Question 1

What potential problems may arise when an auditor considers the relationship between payroll and inventory valuation?

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 2

Which of the following is a major balance-related audit objective in testing payroll liabilities?

Accepted Answer

A)  Payroll tax expense is properly recorded. 
B)  Transactions in the payroll and personnel cycle are recorded in the proper period. 
C)  Accrual of salaries is the same as the amounts paid on the payroll tax returns. 
D)  Time records are recorded by supervisors. 
A)  Payroll tax expense is properly recorded. 
B)  Transactions in the payroll and personnel cycle are recorded in the proper period. 
C)  Accrual of salaries is the same as the amounts paid on the payroll tax returns. 
D)  Time records are recorded by supervisors.

Question 3

Because of confidentiality requirements and potential losses of payroll funds, outside service center systems are rarely used by companies for payroll-related functions.

Accepted Answer

A) True 
 B)False

Question 4

What are the two major balance-related audit objectives in testing payroll liabilities?

Accepted Answer

A)  Accuracy and detail tie-in 
B)  Completeness and valuation 
C)  Completeness and rights and obligations 
D)  Accuracy and cutoff 
A)  Accuracy and detail tie-in 
B)  Completeness and valuation 
C)  Completeness and rights and obligations 
D)  Accuracy and cutoff

Question 5

A surprise payroll payoff in which employees must pick-up and sign for their pay check is one means of:

Accepted Answer

A)  identifying employees who do not have proper work credentials. 
B)  establishing a tightly controlled, fraud-free work environment. 
C)  testing for nonexistent employees. 
D)  identifying employees who have not submitted proper W-2 forms. 
A)  identifying employees who do not have proper work credentials. 
B)  establishing a tightly controlled, fraud-free work environment. 
C)  testing for nonexistent employees. 
D)  identifying employees who have not submitted proper W-2 forms.

Question 6

Which of the following types of audit procedures is ordinarily emphasized the least when auditing payroll?

Accepted Answer

A)  Tests of controls 
B)  Tests of transactions 
C)  Analytical procedures 
D)  Tests of details of balances 
A)  Tests of controls 
B)  Tests of transactions 
C)  Analytical procedures 
D)  Tests of details of balances

Question 7

Inherent risk for payroll-related liabilities is normally higher than for accounts receivable.

Accepted Answer

A) True 
 B)False

Question 8

As a part of the auditor's responsibility for ________, the auditor should review the preparation of at least one of each type of payroll tax form the client is responsible for filing.

Accepted Answer

A)  doing tests of controls 
B)  doing tests of balances 
C)  doing tests of transactions 
D)  understanding the client's internal controls 
A)  doing tests of controls 
B)  doing tests of balances 
C)  doing tests of transactions 
D)  understanding the client's internal controls

Question 9

When auditing the payroll and personnel cycle, tests of controls are routinely performed.

Accepted Answer

A) True 
 B)False

Question 10

The total of the individual employee earnings in the payroll master file should equal the total:

Accepted Answer

A)  balance of gross payroll in general ledger accounts. 
B)  of the checks drawn to employees for payroll. 
C)  gross payroll plus the total contributed by the employer for payroll taxes. 
D)  gross pay for the current week's payroll. 
A)  balance of gross payroll in general ledger accounts. 
B)  of the checks drawn to employees for payroll. 
C)  gross payroll plus the total contributed by the employer for payroll taxes. 
D)  gross pay for the current week's payroll.

Question 11

You are responsible for the audit of payroll. You have assessed control risk as low for the payroll transactions. Substantive tests of payroll would most likely be limited to analytical procedures and:

Accepted Answer

A)  tracing employee time records to the payroll transaction file. 
B)  recomputing an entire payroll period and compare to the client's records. 
C)  tracing amounts in the payroll transaction file to the payroll master file. 
D)  recalculating payroll accruals. 
A)  tracing employee time records to the payroll transaction file. 
B)  recomputing an entire payroll period and compare to the client's records. 
C)  tracing amounts in the payroll transaction file to the payroll master file. 
D)  recalculating payroll accruals.

Question 12

The deduction authorization form authorizes the rate of pay and the deductions for taxes, dues, etc.

Accepted Answer

A) True 
 B)False

Question 13

Discuss each of the following primary documents and records used in the (1) payment of payroll function, and (2) preparation of payroll tax returns and payment of taxes function in the payroll and personnel cycle: payroll check, W-2 form, and payroll tax returns.

Accepted Answer

The primary documents and records used i

Question 14

Discuss three important differences between the payroll and personnel cycle and other cycles in a typical audit.

Accepted Answer

Three important differences between the

Question 15

The auditor, in auditing payroll, wants to determine that the individuals included in her sample were employees of the company for the period under review. What is the auditor's best source of evidence?

