Payroll is not just an administrative function — it is one of the most critical areas reviewed in an audit. Yet, many companies underestimate the importance of maintaining a complete, accurate, and well-organised payroll listing.
A proper payroll listing does more than support salary payments; it serves as a key audit trail, a compliance safeguard, and a financial control tool for businesses. In this article, we explain why payroll listing is essential for audit purposes and what auditors typically look for.
What Is a Payroll Listing?
A payroll listing is a detailed record of employee remuneration for a specific period (usually monthly or annually). It typically includes:
- Employee name and identification number
- Gross salary and wages
- Allowances (e.g., transport, housing, meal)
- Overtime and bonuses
- Deductions (EPF, SOCSO, EIS, PCB)
- Net salary paid
- Employer’s statutory contributions
A well-prepared payroll listing provides a clear, structured overview of all payroll transactions within the financial year.
1. Supports Financial Statement Accuracy
Payroll costs are usually one of the largest expenses in a company’s profit and loss statement.
During an audit, auditors need to verify that:
- Total salaries and wages recorded are accurate
- Payroll expenses are properly classified
- Bonuses, allowances, and benefits are correctly accounted for
A complete payroll listing allows auditors to trace payroll expenses from individual employee records to the financial statements — ensuring reliability and accuracy.
2. Essential for Statutory Compliance Review
Auditors will also assess whether the company has complied with statutory obligations, including:
- EPF contributions
- SOCSO and EIS payments
- HRDF levy (if applicable)
- PCB / MTD deductions
A payroll listing helps auditors:
- Reconcile total statutory deductions with actual payments made
- Identify underpayments or overpayments
- Confirm compliance with legal requirements
Without a proper payroll listing, this process becomes difficult and may raise red flags during the audit.
3. Provides Evidence for Tax Audit (LHDN)
In a tax audit, LHDN may request payroll records to verify:
- Employee remuneration declared in Form E
- Accuracy of PCB deductions
- Benefits-in-kind provided to employees
- Directors’ remuneration and fees
A detailed payroll listing acts as supporting documentation to justify figures reported to LHDN. Poor or incomplete records may lead to additional assessments or penalties.
4. Helps Verify Employee Entitlements
Auditors may review payroll to ensure that:
- Salaries align with employment contracts
- Overtime is correctly calculated
- Bonuses or commissions are properly approved
- Termination payments comply with labour laws
A structured payroll listing allows auditors to perform these checks efficiently and reduces the risk of disputes or misstatements.
5. Strengthens Internal Controls
A well-maintained payroll listing indicates that the company has good internal controls over payroll processing, such as:
- Proper authorisation of salary changes
- Segregation of duties in payroll preparation and approval
- Regular reconciliation of payroll figures
Strong internal controls reduce audit risk and improve the overall audit outcome.
What Happens If Payroll Listing Is Incomplete?
If payroll records are disorganised or missing, companies may face:
- Audit delays
- Additional audit queries
- Higher audit fees due to extra work
- Potential compliance issues
- Difficulty defending figures in tax audits
In serious cases, auditors may even issue a modified audit opinion if payroll records are unreliable.
✅ Best Practices for Preparing Payroll Listing for Audit
To ensure a smooth audit process, companies should:
✔ Maintain monthly payroll summaries
✔ Keep digital and physical records organised
✔ Reconcile payroll to bank payments and statutory receipts
✔ Retain employment contracts and salary revision letters
✔ Ensure consistency between payroll, financial statements, and tax filings
If you need assistance in preparing payroll documentation or audit support, consulting a professional accountant or auditor can help ensure everything is in order before year-end.