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Payroll Reasonableness TestHeadcount x Average Pay with Mid-Year Raise

What do these figures come to once the work is shown?

Expected payroll from average headcount, average annual pay and the month a raise took effect, against recorded payroll and your investigation threshold.

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Your figures
Example figuresIllustrative only. Type over them with your own.
Difference (recorded less expected)
-$52,960
Recorded payroll less the expectation
Average headcount
122.00
Pay factor for the raise
1.03
Drawn to one scale
Expected payroll$8,012,960
Recorded amount$7,960,000
Difference (recorded less expected)-$52,960
All results
MeasureResult
Average headcount122.00
Pay factor for the raise1.03
Expected payroll$8,012,960
Recorded amount$7,960,000
Difference (recorded less expected)-$52,960
Difference as % of expected-0.66%
InvestigateNo: within the threshold
How this was worked out
Work shownrecomputed as you type
Average headcount = (start + end) / 2
Pay factor = (raise month - 1) / 12 + (13 - raise month) / 12 x (1 + raise %)
Expected payroll = average headcount x average pay x pay factor

Illustrative arithmetic on the figures you enter. Check the result against your firm's methodology before relying on it.

The formulas

  • Average headcount = (start + end) / 2
  • Pay factor = (raise month - 1) / 12 + (13 - raise month) / 12 x (1 + raise %)
  • Expected payroll = average headcount x average pay x pay factor

How it works

AU-C 520 paragraph .A12 gives payroll as the example of a simple predictive model: with a known number of employees at fixed rates of pay, the auditor can estimate total payroll with a high degree of accuracy. This tool builds that model from average headcount, average pay and a raise that took effect partway through the year.

The model is only as good as its inputs. Test headcount and pay rates against HR records, and split the model by department or pay type when the mix changed. Overtime, bonuses and commissions belong in separate expectations.

Illustrative figures only. Check the result against your firm's methodology before relying on it.

Common questions

Should I use monthly headcount?

Yes when headcount moved unevenly. Average the twelve month-end counts and enter that as both start and end.

What threshold should I use?

Your firm sets it from performance materiality and the assurance you need from the procedure. AU-C 520 .A24 says it decreases as assessed risk increases.

Does this cover payroll taxes?

No. Build a separate expectation for employer taxes from taxable wages and rates.

Sources

Runs in your browser. The figures you type are not sent to CORAA or stored. Check the result against your firm's methodology before relying on it.

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