This chapter discusses auditing the production and personnel service cycles. It covers audit objectives, inherent risks, internal controls, analytical procedures, and substantive tests for both cycles. For the production cycle, it describes common documents like production orders and inventory records. It also discusses inventory audits including observing physical counts and pricing tests. For personnel services, it outlines payroll transaction flows and controls over hiring, timekeeping and payroll processing.
This chapter discusses auditing the production and personnel service cycles. It covers audit objectives, inherent risks, internal controls, analytical procedures, and substantive tests for both cycles. For the production cycle, it describes common documents like production orders and inventory records. It also discusses inventory audits including observing physical counts and pricing tests. For personnel services, it outlines payroll transaction flows and controls over hiring, timekeeping and payroll processing.
This chapter discusses auditing the production and personnel service cycles. It covers audit objectives, inherent risks, internal controls, analytical procedures, and substantive tests for both cycles. For the production cycle, it describes common documents like production orders and inventory records. It also discusses inventory audits including observing physical counts and pricing tests. For personnel services, it outlines payroll transaction flows and controls over hiring, timekeeping and payroll processing.
This chapter discusses auditing the production and personnel service cycles. It covers audit objectives, inherent risks, internal controls, analytical procedures, and substantive tests for both cycles. For the production cycle, it describes common documents like production orders and inventory records. It also discusses inventory audits including observing physical counts and pricing tests. For personnel services, it outlines payroll transaction flows and controls over hiring, timekeeping and payroll processing.
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Modern
Modern Auditing: Auditing:
Assurance Assurance Services Services and and the the Integrity Integrity th of Financial Reporting, 8 of Financial Reporting, 8th Edition Edition William C. Boynton
California Polytechnic State
University at San Luis Obispo
Raymond N. Johnson Portland State University
Chapter 16 Auditing the Production and Personnel
Services Cycles
Chapter Chapter Overview Overview
Interface Interface of of Production Production Cycle Cycle with with Other Other Cycles Cycles
Audit Audit Objectives Objectives
Understanding Understanding the the Entity Entity and and Environment Environment
Analytical Analytical Procedures Procedures
Inherent Inherent Risk Risk Volume of transactions Cost issues Diversity of inventory items Storage at multiple locations Determination of quality and value Vulnerability of inventory Right of return and repurchase agreements
Consideration Consideration of of Internal Internal Controls Controls Common Common Documents Documents and and Records Records Production order Material requirements report Materials issue slip Time ticket Move ticket Daily production report
Consideration Consideration of of Internal Internal Controls Controls Common Common Documents Documents and and Records Records Completed production report Standard cost master file Raw materials inventory master file Work-in-progress inventory master file Finished goods inventory master file
Functions Functions and and Related Related Controls Controls Initiating production
Planning and controlling production
Production of Inventory
Issuing raw materials
Processing goods in production Transferring completed work to finished goods Protecting inventories
Functions Functions and and Related Related Controls Controls Recording manufacturing and inventory transactions
Determining and recording
manufacturing costs Maintaining correctness of inventory balances
Management Controls Additional Inventory Controls
Systems Systems Flowchart Flowchart Manufacturing Manufacturing Transactions Transactions
Systems Systems Flowchart Flowchart Manufacturing Manufacturing Transactions Transactions
Substantive Substantive Tests Tests of of Inventory Inventory Tests of Details of Transactions
Test Entries to Inventory Accounts
Test Cutoff of Purchases, Manufacturing, and Sales Transactions
Tests of Details of Balances
Observation of the Clients Physical
Inventory Count Timing and Extent of the Test Inventory-Taking Plans Performing the Test
Substantive Substantive Tests Tests of of Inventory Inventory Tests of Details of Balances
Inventories Determined by Statistical
Sampling Observation of Beginning Inventories Test Clerical Accuracy of Inventory Listings Test Inventory Pricing Test Cost of Manufactured Inventories
Substantive Substantive Tests Tests of of Inventory Inventory Confirm Inventories at Locations Outside the Entity
Examine Consignment Agreements and
Contracts
Tests of Details of Accounting
Estimates Comparison of Statement Presentation with GAAP
Study Study Break Break 1. This analytical procedure commonly used in the audit of the production cycle is useful in measuring the effectiveness of the manufacturing process. A. B. C. D.
Inventory Turn Days
Inventory Growth to Cost of Sales Growth Finished Goods Produced to Direct Labor Product Defects per Million
D. Product Defects per Million
Study Study Break Break 2. This document is a record of time worked by an employee on a specific job. A. B. C. D.
Production order Time ticket Move ticket Standard cost master file
B. Time ticket
Study Study Break Break 3. All of the following are functions of the manufacturing process, except: A. B. C. D.
Initiating production Initiating purchases Production of inventory Recording manufacturing and inventory transactions
B. Initiating purchases
The The Personnel Personnel Services Services Cycle Cycle
Audit Audit Objectives Objectives
The The Personnel Personnel Services Services Cycle Cycle Understanding the Entity and Environment
Analytical Procedures
Inherent Risk
Analytical Analytical Procedures Procedures
Consideration Consideration of of Internal Internal Controls Controls Common Common Documents Documents and and Records Records Personnel authorization Clock card Time ticket Payroll register Imprest payroll bank account Payroll check
Consideration Consideration of of Internal Internal Controls Controls Common Common Documents Documents and and Records Records Labor cost distribution summary Payroll tax returns Employee personnel file Personnel data master file Employee earnings master file
Functions Functions and and Related Related Controls Controls Initiating payroll transactions Hiring employees Authorizing payroll changes
Receipt of services
Preparing attendance and timekeeping
data
Functions Functions and and Related Related Controls Controls Recording and paying payroll transactions Preparing the payroll Recording the payroll
Substantive Substantive Tests Tests of of Personnel Personnel Services Services Tests of Details of Transactions
Test Entries to Inventory Accounts
Test Cutoff of Personnel Services Transactions
Tests of Details of Balances and
Disclosures
Recalculate Accrued Payroll Liabilities
Auditing Employee Benefits and Pension Plans Auditing Stock Options and Stock Appreciation Rights
Study Study Break Break 4. This analytical procedure commonly used in the audit of the personnel services cycle may be a measure of productivity per employee.
A. Average payroll cost per employee
classification B. Revenue per employee C. Total payroll as a percentage of revenues D. Payroll tax expense as a percentage of gross payroll B. Revenue per employee
Study Study Break Break 5. This record holds all pertinent employment data for each employee. A. B. C. D.
