Question 1

Which of the following includes all payroll transactions processed by the accounting system for a given period of time?

Accepted Answer

A) Payroll journal 
B) Payroll transaction file 
C) Time report 
D) Payroll summary 
A) Payroll journal 
B) Payroll transaction file 
C) Time report 
D) Payroll summary

Question 2

An imprest payroll account limits the client's exposure to payroll fraud.

Accepted Answer

A) True 
 B)False

Question 3

On most audits, the calculation for payroll tax expense is costly and is not necessary unless analytical procedures indicate a problem that cannot be resolved through other procedures.

Accepted Answer

A) True 
 B)False

Question 4

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 5

Despite the large dollar amounts involved in the payroll and personnel cycle, auditors typically spend less time auditing this cycle than others.

Accepted Answer

A) True 
 B)False

Question 6

The careful and timely preparation of all payroll tax returns is necessary to avoid penalties and criminal charges.The most important control in the timely preparation of these returns is:

Accepted Answer

A) computerized preparation of tax returns. 
B) a well-defined set of policies that indicate when each form must be filed. 
C) independent verification of computer output by a competent individual. 
D) the use of an outside payroll service. 
A) computerized preparation of tax returns. 
B) a well-defined set of policies that indicate when each form must be filed. 
C) independent verification of computer output by a competent individual. 
D) the use of an outside payroll service.

Question 7

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 8

If an audit client is a public company, the understanding of internal control must be sufficient to identify opportunities to increase audit effectiveness.

Accepted Answer

A) True 
 B)False

Question 9

Discuss the two circumstances under which auditors would extend their procedures considerably in the audit of payroll.

Accepted Answer

Auditors often extend their procedures c

Question 10

If an auditor wishes to test the completeness transaction-related audit objective in the payroll and personnel cycle, which of the following would be a reasonable test of control?

Accepted Answer

A) Account for a sequence of payroll checks. 
B) Examine the procedures manual and observe the recording of transactions. 
C) Examine the payroll records for indication of pay rate approval. 
D) Reconcile the payroll bank account. 
A) Account for a sequence of payroll checks. 
B) Examine the procedures manual and observe the recording of transactions. 
C) Examine the payroll records for indication of pay rate approval. 
D) Reconcile the payroll bank account.

Question 11

The nature, extent, and timing of substantive tests of payroll transactions vary depending, in part, on assessed control risk.

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 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 14

Which of the following would have the least amount of importance regarding controls over the processing of payroll?

Accepted Answer

A) The person authorized to sign paychecks should not be otherwise involved in the preparation of the payroll. 
B) A check-signing machine should not be used to replace a manual signature. 
C) Distribution of pay checks should be performed by someone who is not involved in the other payroll functions. 
D) Unclaimed paychecks should be immediately returned for redeposit. 
A) The person authorized to sign paychecks should not be otherwise involved in the preparation of the payroll. 
B) A check-signing machine should not be used to replace a manual signature. 
C) Distribution of pay checks should be performed by someone who is not involved in the other payroll functions. 
D) Unclaimed paychecks should be immediately returned for redeposit.

Question 15

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

Question 16

Discuss each of the following documents and records used in the timekeeping and payroll preparation function in the payroll and personnel cycle: time record, job time ticket, payroll transaction file, payroll journal and payroll master file.

Accepted Answer

The primary documents and records used i

Question 17

When labor is a material part of inventory valuation, auditors should emphasize testing internal controls over proper classification of payroll transactions.

Accepted Answer

A) True 
 B)False

Question 18

Most monetary misstatements of payroll are corrected by internal verification controls or by the PCAOB.

Accepted Answer

A) True 
 B)False

Question 19

The usual audit test for a public company's officer compensation is to obtain the authorized salary of each officer from the minutes of the board of directors and compare it with:

Accepted Answer

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

Question 20

There is inherent risk of payroll fraud because most transactions involve:

Accepted Answer

A) expense accounts. 
B) accrued liabilities. 
C) estimates. 
D) cash. 
A) expense accounts. 
B) accrued liabilities. 
C) estimates. 
D) cash.

Exam 20: Audit of the Payroll and Personnel Cycle

Which of the following includes all payroll transactions processed by the accounting system for a given period of time?

An imprest payroll account limits the client's exposure to payroll fraud.

On most audits, the calculation for payroll tax expense is costly and is not necessary unless analytical procedures indicate a problem that cannot be resolved through other procedures.

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

Despite the large dollar amounts involved in the payroll and personnel cycle, auditors typically spend less time auditing this cycle than others.

The careful and timely preparation of all payroll tax returns is necessary to avoid penalties and criminal charges.The most important control in the timely preparation of these returns is:

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

If an audit client is a public company, the understanding of internal control must be sufficient to identify opportunities to increase audit effectiveness.

Discuss the two circumstances under which auditors would extend their procedures considerably in the audit of payroll.

If an auditor wishes to test the completeness transaction-related audit objective in the payroll and personnel cycle, which of the following would be a reasonable test of control?

The nature, extent, and timing of substantive tests of payroll transactions vary depending, in part, on assessed control risk.

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

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

Which of the following would have the least amount of importance regarding controls over the processing of payroll?

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.

Discuss each of the following documents and records used in the timekeeping and payroll preparation function in the payroll and personnel cycle: time record, job time ticket, payroll transaction file, payroll journal and payroll master file.

When labor is a material part of inventory valuation, auditors should emphasize testing internal controls over proper classification of payroll transactions.

Most monetary misstatements of payroll are corrected by internal verification controls or by the PCAOB.

The usual audit test for a public company's officer compensation is to obtain the authorized salary of each officer from the minutes of the board of directors and compare it with:

There is inherent risk of payroll fraud because most transactions involve:

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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