Substantive Procedures for Auditing Payroll Cycle

After the auditor has set the achieved level of control risk and determined the risk of material misstatement for the payroll cycle, the auditor can adjust detection risk: Audit Risk = Inherent Risk x Control Risk × Detection Risk Detection risk is the risk that the auditor’s procedures will fail to detect material misstatements. The auditor can increase or decrease detection risk by changing the nature, timing, and extent of the substantive procedures to be performed. The purpose of the substantive procedures is to substantiate financial statement accounts and disclosures. The more substantive procedures an auditor performs, the better the auditor’s chances of detecting material misstatements. When it comes to substantive procedures for the payroll cycle, the auditor can: • Perform analytical procedures • Perform tests of details for payroll transactions • Perform tests of details for payroll-related account balances After the substantive procedures have all been performed, the auditor will calculate the aggregate misstatement for payroll-related liabilities and other accounts. If the aggregate misstatement is less than or equal to the tolerable misstatement, the auditor will conclude that payroll-related liabilities and other accounts are fairly presented. If the aggregate misstatement is more than the tolerable misstatement, the auditor will conclude that payroll-related liabilities and other accounts are not fairly presented. In that case, the auditor would want the client to make an adjusting journal entry. 0:00 Introduction 1:13 Types of substantive procedures 1:21 Analytical procedures 3:58 Tests of details for transactions 5:38 Tests of details for account balances 6:39 After substantive procedures 6:54 Receive PDF guide — Edspira is the creation of Michael McLaughlin, an award-winning professor who went from teenage homelessness to a PhD. Edspira’s mission is to make a high-quality business education freely available to the world. — SUBSCRIBE FOR A FREE 53-PAGE GUIDE TO THE FINANCIAL STATEMENTS, PLUS: • A 23-PAGE GUIDE TO MANAGERIAL ACCOUNTING • A 44-PAGE GUIDE TO U.S. TAXATION • A 75-PAGE GUIDE TO FINANCIAL STATEMENT ANALYSIS • MANY MORE FREE PDF GUIDES AND SPREADSHEETS http://eepurl.com/dIaa5z — SUPPORT EDSPIRA ON PATREON *  / prof_mclaughlin   — GET CERTIFIED IN FINANCIAL STATEMENT ANALYSIS, IFRS 16, AND ASSET-LIABILITY MANAGEMENT https://edspira.thinkific.com — LISTEN TO THE SCHEME PODCAST Apple Podcasts: https://podcasts.apple.com/us/podcast... Spotify: https://open.spotify.com/show/4WaNTqV... Website: https://www.edspira.com/podcast-2/ — GET TAX TIPS ON TIKTOK   / prof_mclaughlin   — ACCESS INDEX OF VIDEOS https://www.edspira.com/index — CONNECT WITH EDSPIRA Facebook:   / edspira   Instagram:   / edspiradotcom   LinkedIn:   / edspira   — CONNECT WITH MICHAEL Twitter:   / prof_mclaughlin   LinkedIn:   / prof-michael-mclaughlin   — ABOUT EDSPIRA AND ITS CREATOR https://www.edspira.com/about/ https://michaelmclaughlin.com