Efficient Tests of Balances Series--No. 46: Substantive Evidence Affecting Payroll and Expenses

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As auditing procedures are performed in other major audit areas, substantive evidence is produced that contributes to evaluating assertions for payroll and other expenses.  The following table illustrates the accounts that are affected.

EXPENSES SUBSTANTIVE EVIDENCE

RAP, AP, TOBs PERFORMED FOR

AUDIT AREAS AFFECTS EXPENSES

SUBSTANTIVE EVIDENCE PRODUCED FOR EXPENSES

1. Cash.

1. Proving cash balances at the beginning and end of a year affects the completeness, occurrence and cutoff and existence assertions for expenses.

2. Allowance for doubtful accounts.

2. All assertions for bad debt expense are affected.

3. Inventories.

3. All assertions for purchases and costs of good sold are affected.

4. Prepaid insurance.

4. All assertions for insurance expense are affected.

5. Fixed assets.

5. Support tests for repairs and maintenance, rents, supplies, small tools, etc. verify all applicable assertions.  Tests of depreciation and amortization verify all applicable assertions.

6. Accounts payable, accrued expenses and other liabilities.

6. Adjusted balances at the beginning and end of a year contribute evidence for the completeness, occurrence and cutoff and existence assertions for all affected accounts.

7. Note payable and long-term debt.

7. All assertions for interest expense are verified.

From the risk assessment procedures, analytical procedures and tests of balances procedures illustrated above, it is apparent that sufficient evidence for evaluating financial statement assertions for payroll and other expenses may have already been obtained. The next blog will discuss other tests of balances auditing procedures that may be necessary.

More information about auditing financial statement classifications can be obtained from my Basic Staff Training Series of webcasts, live and on-demand, by accessing the applicable link on the left side of my home page, www.cpafirmsupport.com.

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