Auditing Fundamentals: Salaries and Wages Cycle

Practice flashcards covering the key definitions, documents, and control procedures in the Salaries and Wages auditing cycle according to ISA 315 and ISA 330.

Salaries

A fixed, predetermined amount paid monthly via Electronic Funds Transfer (EFT) regardless of the hours worked.

Wages

Payment made for productive hours worked (timekeeping required), typically paid weekly in cash.

SOCI Expenditure Accounts

Includes Salaries (net), Wages (net), Commission, Bonus, Leave pay expense, UIF ($WVF$), Pension, and Medical fund (fringe benefits and deductions).

SFP Accounts

Includes Bank, Accrued expense for payable deductions, and Provision for leave pay.

Request for Appointment

A document initiated by a line manager to the personnel department including job specifications and motivation for hiring after considering the company budget.

Employment Contract

A document defining terms and conditions of employment, completed after verifying references, criminal records, qualifications, and ID/address/bank details.

Personnel File (Permanent File)

A record created for every employee containing their employee number, appointment date, remuneration details, fringe benefits, and deductions.

Deduction Authorization Form

A document used by an employee to authorize non-regulated deductions before they are included in the contract.

Termination of Service Form

A document completed when an employee resigns or is dismissed.

Rate/Scale Adjustment Form

A document used to record and authorize changes to an employee's remuneration rate or scale.

Clock Card (Time Card)

A document used in the wage cycle to record the employee number, name, date, and the number of regular and overtime hours worked.

Gross Wage Calculation

The formula defined as: $\text{Hours (clock card)} \times \text{Rate (rate form)}$.

Net Wage Calculation

The formula defined as: $\text{Gross Wage} - \text{Deductions} = \text{Net Wage}$.

Wage Journal

A weekly record containing employee names, numbers, hours worked, rates, and the gross and netto wage totals for the week.

Separation of Duties (Salaries and Wages)

The internal control principle of dividing responsibilities between Appointment, Maintenance of permanent files, Custody of clock cards/calculations, Recording, and Payout.

Wage Payout (Cash Control)

A process where two payroll clerks independently prepare envelopes and a line manager/supervisor oversees the distribution to employees who must identify themselves and sign the register.

Unclaimed Wage Register

A record where information regarding unclaimed wage envelopes is entered by the line manager/supervisor and maintained by the payroll secretary.

EFT Requisition

A document used to initiate the Electronic Funds Transfer process for salaries and wages, requiring independent checking and authorization.

IRP 5 Form

A document kept per employee for the year, recording payments received and income tax deducted to be paid over to SARS ($SAID$).

Returns (Opgawes)

Monthly or annual reports for deductions like tax, pension fund, medical fund, and UIF ($WVF$) that must be paid to third parties.