Payroll expense is the sum total of all compensation that a business must pay to its employees for a set period or on a given date. Payroll is one of the biggest expenses incurred by a business, which makes it a very crucial audit area. The purpose of any audit is to ascertain that the figures in the financial statements area are a true and fair reflection of the results during the financial year.
The overall objective of internal audit is to evaluate both the design and operating effectiveness of controls surrounding the payroll and our team of payroll auditors along with income tax auditors at "Payroll In India" ensure the accuracy of payments to employees and the recording of payroll costs.
Benefits of Internal Audit
- Occurrence and Existence
A key objective of auditing the payroll is to ascertain the existence of the actual payments and whether the payments were to genuine employees of the company, which is achieved by determining whether there are proper controls over the payroll function. Proper segregation of duties ensures that there is no particular person who can create fictitious employees and authorize salary payment to them.
- Completeness
Due to the huge amounts involved in the payroll, there is a need to verify that all of the amounts paid out to employees are included. These amounts include salaries to permanent employees, overtime, wages paid out to temporary workers and other fringe benefits such as medical coverage and housing allowances. The auditor should query for any outstanding amounts and know the reason why they are still outstanding.
- Accuracy
An auditor should confirm that there were correct computations of all benefits and deductions in the payroll. To test this, the auditor recalculates benefits and deductions for a sample of workers. A proper review of clock cards is undertaken to ensure accurate calculation of pay for work done. Management approves any additions to the basic pay and ensures they were calculated correctly. Additionally, the auditor inspects documentation for proof of management's review.
- Presentation and Disclosure
Payroll expenses are presented in the income statement at the end of the financial reporting period. Proper presentation of payroll expenses ensures a true and fair representation of the expense. Disclosures of any unusual amounts included in the payroll are essential in explaining how and why these unusual amounts were paid. The auditor checks whether the payroll expenses have been presented in the required manner and whether any unusual amounts were disclosed in the notes to the financial statements.