G
It seems to me that selection of appropriate accounting policies and practices is very much a sox issue. Fairly presented financial statements don’t arise from highly reliable bookkeeping using an innapropriate basis for accounting. Of course I’m no soxpert:>
In the case at hand I suspect that before treating the effect of no payroll accrual as immaterial, one needs to evidence the basis for that judgement. Otherwise, it’s a soft spot. A high level spreadsheet calculation by month and quarter that estimates the accrual would would likely do the trick. If posed the question by external audit during either sox or y/e attest work, I’m guessing it would be good to be able to pull out the calculation/evidence.
On a related note, I anticipate that most well developed payroll systems (or payroll services) likely have the accrual calculation functionality built-in. Ours does. Until the need is demonstrated though there’s little value in burning a bunch of cycles on researching that.
On the other hand, if the back of the envelope analytical review spreadsheet suggests the ‘bounce’ in quarterly expense from differences in accrual amounts may well be material to quarterly net income, then the payroll package/service can likely be configured to run the calculation each month end without actually doing the posting. That would provide the definitive evidence of whether monthly accruals are warranted to account for the difference in cash versus accrual accounting.
On a final note, perhaps a periodic and evidenced management review of significant accounting policies and practices is the required control activity, and the payroll example could be considered just a potential symptom of its absence. Without generally accepted control standards for financial accounting and disclosure, whose to say. Wait a minute, thats GACS for FAD’s:>