(c) Payroll
(i) Audit work
– Agreeing payroll to the service organisation’s report does not provide sufficient evidence on completeness, accuracy or validity of the amounts
– The controls at the service organisation must be assessed for their adequacy
– No further work needed on the petty cash payments to casual workers as the amount is not material
(ii) Further audit procedures
– Review the service agreement between Thurman Co and Jackson Co to understand the exact work which is conducted by Jackson Co as a service organisation
– Read all reports made by Jackson Co during the year to identify any risks of misstatement in the payroll figure
– Discuss and document relevant controls in place at Thurman Co over the information received
from Jackson Co and the management of casual employees, and perform tests of controls on a sample basis
– Recalculate the amount of any unpaid tax which may be due to the tax authorities
– Read any user manuals or systems overviews to assess the efficacy of controls in place over the processing of payroll
– If necessary, obtain a type 1 or type 2 report from Jackson Co to obtain further assurance on the controls which the service organisation has in place
– Perform a substantive analytical review on payroll, preparing an auditor’s expectation of the payroll figures and comparing it to that recognised in the financial statements and discussing any variance with management
– Perform test of detail by selecting a sample from the payroll records and agreeing the amounts to payslips and HR records
(iii) Report to those charged with governance
– There is not a significant control deficiency as the amounts involved are immaterial
– Potential non-compliance with regulations, e.g. tax regulation should be reported
– Recommend that all workers are put through payroll to ensure compliance
Maximum marks 9
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