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Hello,
I need your help with question regarding substantive procedures for “accural for income tax payable on employement income”
Textbook says to “Agree the year-end income tax payable accrual to the general ledger and payroll records to confirm accuracy”
But the accrual data must have been prepared first and the same information must be posted to the general ledger. So what is the point of comparing accruals with the general ledger?
Below is the test question:
Raspberry Co (Mar/Jun 18)
Raspberry Co deducts employment taxes from its employees’ wages on a weekly/monthly basis and pays these to the local taxation authorities in the following month.
At the year end the financial statements will contain an accrual for income tax payable on employment income.(d) Describe the substantive procedures the auditor should perform to confirm the year-end accrual for tax payable on employment income. (5 marks)
I agree it could be clearer.
The accrual does have to be agreed to the general ledger – the posting of the calculated accrual amount cannot be assumed to have been made correctly.
However, the accrual amount is not something that can be agreed to the “payroll records” as a single amount. I suggest what it means is that the basis of the calculation of the accrual is agreed to the (underlying) payroll records.
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