Learning Objectives LO1 Explain the key risks of misstatement in production and payroll processes. LO2 Outline the production process: typical transactions,

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Learning Objectives LO4 Describe the typical substantive procedures used to address the assessed risk of material misstatement in the main account balances.

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Learning Objectives LO1 Explain the key risks of misstatement in production and payroll processes. LO2 Outline the production process: typical transactions, account balances, source documents, and controls. LO3 Give examples of control tests for auditing control over conversion of materials and labour in the production process. LO4 Give examples of the typical substantive procedures used to address the assessed risk of material misstatement in the main accounts in the production process. 1

Risk Assessment for Production and Payroll Processes Flexibility and judgement required for production accounting is a main source of risk in the production process.  Transactions include allocations from materials, overheads and labour to inventory, including work-in–process and finished goods, and to cost of goods sold.  All of the management assertions need to be considered. LO1 2

Risk Assessment for Production and Payroll Processes The main risk related to payroll relates to the ownership assertion.  The process involves cash payment to individuals and is vulnerable to fraud.  The auditor will seek to ensure that duties are well segregated. LO1 3