| Course | ACC 492 Contemporary Auditing II (ACC/492) |
|---|---|
| Week | 1 |
| Paper type | Payroll cycle audit paper |
| Length | about 1,005 words, 4 double-spaced pages plus title page and references |
| Format | APA 7 student paper |
| School | University of Phoenix |
| Program | BS in Accounting |
| Updated | September 2026 |
Free sample paper for ACC 492 Week 1
Ghost Workers, Rate Changes and Unremitted Taxes: Auditing the Payroll and Personnel Cycle at a Composite Industrial Laundry With 380 Hourly Employees
[Student Name]
University of Phoenix
ACC/492: Contemporary Auditing II
Week 1 Assignment
[Instructor Name]
[Date]
The laundry, its payroll and all figures are composites written for a model paper; standards and research findings come from the sources listed.
A composite industrial laundry cleans and delivers linens, gowns and towels for 60 hospitals, clinics and hotels from two plants. It employs about 380 hourly workers, most of them wash-floor and delivery staff, on three shifts, with overtime common in peak seasons and turnover near 40% a year. Payroll and benefits are about 46% of its $41 million of revenue. In a business where hundreds of people are hired, paid by the hour and leave each year, payroll is where both honest mistakes and deliberate schemes are most likely to hide. This paper describes the audit of the payroll and personnel cycle.
Risks in the Cycle
The main risks are fictitious employees, who are paid but do not work, unauthorized increases in pay rates, overstated hours or overtime, errors in withholding and payroll taxes and misstated year-end accruals for wages and vacation. High turnover increases the first risk, since former employees who are not removed from the system can continue to be paid. The Association of Certified Fraud Examiners (2024) reports that payroll schemes remain a common form of occupational fraud, particularly in organizations with many hourly workers.
Understanding the Cycle
Before testing, the team documented how the cycle works, as the risk assessment standard requires an understanding of the entity's processes and controls relevant to the audit (American Institute of Certified Public Accountants, 2021). It read the human resources policies, walked through one new hire from offer to first paycheck and obtained the reports the payroll service produces each period: the payroll register, the deduction register, the direct deposit file and the tax liability summary. It also learned that the laundry outsources payroll processing to a service provider, so it obtained the provider's service organization controls report and noted the controls the laundry must perform itself, such as approving each pay run.
Separation of Functions
The company separates four functions. Human resources hires employees, sets pay rates within approved ranges and records terminations. Plant supervisors approve time recorded on badge-reader clocks. Payroll staff compute pay from approved time and rates. The treasury function releases direct deposits after the controller reviews a payroll summary. No payroll clerk can add employees or change rates. This separation means a single person cannot create an employee, record hours and receive the pay.
Tests of Controls
The team tested three controls. For hiring, it selected 25 new hires and examined their offer letters, background checks and tax forms and confirmed that the pay rate in the system matched the approved rate. For rate changes, it selected 25 changes and confirmed each was approved by a manager and human resources. For terminations, it compared a list of employees terminated during the year with the payroll register for the following pay periods to confirm none were paid after leaving. All tests passed except one termination, entered two weeks late, which resulted in a single overpayment later recovered. The team concluded the controls operated effectively, with one isolated exception.
Substantive Analytical Procedures
The team built an independent expectation of wages. Average headcount by month, from human resources records, multiplied by average hours per employee, from timekeeping reports, and average hourly rates, from the rate table, produced expected wages of $15.9 million. Recorded wages were $16.2 million, a difference of 1.9%. The team's threshold for investigation was 1.5%. Investigation showed that a winter norovirus outbreak at two client hospitals had increased linen volume and overtime; overtime hours explained all but $40,000 of the difference, which was below the threshold for further work.
Tests of Details
The team selected 40 employees from the payroll register and vouched each to a personnel file with an application, tax forms, identification and an approved rate, and recomputed gross and net pay for one pay period. It also traced 20 employees from personnel files to the payroll register to test completeness. It searched the payroll file for duplicate bank accounts, duplicate addresses and employees with no withholding, which can signal fictitious employees. One duplicate bank account was found; it belonged to a married couple who both worked at the laundry, which the team confirmed with human resources.
Benefits and Deductions
Payroll also includes benefits and deductions that are liabilities until paid. The laundry withholds employee contributions for health insurance and a retirement plan. The team compared withholdings for a sample of employees with their elections and traced the monthly remittances to the insurer and the plan trustee, confirming they were made on time. Late remittance of retirement contributions is both a compliance problem and a sign of cash strain, so the timing mattered as much as the amounts.
