SU 9 – Human

resources cycle
Session 2

GEAR 111

Compiled by: Ms Jané van Wyk

Learning outcomes
After completing this study unit you should be able to:
•explain the nature and purpose of the human resources cycle; •demonstrate a basic understanding of the computer technologies
typically applied in the human resources cycle;
•demonstrate an understanding of a typical transaction in the
human resources cycle; •describe the control objectives for the human resources cycle;
•identify and describe the major general ledger accounts affected by •demonstrate an understanding of how internal controls may assist
the human resources cycle; in achieving the control objectives in the human resources cycle;
•explain the accounting treatment required for some of the •describe the internal control activities for the human resources
transactions in the human resources cycle as well as the applicable cycle;
legislation and regulations;
•describe the activities, responsible parties, documents and records,
•list the human resources cycle's functional areas; risks and manual controls applicable to each of the functional areas
of the human resources cycle;
•describe each of the human resources cycle's functional areas, with
specific reference to the purpose, main activities, and persons •analyse internal control systems in order to identify and explain
involved; weaknesses in the manual control system of the human resources
cycle, and recommend improvements by describing the required
•demonstrate an understanding of the information system used in
internal controls;
the human resources cycle;
•recommend a manual system of internal controls for the human
•name and describe the documents and records utilised in the
resources cycle, that will achieve the cycle's control objectives; and
human resources cycle and the purpose of each;
•apply any of the above-mentioned in a case study.
•describe the flow of transactions in the human resources cycle
through the information system, including its relation to source
documents and accounting records and its relation to classes of
transactions and events, and balances;
•identify and describe the risks of material misstatement affecting
the account balances, classes of transactions and events in the
financial statements in the human resources cycle;
Introduction to our company
Who is our company and what do they do?
Revision
QuickBuy – clothing, shoe and accessory retailer

We are a small retailer that sells clothing,

shoes and accessories headquartered in
Potchefstroom. QuickBuy has several
different outlets across South Africa and an
online shop.
• The company manufactures some of its
own products in a small production facility
while also importing and purchasing
goods from local and international
suppliers
• We also have several employees, to
whom you will be introduced as we go
along
Let’s delve deeper into our
company
Functional areas Revision
What is a functional area?
A separate stage within the cycle where similar and related activities to a
transaction occur.
Now, it is important to think where the transaction BEGINS and where it ENDS

Wage:
Salary: Salary:
Appointment of
Appointment of Salary paid over
employee
employee and recorded

Wage:
Wage paid over
What happens in between? and recorded

The entity needs to ensure that the transaction is fully executed and that it is
valid, complete, and accurate.

Therefore, the entity needs to identify what needs to happen in order to do this
AND then implement the proper controls.
Functional areas
What is a functional area?
A separate stage within the cycle where similar and related activities to a
transaction occur.

Calculation and
recording of
Personnel Timekeeping
salaries, wages &
deductions

Payment Recording of salary

Payment of
preparation and & wage
deductions
payment of transactions in the
salaries & wages accounting records
Functional areas Revision
What is a functional area?
A separate stage within the cycle where similar and related activities to a
transaction occur.

The important things we are going to look at:

Activities People Records

Control Control
Risks
objectives activities
Functional areas
What is a functional area?
A separate stage within the cycle where similar and related activities to a
transaction occur. Payment What happens here (activities)?
preparation and Preparation of payslips, making up
payment of wage packets, actual payment made
Who will work here?
salaries & wages
Payroll clerk Which documents/records would they use to complete these activities?

Payroll manager Salary and wage Wage envelopes

journal
Senior manager Payslips

Division foreman Which risks will be applicable?

Not all employees that should be paid are paid

Payments are made to incorrect employees

 Payment
Functional areas preparation and
payment of
What is a functional area? salaries & wages
A separate stage within the cycle where similar and related activities to a
transaction occur.

