One area that we haven’t looked at yet is payroll. Apollo collects information and forwards it to a third party payroll processing company. I have obtained a copy of their SAS 70 report, but to be honest, this is the first SAS 70 report that I have seen. Can you prepare a memo (ICP-1) discussing our responsibilities for auditing the controls at a service organization and whether a SAS 70 report fulfills our obligations under Section 404 of SOX? Also, if I remember correctly, there are two types of SAS 70 reports, but I don’t know which one we need and whether the attached letter is a Type 1 or Type 2 report. Don’t worry about Schedule X (referenced in the service auditor’s report) – I will go through it and include it in the workpapers later.
Substantive Payroll Procedures (L-4)
I don’t think we need to do any detail testing on payroll. Because there has been little turnover, we can use analytic procedures to get the comfort necessary. Last year’s numbers should be close to the current year. Also, the internal auditors have been watching payroll closely.
I’ve attached a copy of the year-end payroll register from the third party payroll processing company. Please tie in the ending number (“earnings for year”) to the trial balance. Compare current year numbers to last years to see if they are reasonable. You may want to compare key executives’ salaries with those authorized in the Board minutes to make sure that they are reasonable.
Don’t forget to accrue for wages payable and other payroll accruals for the last couple of days of December if necessary. You won’t need to accrue for State and Federal Unemployment as they are applied only to the first $7,000 of income.
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