Thursday, January 16, 2020

Payroll Accounting Cycle Essay

The Payroll Accounting Cycle or Payroll Cycle is basically a process for recording time and attendance and converting that data into payroll calculations and payroll disbursements (Robertson, 2003). This cycle covers all activities related to payroll from hiring and firing to pay distribution. The payroll cycle has four basic stages; recruitment, which covers the identification of vacant positions, advertising for the vacancies, and selection of a candidate for hire, time and attendance, which is a record of all the work hours of the employees, salary distribution, which involves the depositing of paychecks into the employees account, and unfunded liability, which determines the unfunded annual leave and separation pay (Payroll Cycle, 2005). The most important internal control process in the Payroll Accounting Cycle is the division of duties (Bierstaker, 1997). Under this control process, the main tasks should be handled by different people.  This means that processes such as the hiring and firing of personnel and the management of labor relations, the supervision approval of work time, the preparation and timekeeping of payroll, the payroll check preparation and related payroll reports as well as the payroll distribution and actual custody of checks and its subsequent distribution to employees, should all be handled by five separate auditors to ensure the integrity and accuracy of the Payroll Cycle (Robertson, 2003). Another specific internal control in the Payroll Cycle is by implementing authorization requirements. This basically acts as a checks and balance feature in the Payroll Accounting Cycle (Bierstaker, 1997). In this control process, the pay base data, which is the data on which pay is based including factors such as hours, piece rate volume, and incentives, and personnel hiring and firing decisions, should all be initially approved by a supervisor or an independent department (Robertson, 2003). Providing that all these controls are implemented properly, there should be no relative weaknesses in the Payroll Cycle. There are probabilities however that the internal control systems will fail to detect material misstatements. The methods that can be used to identify the strengths and weaknesses in the Payroll Accounting Cycle of a business involve careful auditing, risk assessment and control risk assessment (Bierstaker, 1997). In conducting control risk assessments it should always be remembered that if the control risk is assessed very low, substantive audit procedures can be limited in cost-saving ways. If it is assessed very high, substantive procedures will need to be designed to lower the risk of failing to detect material misstatement in the account balances (Robertson, 2003). There is no perfect Payroll Accounting Cycle and control measures should always be implemented and audited periodically.

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