Exam 15: Audit of the Human Resources and Payroll Cycle

Even though the tests of controls are the most important part of testing payroll, many auditors spend little time in this area. In many audits, there is a minimal risk of material misstatements, even though payroll is frequently a significant part of total expenses. Explain the reasons the auditors have for justifying this position.

State the six specific transactions-related audit objectives as related to payroll and for each objective state one common test of controls that can be used to test the objective.

When auditing the human resources and payroll cycle, the auditor should verify the officers' compensation because

A weak internal control system allows a foreman to clock in daily for a fictitious employee and to approve the time card at the end of the payroll period. This fraud would be detected if other controls were in place, such as having an independent party

Which of the following tests of controls would pertain to whether existing payroll transactions are recorded?

Payroll and personnel costs at ABC Manufacturing are a major expense. This means that improper allocation or misclassification of labour costs could result in

A wage rate form that also documents a change in job responsibility for one of the warehouse employees should be approved by

Which of the following best describes proper internal control over payroll?

Which of the following internal control tests would assist in satisfying the occurrence transaction-related audit objective for payroll?

The file for recording each payroll transaction for each employee and maintaining total employee wages paid for the year to date is the

Which of the following internal control tests would be used in assessing that recorded payroll transactions are for the amount of time actually worked and at the proper pay rate, and that withholdings are properly calculated?

"Existing payroll transactions are recorded" is the control objective of

You have been working on the audit of Big Insurance Company for several years now. There are about 5000 employees working at the company in various positions. Your audit partner has indicated that this year, the firm will be implementing computer-assisted audit techniques (CAATs), using generalized audit software. The information systems audit specialist will be assisting the audit team with the implementation of these tests. She wants you to provide a draft list of CAATs that could assist with the coming year's audit of payroll. The company uses mainframe computing systems. Assume that the typical payroll information is available on computer files (i.e., employee number, employee name, social insurance number, department code, payment type code (salaried or hourly), time worked, wage rate, gross pay, deductions (by type), net pay, and cheque number). Required: Prepare a list of potential computer-assisted audit techniques that could be prepared for the payroll audit. Identify the audit objective to which they relate and indicate if any manual procedures are required to supplement the suggested CAAT.

Because of the lack of available evidence, it is usually difficult for an auditor to discover if an employee records more time on his or her time card than they actually worked. One procedure is to reconcile the total hours

General controls must be evaluated and their impact considered upon the human resources and payroll transaction cycle because

Verification of the legitimacy of year-end unpaid bonuses to officers and employees can be accomplished by comparing the recorded accrual to the amount

Once the auditor has determined the company's policy for accruing wages and knows it is consistent with that of previous years, the appropriate audit procedure to test for cutoff and accuracy is to

A) There are several internal controls in the human resources and personnel function that are important from an audit perspective. For example, there should be an adequate investigation of the competence and trustworthiness of new employees. Discuss other internal controls in the personnel and employment function that are important from an audit perspective. B) There are several key internal controls over the timekeeping and payroll preparation function that should be present. For example, adequate control over the time on employees' time records includes the use of a time clock or other method of making certain that employees are paid for the number of hours they worked. Discuss other key internal controls over the timekeeping and payroll preparation function. C) There are several key internal controls over the payment of payroll function that should be present. For example, the payroll should be distributed by someone who is not involved in the other payroll functions. Discuss other key internal controls over the payment of payroll function.

Discuss the two most common ways in which employees can defraud a company in the payroll area.

To test whether the client has fulfilled its legal obligation in submitting payments for all payroll withholdings, the auditor must first