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The Kaplan exam kit reads:
“If deficiencies in the company’s payroll system have not been addressed by management, the controls over the payroll may still contain deficiencies leading to an increased risk of misstatement.
Wages and salaries expense and the year- end employment tax accrual may be misstated.”
By year- end tax accrual, what do they mean?
I think it means that the employment tax incurred during the year has not been paid yet, and that is why it is an accrual (expense incurred but not paid at end of financial year). Am I correct?
Actually, I study by myself and start having doubts over random things. That is why i ask you.
Most of “our” students self-study – and that is why I am here – to be asked 🙂
You are right. AA candidates are not expected to have any knowledge of requirements in specific jurisdictions because there is only the one, global, exam.
General awareness in this area includes the following points:
– Employees are paid net of personal income tax and other statutory deductions (e.g. in the UK this is pay-as-you-earn/PAYE)
– Employees would be paid on or before the last day of the month (so no “salary accrual”) unless otherwise stated
– Deductions are paid over sometime in the following month (e.g. in the UK by the 22nd of the next month)
– there are financial penalties for late payment, so companies would prefer not to make late payments.
This last point means that accruals for tax/social deductions, etc will generally be just for the month preceding the financial year end/reporting day. Longer than this might suggest that the company has cash flow difficulties (i.e. doubts about going concern).
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