Property, plant, and equipment (PP&E) includes all tangible assets with service lives greater than one year that are used in the operation of a business and are not acquired for resale. The major transactions associated with these assets are purchases, repairs and maintenance, depreciation, disposal, and leasing.
The most significant payroll and personnel cycle risks are the creation of fictitious employees and the falsification of hours worked.
Many entities use service organizations to process payroll transactions. The service organization's services are considered to be part of a user entity's information system when those services affect the initiation, execution, processing, or reporting of the user company's transactions. In such cases, the controls placed in operation by the service organization are considered to be part of the user organization's information system (see AS Module 5 Reporting on Controls at a Service Organization).
Remember that the payroll department is a record-keeping department, not a custodial department. Although employees in this department compute salaries, create the payroll register, and prepare unsigned checks, they should have neither the authority to initiate changes in hours or rates, nor the ability to sign checks.
The financing cycle includes an entity's debt and equity.
An entity's internal control over debt should include the following:
Adequate documentation of all financing agreements.
Authorization of new debt financing by the board of directors or management.
Detailed records of long-term debt and periodic independent verification of amounts between the ledger, details of debt, and the note holders' records.
Adequate controls over interest and principal payments and the recording of bond premium and discount amortization amounts.
All stock issuances, dividend declarations, and treasury stock purchases must be authorized by the board of directors. Evidence of these events should be duly recorded in the minutes of board meetings.
Many large entities use a stock transfer agent, who ensures that stock issuances comply with the articles of incorporation, prepares stock certificates, and maintains records of shares authorized, issued, and outstanding. If a stock transfer agent is not used, then the entity should implement the following controls:
An officer of the entity should be responsible for ensuring that stock transactions comply with the articles of incorporation and regulatory requirements and should maintain the stock certificate book. To ensure proper segregation of duties, the individual who maintains the stock certificate book should have no accounting responsibilities.
There should be a periodic independent reconciliation of the stock certificate book with the number of shares outstanding.
In performing a search for unrecorded retirements of fixed assets, an auditor most likely would:
Inspect the property ledger and the insurance and tax records, and then tour the client's facilities.
Tour the client's facilities, and then inspect the property ledger and the insurance and tax records.
Analyze the repair and maintenance account, and then tour the client's facilities.
Tour the client's facilities, and then analyze the repair and maintenance account.
An auditor vouched data for a sample of employees in a payroll register to approved clock card data to provide assurance that:
In auditing long-term bonds payable, an auditor most likely would: