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Kim Smith.
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Noah098
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Substantive analytical procedure(SAP) related to payroll expense :
“Compare overtime pay as a percentage of factory normal hours pay to investigate whether it is at a similar level to the prior year and within an acceptable range. Investigate any significant differences.”
maam i don’t understand what is the use of the above SAP from the point of view of audit risk. Even if Overtime pay is not a similar level to prior year how is that a matter of any relevance to the auditor, isn’t that a business related matter. Same for the “acceptable range” argument, even if its higher than industrial average or prior yr, it might be to attract better quality workers, why would that affect the auditor in any way?
Kim Smith
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Because misstatement may arise from error or fraud – and to “inflate the payroll” (e.g. with “ghost” employees or overtime that hasn’t been worked – “occurrence”) would fall into fraud.
Noah098
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