Exam 20: Audit of the Payroll and Personnel Cycle

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Which of the following errors gives the auditor the least concern in auditing payroll transactions?

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D

For most clients, the balance sheet accounts related to payroll are normally insignificant, except for labor charged to inventory.

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True

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:

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A

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

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No individual with access to time cards, payroll records, or checks should also be permitted access to:

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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.

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Auditors seldom expect to find misstatements when testing payroll transactions.

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The primary purpose of a surprise payroll payoff is to detect employees who have reported more time than was actually worked (fraudulent hours).

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Match seven of the terms for documents and records (a-k)used in the payroll and personnel cycle with the descriptions provided below (1-7):
A document written in exchange for services received from an employee.
Summary payroll report
A form used to authorize the amount of pay.
Time record
A document indicating the time the hourly employee started and stopped working.
Payroll journal
Correct Answer:
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Premises:
Responses:
A document written in exchange for services received from an employee.
Summary payroll report
A form used to authorize the amount of pay.
Time record
A document indicating the time the hourly employee started and stopped working.
Payroll journal
A file used for recording payroll transactions for each employee and maintaining total employee wages paid for the year to date.
Rate authorization form
A form authorizing payroll deductions including the number of exemptions for withholding of income taxes U.S.savings bonds and union dues.
Human resource recordsb.Deduction authorization form
Records including date of employment personnel investigations rates of pay etc.
Payroll master file
Forms submitted to local state and federal units of government for the payment of withheld taxes and the employer's tax.
Job time ticket
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Although significant client business risks affecting payroll are unlikely for most companies, an area that would have the most business risk would be:

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Many companies use outside payroll services to process payroll.Which of the following regarding the auditor's responsibilities is most correct regarding their reliance on the internal controls of these outside payroll services?

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The most important means of verifying account balances in the payroll and personnel cycle are:

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An imprest payroll account that has a significant balance may indicate the presence of:

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Audit tests of payroll are usually not extensive because:

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It is usually very easy for an auditor to determine if an employee has overstated their hours worked.

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Generally, is the inherent risk level for the audit of the payroll and personnel set at low, moderate, or high? Explain.

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

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Mathews and Company has $112,000 in an accrued payroll account.The company's weekly payroll is $186,700 and the accrual represents 3 days out o 5 working days.If the auditor has determined that controls are effective over payroll, what additional work should the auditor perform for this account?

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Auditors should determine whether the client has fulfilled its legal obligation in submitting payments of all payroll withholdings as part of their payroll tests.

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In audits of companies in which payroll is a significant portion of inventory, the improper account classification of payroll can:

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