When a client uses an outside payroll service for processing payroll, professional auditing standards require the auditor to rely on the internal controls of the service organization if the service organization's auditor has issued a favorable report on internal controls.

The audit of the payroll and personnel cycle evaluates whether account balances are fairly stated in accordance with generally accepted accounting principles.  Here are some objectives of a payroll audit: Accuracy: Ensure that all payroll components are correctly calculated Completeness: Verify that salary and benefit components have been processed for all employees and paid out within the specified pay periods Compliance: Ensure compliance with various tax laws and local labor regulations  Here are some benefits of a payroll audit: Improved employee satisfaction, Payroll risk... Show more

The audit of the payroll and personnel cycle evaluates whether account balances are fairly stated in accordance with generally accepted accounting principles. 

Here are some objectives of a payroll audit:
Accuracy: Ensure that all payroll components are correctly calculated
Completeness: Verify that salary and benefit components have been processed for all employees and paid out within the specified pay periods
Compliance: Ensure compliance with various tax laws and local labor regulations 

Here are some benefits of a payroll audit: Improved employee satisfaction, Payroll risk mitigation, and Fraud deterrence. 

Here are some steps involved in a payroll audit:
Determine the payroll audit timeframe and stakeholders
Generate reports and examine the data
Confirm payments match hours worked
Double-check that variable and atypical payments are correct
Check the accuracy of tax withholdings and other deductions
Reconciliation of payroll to bank accounts
Compare the money specified in payroll records to the money withdrawn from the account
Verify employee status, tax withholdings, and remittance
Analyze the results and make recommendations 

Related Test: Auditing & Assurance 101 Practice Test: Audit of the Inventory and Warehousing Cycle

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