRoute":"/category/articles"},"prerenderWithAsyncData":true},"from":{"name":null,"path":"/","hash":"","query":{},"params":{},"fullPath":"/","meta":{}}},"dropsState":{"submitEmailResponse":false,"status":"initial"},"sfmcState":{"status":"initial"},"profileState":{"auth":{},"userOptions":{},"status":"success"}}