Question 1

Discuss the procedures involved in, and the purpose of a surprise payroll payoff.

Accepted Answer

A surprise payroll payoff is a procedure

Question 2

Paying employees for their services ends the payroll and personnel cycle.

Accepted Answer

A) True 
 B)False

Question 3

State the purpose and the information contained on the W-2 Form and on the payroll tax returns.

Accepted Answer

The primary documents and records used i

Question 4

When auditing the payroll and personnel cycle, the auditor should keep in mind that:

Accepted Answer

A) since payroll transactions are typically uniform, all companies have the same internal controls over payroll. 
B) the substantive tests of transactions for the payroll cycle are the same for all audit clients. 
C) controls the auditor intends to rely on to reduce assessed control risk must be tested with tests of controls. 
D) the tests of controls and the substantive tests of transactions for payroll cannot be combined. 
A) since payroll transactions are typically uniform, all companies have the same internal controls over payroll. 
B) the substantive tests of transactions for the payroll cycle are the same for all audit clients. 
C) controls the auditor intends to rely on to reduce assessed control risk must be tested with tests of controls. 
D) the tests of controls and the substantive tests of transactions for payroll cannot be combined.

Question 5

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 6

Many audits have a ________ risk of misstatement for the payroll cycle.

Accepted Answer

A) high 
B) minimal 
C) moderate 
D) zero 
A) high 
B) minimal 
C) moderate 
D) zero

Question 7

For good internal control, the payroll function should be independent of the human resources department.

Accepted Answer

A) True 
 B)False

Question 8

Hiring personnel initiates the payroll and personnel cycle.

Accepted Answer

A) True 
 B)False

Question 9

While most cycles include at least two classes of transactions, the payroll and personnel cycle includes only one class of transactions.

Accepted Answer

A) True 
 B)False

Question 10

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 as it relates to the physical control over assets and records.

Accepted Answer

Controls over payroll checks should incl

Question 11

A detailed reconciliation of the information on the payroll tax forms and the payroll records must be prepared as part of the test of controls over the payroll cycle.

Accepted Answer

A) True 
 B)False

Question 12

It is generally more difficult for the auditor to detect payment of fraudulent hours than payment of fictitious employees.

Accepted Answer

A) True 
 B)False

Question 13

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 14

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 15

Tests of controls and tests of details of balances are the auditor's most important means of verifying account balances in the payroll and personnel cycle.

Accepted Answer

A) True 
 B)False

Question 16

It would be appropriate for the payroll department to be responsible for which of the following functions?

Accepted Answer

A) Approval of employee time records 
B) Maintain records of employment, firings, and raises 
C) Temporary retention of unclaimed employee paychecks 
D) Preparation of governmental reports as to employees' earnings and withholding taxes 
A) Approval of employee time records 
B) Maintain records of employment, firings, and raises 
C) Temporary retention of unclaimed employee paychecks 
D) Preparation of governmental reports as to employees' earnings and withholding taxes

Question 17

Which of the following internal control objectives is likely to be the most important in the audit of the payroll cycle?

Accepted Answer

A) Payroll transactions are properly disclosed and presented in the notes to the financial statements. 
B) Payroll transactions are processed by an outside service provider. 
C) Recorded transactions represent valid payments. 
D) Recorded transactions are recorded in the proper accounting period. 
A) Payroll transactions are properly disclosed and presented in the notes to the financial statements. 
B) Payroll transactions are processed by an outside service provider. 
C) Recorded transactions represent valid payments. 
D) Recorded transactions are recorded in the proper accounting period.

Question 18

Which of the following statements is correct?

Accepted Answer

A) The overhead charged to inventory at the balance sheet date can be understated if the salaries of administrative personnel are inadvertently or intentionally charged to indirect manufacturing overhead. 
B) When jobs are billed on a cost-plus basis, revenue and total expenses are both affected by charging labor to incorrect jobs. 
C) Payroll is a significant portion of inventory for retail and service industry companies. 
D) The valuation of inventory is affected if the direct labor cost of individual employees is improperly charged to the wrong job or process. 
A) The overhead charged to inventory at the balance sheet date can be understated if the salaries of administrative personnel are inadvertently or intentionally charged to indirect manufacturing overhead. 
B) When jobs are billed on a cost-plus basis, revenue and total expenses are both affected by charging labor to incorrect jobs. 
C) Payroll is a significant portion of inventory for retail and service industry companies. 
D) The valuation of inventory is affected if the direct labor cost of individual employees is improperly charged to the wrong job or process.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is not a correct statement regarding fraudulent hours?

Accepted Answer

A) Fraudulent hours occur when an employee reports more time than was actually worked. 
B) It is difficult for an auditor to discover fraudulent hours. 
C) It is ordinarily easier for the client to prevent fraudulent hours by adequate internal controls than for the auditor to detect it. 
D) To detect fraudulent hours, the auditor should examine the cancelled checks written to the employees. 
A) Fraudulent hours occur when an employee reports more time than was actually worked. 
B) It is difficult for an auditor to discover fraudulent hours. 
C) It is ordinarily easier for the client to prevent fraudulent hours by adequate internal controls than for the auditor to detect it. 
D) To detect fraudulent hours, the auditor should examine the cancelled checks written to the employees.

Exam 20: Audit of the Payroll and Personnel Cycle

Discuss the procedures involved in, and the purpose of a surprise payroll payoff.

Paying employees for their services ends the payroll and personnel cycle.

State the purpose and the information contained on the W-2 Form and on the payroll tax returns.

When auditing the payroll and personnel cycle, the auditor should keep in mind that:

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?

Many audits have a ________ risk of misstatement for the payroll cycle.

For good internal control, the payroll function should be independent of the human resources department.

Hiring personnel initiates the payroll and personnel cycle.

While most cycles include at least two classes of transactions, the payroll and personnel cycle includes only one class of transactions.

A detailed reconciliation of the information on the payroll tax forms and the payroll records must be prepared as part of the test of controls over the payroll cycle.

It is generally more difficult for the auditor to detect payment of fraudulent hours than payment of fictitious employees.

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:

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

Tests of controls and tests of details of balances are the auditor's most important means of verifying account balances in the payroll and personnel cycle.

It would be appropriate for the payroll department to be responsible for which of the following functions?

Which of the following internal control objectives is likely to be the most important in the audit of the payroll cycle?

Which of the following statements is correct?

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

Which of the following is not a correct statement regarding fraudulent hours?

The Demand for Audit and Other Assurance Services

The Cpa Profession

Audit Reports

Professional Ethics

Legal Liability

Audit Responsibilities and Objectives

Audit Evidence

Audit Planning and Analytical Procedures

Materiality and Risk

Internal Control, Control Risk, and Section 404 Audits

Fraud Auditing

The Impact of Information Technology on the Audit Process

Overall Audit Strategy 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 of Balances

Audit of the Acquisition and Payment Cycle: Tests of Controls, 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 and Financial Instruments

Completing the Audit

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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