Transaction cycles - part 3

In this lesson

1. 0:00 The payroll system and objectives
2. 0:44 Steps in the payroll cycle
3. 1:24 Controls and risks in payroll
4. 2:08 Fictitious employees and verification
5. 3:42 Deduction calculation and review
6. 4:30 Payroll controls scenario question
7. 6:03 Testing payroll controls in practice

About this lesson

the control procedures auditors test to ensure they're working effectively. The payroll cycle has clear objectives: ensure employees are only paid for work actually done, deductions are calculated accurately, and payments are properly authorised. Common risks include paying for work not completed, setting up fictitious employees, and miscalculating statutory deductions. For each risk, there's a corresponding control—such as clock-in systems, HR verification of new employees, and software-based calculation with independent review. You'll see how auditors test these controls in practice, from observing clock-in procedures to reviewing employee files and sampling payroll calculations. The video concludes with a worked scenario question that brings everything together. You're given a cash wages system with multiple controls in place and asked to recommend tests for each one. This practical application helps you understand how to design audit procedures that verify controls exist, are properly designed, and have actually operated during the period—a key skill for AA and other audit-focused papers.

Duration: 8m