Formulate control Design appropriate

Identifying risks objectives controls

Not all employees that should be Salaries are paid to all 1. A payment list should be
paid are paid employees entitled to payment prepared for all employees to be
paid, based on the salary and
wages journal and accompanying
NB! reconciliation
Wage 2. A second reviewer should review
proces the journal and payment list.
s 3. The salary and/or wage should
only be paid to an existing
Payments are made to incorrect Payment of salaries and wages employee in person or to their
employees is made to the correct employee own bank account as per their
original appointment
Functional areas
What is a functional area?
A separate stage within the cycle where similar and related activities to a
transaction occur.
Payment of What happens here (activities)?
deductions Prepare returns, paying of deductions
Who will work here?
Admin assistant in Which documents/records would they use to complete these activities?
payroll/
accounting Third party returns
department
Accountant Salaries and wage journal/ payroll

Senior manager Which risks will be applicable?

Deductions and liabilities are calculated and paid over incorrectly

All deductions that should have been paid over are not paid over,
or not paid over timeously
 Functional areas Payment of
deductions
What is a functional area?
A separate stage within the cycle where similar and related activities to a
transaction occur.

Formulate control Design appropriate

Identifying risks
objectives controls
1. The admin assistant should
complete a monthly or annual
Deductions and liabilities are Deductions and liabilities are return of third party deductions
calculated and paid over calculated correctly and paid made from employees (UIF,
incorrectly over to the correct third party PAYE, medical aid)
2. The third party return should be
reconciled with the deductions in
the salaries and wages journal/
payroll
All deductions that should have All deductions made from 3. The payroll manager should
been paid over are not paid over, employees are paid over to third review the returns for accuracy
4. The financial manager should
or not paid over timeously parties timeously
also do a review and then sign
the request for payment in order
for the payment to be made
Functional areas
What is a functional area?
A separate stage within the cycle where similar and related activities to a
transaction occur. Recording of salary What happens here (activities)?
& wage Posting salaries, wages and
transactions in the deductions to the general ledger
Who will work here? accounting records accounts etc.
Accounting clerk Which documents/records would they use to complete these activities?

Salary and wages journal Payroll reconciliation

Accountant
General ledger
Financial manager
Which risks will be applicable?

Recording of items relating to the human resources cycle may be

inaccurate, invalid and/ or incomplete

Recording items relating to the human resources cycle may be

classified incorrectly
 Recording of salary
Functional areas & wage
transactions in the
What is a functional area? accounting records
A separate stage within the cycle where similar and related activities to a
transaction occur.

Formulate control Design appropriate

Identifying risks
objectives controls

Recording of items relating to the Salaries, wages and deductions 1. All journals posted should be
human resources cycle may be are accurate, complete and valid reviewed against the salaries and
wages journal, calculations
inaccurate, invalid and/ or in the accounting records
reperformed.
incomplete 2. The payroll clerk should reconcile
the number of employees,
salaries, wages and deductions
to the prior period.
Recording items relating to the All items are properly identified 3. The financial manager must
human resources cycle may be and classified in the accounting ensure that all deduction
classified incorrectly records payments that are due, but have
not been paid before year-end,
are raised as a liability in the GL
Weaknesses vs Recommendations
What is a weakness? No marks if the two are confused with one another

What is a recommendation? Revision

Weakness Recommendation
Weaknesses are control activities that are Recommendations are things that
not in place or not working as it should SHOULD/ MUST be implemented
(NO/NOT)
This is what the entity should implement to
It should be written in the negative format address the weakness, and the reason why it
will address the weakness
Flow of a transaction
What would the flow of a transaction within the human resources cycle?

NB!
Textbook
page 377-
383
General ledger accounts
Which general ledger accounts would be applicable
within the purchases and payments cycle? Remember the
double-entry principle

Salaries/ Wages Bonuses/ Commission/ Actual leave pay Provision for leave pay

Cash and cash equivalents Accruals for deductions payable

Computer technologies
Which computer technologies do you think would be applicable to the
purchases and payments cycle?

Access control Electronic funds

Payroll software
systems transfer (EFT)
Questions?
Thank you
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