Question 1

Which of the following statements about the payroll and personnel cycle is correct?

Accepted Answer

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

Question 2

The audit procedure "Recompute hours worked from time cards" is normally performed when testing the completeness objective for payroll.

Accepted Answer

A) True 
 B)False

Question 3

There is very little opportunity for confirmation from third parties of balance sheet accounts related to the payroll and personnel cycle.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following best describes inherent risk for balance-related audit objectives as they relate to payroll?

Accepted Answer

A)  not considered 
B)  low 
C)  moderate 
D)  high 
A)  not considered 
B)  low 
C)  moderate 
D)  high

Question 5

Which of the following audit procedures would be most useful in testing the cut-off audit objective for payroll-related liabilities?

Accepted Answer

A)  Review documentation for proper classification between long and short term liabilities. 
B)  Compare the clients accrual of payroll liabilities with the payroll tax return. 
C)  Examine payment tax returns to determine that the expense was recorded in the correct period. 
D)  Examine subsequent cash disbursements to determine when the liabilities for payroll were paid. 
A)  Review documentation for proper classification between long and short term liabilities. 
B)  Compare the clients accrual of payroll liabilities with the payroll tax return. 
C)  Examine payment tax returns to determine that the expense was recorded in the correct period. 
D)  Examine subsequent cash disbursements to determine when the liabilities for payroll were paid.

Question 6

Supervisory personnel in the functional department is responsible for evaluating employees who should be responsible for authorizing the addition and deletion of employees from the payroll.

Accepted Answer

A) True 
 B)False

Question 7

Internal control over payroll is normally highly structured and well controlled.

Accepted Answer

A) True 
 B)False

Question 8

An auditor is vouching a sample of hourly employees from the payroll master file to approved time clock or time sheet data in order to provide evidence that:

Accepted Answer

A)  employees work the number of hours for which they are paid. 
B)  payments are made at the contractual rate. 
C)  product cost information is accurate. 
D)  segregation of duties is present between the payroll function and the payment function for cash disbursements. 
A)  employees work the number of hours for which they are paid. 
B)  payments are made at the contractual rate. 
C)  product cost information is accurate. 
D)  segregation of duties is present between the payroll function and the payment function for cash disbursements.

Question 9

Audit tests of payroll are usually not extensive because:

Accepted Answer

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

Question 10

Auditors seldom expect to find misstatements when testing payroll transactions.

Accepted Answer

A) True 
 B)False

Question 11

A signed payroll check that has not been cashed is considered an asset to the company that issued the check.

Accepted Answer

A) True 
 B)False

Question 12

The primary concern in testing payroll-related liabilities is to make sure that:

Accepted Answer

A)  accruals are properly valued. 
B)  transactions are recorded in the proper period. 
C)  there are no understated or omitted accruals. 
D)  the accruals are not overstated. 
A)  accruals are properly valued. 
B)  transactions are recorded in the proper period. 
C)  there are no understated or omitted accruals. 
D)  the accruals are not overstated.

Question 13

A weak internal control system allows a department supervisor to "clock in" for a fictitious employee and then approve the employee's time card at the end of the pay period. This fraud would be detected if other controls were in place, such as having an independent party:

Accepted Answer

A)  distribute paychecks. 
B)  recompute hours worked from time cards. 
C)  foot the payroll journal and trace postings to the general ledger and the payroll master file. 
D)  compare the date of the recorded check in the payroll journal with the date on the canceled checks and time cards. 
A)  distribute paychecks. 
B)  recompute hours worked from time cards. 
C)  foot the payroll journal and trace postings to the general ledger and the payroll master file. 
D)  compare the date of the recorded check in the payroll journal with the date on the canceled checks and time cards.

Question 14

In most audits, payroll tax expense is not tested because the audit risk does not justify the time required to perform the tests.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following types of audit tests is usually emphasized due to a lack of independent third-party evidence related to payroll transactions?

