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Vouching of wages
The object of vouching wages is to ensure that the payment for wages as recorded in wage sheet and cash book, were actually made properly authorised and were correctly maintained.
Vouching of payment of wages should be done in the following lines.
- He should enquire into the system of internal check in force in regard to the maintenance of wage records, preparation of wage sheet and payment of wages.
- If the internal check is effective, the auditor can conduct the vouching of wages on the following lines.
a) He should check a few items of wage sheets here and there to ensure that the calculations are correct.
b) He should check totals of wage sheet with the cash book.
c) He should see that the amount of cheque drawn for wages tallies with the totals of wage sheet.
d) He should see that deduction from wages have properly adjusted and recorded in the books.
e) He should see that wages recorded in the cash book have actually been paid.
f) He should examine the system of employment of casual labour and check the payment made to casual labour.
g) He should see that proper record is maintained for unpaid wages.
h) Wages for the current months should be compared with the wages of the previous month. If there is a material difference, the auditor should enquire into the reason for the difference.
Question for Vouching of Wages and Salaries - Vouching, Auditing & Secretarial practiceTry yourself: What is the purpose of vouching wages in auditing?View Solution
Vouching of salaries
Vouching of payment made for salary should be on the following lines.
- An auditor should enquire into the system of internal check in operation in the concern in regard to the payment of salaries.
- If the internal check system in regard to the payment of salaries is sound, an auditor can conduct the vouching of salaries on the following lines.
a) He should see that the salary bill is prepared with the sanction of a responsible officer.
b) He should see that the salary register is duly signed by each employee and counter signed by a responsible official.
c) He should check the salary register with the entries in the cash book.
d) He should see that the deduction for provident fund, life insurance premium, income tax etc have been correctly made and properly recorded in the books.
e) For vouching salaries of the secretary, manager and other important officials, the auditor should examine the board’s minutes book.
f) He should check the attendance register.
g) He should compare the salary bill for the current month with the salary bill of the previous month. If there is any material difference, enquire into the reason for the difference.
h) He should see that the total of the salary book for a particular month agrees with the cheque drawn for salaries.
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FAQs on Vouching of Wages and Salaries - Vouching, Auditing & Secretarial practice - Auditing and Secretarial Practice - B Com
| 1. What is vouching of wages and salaries? |  |
Ans. Vouching of wages and salaries is a process carried out during an audit to verify the accuracy and legitimacy of the payments made to employees. It involves examining the supporting documents such as payroll registers, timesheets, employment contracts, and bank statements to ensure that the wages and salaries recorded in the financial statements are valid and properly authorized.
| 2. What are the key objectives of vouching wages and salaries? | |
Ans. The key objectives of vouching wages and salaries are as follows:
- To ensure that wages and salaries are paid to actual employees and not fictitious individuals.
- To verify that the amounts paid are in accordance with the employment contracts and any applicable labor laws.
- To confirm that the payments are properly authorized by relevant personnel.
- To detect any potential irregularities such as ghost employees or unauthorized salary increases.
- To ensure that the payments are accurately recorded in the financial statements.
| 3. What are some common documents that need to be vouched during the audit of wages and salaries? | |
Ans. Some common documents that need to be vouched during the audit of wages and salaries include:
- Payroll registers: These provide a summary of the wages and salaries paid to each employee during a specific period.
- Timesheets: These show the number of hours worked by each employee, which is used to calculate their wages.
- Employment contracts: These contain the terms and conditions of employment, including the agreed-upon salary or wage rate.
- Bank statements: These serve as evidence of the actual payments made to employees.
- Personnel files: These may include documents such as job applications, offer letters, and performance evaluations, which help verify the employment status and authorized salary levels of employees.
| 4. What are some red flags or potential issues auditors should look for during the vouching of wages and salaries? | |
Ans. Some red flags or potential issues auditors should look for during the vouching of wages and salaries include:
- Payments made to ghost employees or individuals who do not actually work for the company.
- Unauthorized salary increases or bonuses.
- Discrepancies between the payroll registers and the corresponding timesheets or employment contracts.
- Non-compliance with labor laws or employment agreements.
- Inadequate segregation of duties, such as a single individual having the authority to both approve and process payroll payments.
| 5. How can auditors ensure the effectiveness of vouching wages and salaries during an audit? | |
Ans. Auditors can ensure the effectiveness of vouching wages and salaries during an audit by:
- Developing a systematic and comprehensive vouching program that covers all relevant documents and procedures.
- Conducting a thorough review of the company's internal controls related to payroll processing and authorization.
- Sampling a representative selection of payroll transactions and examining the supporting documents to verify their accuracy and legitimacy.
- Performing analytical procedures to identify any unusual patterns or trends in payroll expenses.
- Communicating any significant findings or concerns to management and recommending appropriate actions for improvement.
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