Accrued Wages, Vacation and Payroll Taxes
The year ended on a Wednesday, midway through a pay period. The team recomputed accrued wages for the three days worked but unpaid, $186,000, by examining the first payroll of the new year. It tested the vacation accrual by recomputing earned but unused hours for a sample of employees at current rates. For payroll taxes, it reconciled wages and withholding reported on the quarterly federal returns and the annual wage statements with the general ledger and traced the deposits to the bank statements. Hogan and Wilkins (2008) found that auditors charge higher fees when control deficiencies are present, consistent with the added substantive work such deficiencies require; here, effective controls allowed the team to keep substantive testing at a moderate level.
Conclusion
The payroll audit began with the risks of a large hourly workforce, tested the controls that separate hiring, timekeeping, payroll and payment, built an expectation of wages from headcount, hours and rates and tested employees in both directions between the payroll register and personnel files. Accrued wages, vacation and payroll taxes were recomputed and reconciled. The evidence supports the conclusion that payroll expense and related liabilities are fairly stated, and the one late termination was reported to management with a recommendation that terminations be entered the same day they occur.
References
American Institute of Certified Public Accountants. (2021). Understanding the entity and its environment and assessing the risks of material misstatement (Statement on Auditing Standards No. 145).
Association of Certified Fraud Examiners. (2024). Occupational fraud 2024: A report to the nations.
Hogan, C. E., & Wilkins, M. S. (2008). Evidence on the audit risk model: Do auditors increase audit fees in the presence of internal control deficiencies? Contemporary Accounting Research, 25(1), 219-242. https://doi.org/10.1506/car.25.1.9
What the ACC 492 Week 1 instructions ask
ACC 492 Week 1 commonly asks students to design or describe the audit of the payroll and personnel cycle. Typical requirements include identifying the cycle's classes of transactions and accounts, such as payroll expense, accrued wages and payroll tax liabilities, the functions of personnel, timekeeping, payroll preparation and distribution, the key internal controls and their tests, substantive analytical procedures and tests of details, and the audit of accrued liabilities and tax filings. Many prompts ask how the auditor would detect fictitious employees or unauthorized pay changes. The paper should link each procedure to the assertion and risk it addresses and cite auditing standards and research in APA style.
How this ACC 492 Week 1 example is built
An industrial laundry has a large, hourly, high-turnover workforce, shift differentials and overtime, which make payroll both its largest expense and a natural target for error and fraud. The paper begins with the risks specific to that setting, then describes how the company separates hiring, timekeeping, payroll preparation and payment. Tests of controls come next, chosen for the risks identified. Substantive analytical procedures build an expectation of payroll expense from headcount, hours and rates. Tests of details trace employees from the payroll register to personnel files and back, in both directions on purpose, and a final section covers accrued wages, vacation and payroll taxes, the liabilities most often misstated.
ACC 492 Week 1 grading rubric: where the points go
Faculty typically grade the payroll audit on sound risk identification, appropriate controls and tests, well-built analytical procedures and correct tests of liabilities. The paper should recognize fictitious employees, unauthorized rate changes and misstated accruals as key risks, explain the separation of duties that addresses them and match each test to an assertion. Analytical procedures need an independent expectation and an investigation threshold. Tracing in both directions, from register to files and from files to register, should be explained. Testing of payroll tax filings and accrued liabilities completes the cycle. Accurate reasoning, a sensible threshold for investigating differences and cited standards earn the remaining credit.
ACC 492 Week 1 help: mistakes to avoid
A frequent ACC 492 Week 1 weakness is listing generic procedures, such as test payroll, without saying what risk each addresses. Start with the risks for this company and build procedures from them. Another is testing only in one direction; vouching from the register to personnel files tests for fictitious employees, while tracing from files to the register tests completeness. Students also build analytical expectations from last year's payroll expense alone. Use headcount, hours and pay rates instead. Remember accrued wages at year end and payroll tax filings. Explain what the auditor would do if a ghost employee were found. Finally, cite the standards on risk assessment and evidence, and connect each test back to the risk it answers.
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ACC 492 Week 1 questions, answered
What does ACC/492 Week 1 usually cover?
It usually covers auditing the payroll and personnel cycle: risks, internal controls over hiring, pay rates and timekeeping, tests of controls, analytical procedures and tests of accrued payroll and payroll taxes.
Where can I find a free ACC 492 Week 1 sample paper?
The industrial laundry payroll audit on this page covers risks, controls and substantive tests with margin notes and is free to read. For a payroll case of your own, the opening draft we write is free.
How do auditors test for ghost employees?
They vouch a sample of payroll register entries to personnel files, hiring documents and tax forms, compare direct deposit accounts for duplicates and look for employees without deductions or with unusual payment patterns.
What analytical procedures are used for payroll?
Auditors often build an expectation of payroll expense from average headcount, hours worked and pay rates, then compare it with recorded expense and investigate differences above a set threshold.
Which payroll liabilities are audited at year end?
Accrued wages, accrued vacation and other compensated absences, withheld taxes and the employer's payroll taxes, often reconciled to later payments and tax filings.
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