Accepted Answer

A)  Examination of Human Resource Records 
B)  Examination of the Payroll Master File 
C)  Examination of the Payroll Transaction File 
D)  Examination of the Payroll Tax Records 
A)  Examination of Human Resource Records 
B)  Examination of the Payroll Master File 
C)  Examination of the Payroll Transaction File 
D)  Examination of the Payroll Tax Records

Question 16

Which of the following is the best way for an auditor to determine that every name on a company's payroll for the Rodgers factory is that of a bona fide employee presently on the job?

Accepted Answer

A)  Examine personnel records for accuracy and completeness. 
B)  Examine employees' names listed on payroll tax returns for agreement with payroll accounting records. 
C)  Make a surprise observation of the company's regular distribution of paychecks. 
D)  Visit the working areas and confirm with employees their badge or identification numbers. 
A)  Examine personnel records for accuracy and completeness. 
B)  Examine employees' names listed on payroll tax returns for agreement with payroll accounting records. 
C)  Make a surprise observation of the company's regular distribution of paychecks. 
D)  Visit the working areas and confirm with employees their badge or identification numbers.

Question 17

"Physical control over assets" is not a type of control that is applicable to the payroll cycle.

Accepted Answer

A) True 
 B)False

Question 18

When labor is a material factor in inventory valuation, the auditor should place special emphasis on testing the internal controls concerning:

Accepted Answer

A)  fictitious employees. 
B)  authorization of wage rates. 
C)  proper valuation and allocation of balances. 
D)  completeness of recorded transactions. 
A)  fictitious employees. 
B)  authorization of wage rates. 
C)  proper valuation and allocation of balances. 
D)  completeness of recorded transactions.

Question 19

To check the accuracy of hours worked, an auditor would ordinarily compare clock cards with:

Accepted Answer

A)  personnel records. 
B)  job time tickets. 
C)  labor variance reports. 
D)  time recorded in the payroll register. 
A)  personnel records. 
B)  job time tickets. 
C)  labor variance reports. 
D)  time recorded in the payroll register.

Question 20

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

Accepted Answer

A)  payroll master file. 
B)  summary payroll report. 
C)  payroll journal. 
D)  job time ticket. 
A)  payroll master file. 
B)  summary payroll report. 
C)  payroll journal. 
D)  job time ticket.

Exam 20: Audit of the Payroll and Personnel Cycle

What potential problems may arise when an auditor considers the relationship between payroll and inventory valuation?

Which of the following is a major balance-related audit objective in testing payroll liabilities?

Because of confidentiality requirements and potential losses of payroll funds, outside service center systems are rarely used by companies for payroll-related functions.

What are the two major balance-related audit objectives in testing payroll liabilities?

A surprise payroll payoff in which employees must pick-up and sign for their pay check is one means of:

Which of the following types of audit procedures is ordinarily emphasized the least when auditing payroll?

Inherent risk for payroll-related liabilities is normally higher than for accounts receivable.

As a part of the auditor's responsibility for ________, the auditor should review the preparation of at least one of each type of payroll tax form the client is responsible for filing.

When auditing the payroll and personnel cycle, tests of controls are routinely performed.

The total of the individual employee earnings in the payroll master file should equal the total:

You are responsible for the audit of payroll. You have assessed control risk as low for the payroll transactions. Substantive tests of payroll would most likely be limited to analytical procedures and:

The deduction authorization form authorizes the rate of pay and the deductions for taxes, dues, etc.

Discuss each of the following primary documents and records used in the (1) payment of payroll function, and (2) preparation of payroll tax returns and payment of taxes function in the payroll and personnel cycle: payroll check, W-2 form, and payroll tax returns.

Discuss three important differences between the payroll and personnel cycle and other cycles in a typical audit.

The auditor, in auditing payroll, wants to determine that the individuals included in her sample were employees of the company for the period under review. What is the auditor's best source of evidence?

Which of the following is the best way for an auditor to determine that every name on a company's payroll for the Rodgers factory is that of a bona fide employee presently on the job?

"Physical control over assets" is not a type of control that is applicable to the payroll cycle.

When labor is a material factor in inventory valuation, the auditor should place special emphasis on testing the internal controls concerning:

To check the accuracy of hours worked, an auditor would ordinarily compare clock cards with:

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

The Demand for Audit and Other Assurance Services

The CPA Profession

Audit Reports

Professional Ethics

Legal Liability

The CPA Profession

Audit Evidence

Audit Planning and Analytical Procedures

Materiality and Risk

Section 404 Audits of Internal Control and Control Risk

Fraud Auditing

The Impact of Information Technology on the Audit Process

Overall Audit Plan and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions

Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Audit Sampling for Tests of Details and Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls and Substantive Tests of Transactions, and Accounts Payable

Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts

Audit of the Inventory and Warehousing Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Completing the Audit

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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