Accepted Answer

A)  Analytical procedures 
B)  Tests of details of balances 
C)  Tests of controls 
D)  Each of the above is emphasized. 
A)  Analytical procedures 
B)  Tests of details of balances 
C)  Tests of controls 
D)  Each of the above is emphasized.

Question 16

The most important consideration in evaluating the fairness of the amounts accrued for vacation pay, sick pay, and other benefits is the:

Accepted Answer

A)  consistent accrual of these liabilities relative to those of preceding periods. 
B)  actual expense incurred for the prior period. 
C)  amount expended to date in the current period. 
D)  profitability of the client which will enable these liabilities to be met. 
A)  consistent accrual of these liabilities relative to those of preceding periods. 
B)  actual expense incurred for the prior period. 
C)  amount expended to date in the current period. 
D)  profitability of the client which will enable these liabilities to be met.

Question 17

Records that include data about employees such as employment date, performance ratings and pay rates are the:

Accepted Answer

A)  human resource records. 
B)  employee screening forms. 
C)  summary payroll reports. 
D)  employee folders. 
A)  human resource records. 
B)  employee screening forms. 
C)  summary payroll reports. 
D)  employee folders.

Question 18

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:

Accepted Answer

A)  recalculate the client's accruals. 
B)  compare the ledger balance with the journal and the tax form. 
C)  confirm the amount with employees. 
D)  compare the recorded accrued wages with the amount approved in the minutes of the Board. 
A)  recalculate the client's accruals. 
B)  compare the ledger balance with the journal and the tax form. 
C)  confirm the amount with employees. 
D)  compare the recorded accrued wages with the amount approved in the minutes of the Board.

Question 19

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

Accepted Answer

A)  in the expense account. 
B)  used in the prior period. 
C)  authorized in the minutes of the board. 
D)  paid in the subsequent period. 
A)  in the expense account. 
B)  used in the prior period. 
C)  authorized in the minutes of the board. 
D)  paid in the subsequent period.

Question 20

For proper internal control, the person(s) responsible for signing the payroll checks should not have access to timekeeping or be otherwise involved in the preparation of payroll.

Accepted Answer

A) True 
 B)False

Exam 20: Audit of the Payroll and Personnel Cycle

Which of the following statements about the payroll and personnel cycle is correct?

The audit procedure "Recompute hours worked from time cards" is normally performed when testing the completeness objective for payroll.

There is very little opportunity for confirmation from third parties of balance sheet accounts related to the payroll and personnel cycle.

Which of the following best describes inherent risk for balance-related audit objectives as they relate to payroll?

Which of the following audit procedures would be most useful in testing the cut-off audit objective for payroll-related liabilities?

Supervisory personnel in the functional department is responsible for evaluating employees who should be responsible for authorizing the addition and deletion of employees from the payroll.

Internal control over payroll is normally highly structured and well controlled.

An auditor is vouching a sample of hourly employees from the payroll master file to approved time clock or time sheet data in order to provide evidence that:

Audit tests of payroll are usually not extensive because:

Auditors seldom expect to find misstatements when testing payroll transactions.

A signed payroll check that has not been cashed is considered an asset to the company that issued the check.

The primary concern in testing payroll-related liabilities is to make sure that:

A weak internal control system allows a department supervisor to "clock in" for a fictitious employee and then approve the employee's time card at the end of the pay period. This fraud would be detected if other controls were in place, such as having an independent party:

In most audits, payroll tax expense is not tested because the audit risk does not justify the time required to perform the tests.

Which of the following types of audit tests is usually emphasized due to a lack of independent third-party evidence related to payroll transactions?

The most important consideration in evaluating the fairness of the amounts accrued for vacation pay, sick pay, and other benefits is the:

Records that include data about employees such as employment date, performance ratings and pay rates are the:

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:

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

For proper internal control, the person(s) responsible for signing the payroll checks should not have access to timekeeping or be otherwise involved in the preparation of payroll.

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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