Question 1

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

Accepted Answer

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

Question 2

What events initiate and terminate the payroll and personnel cycle?

Accepted Answer

The hiring of an employee initiates the cycle and the payments to employees; the cycle ends with paying governments and other institutions for withheld and accrued payroll taxes and benefits.

Question 3

Which of the following best describes effective internal control over payroll?

Accepted Answer

A)  The preparation of the payroll must be under the control of the personnel department. 
B)  The confidentiality of employee payroll data should be carefully protected to prevent fraud. 
C)  The duties of hiring, payroll computation, and payment to employees should be segregated. 
D)  The payment of cash to employees should be replaced with payment by checks. 
A)  The preparation of the payroll must be under the control of the personnel department. 
B)  The confidentiality of employee payroll data should be carefully protected to prevent fraud. 
C)  The duties of hiring, payroll computation, and payment to employees should be segregated. 
D)  The payment of cash to employees should be replaced with payment by checks. C

Question 4

Which of the following is not one of the business functions for the payroll and personnel cycle?

Accepted Answer

A)  payment of payroll 
B)  timekeeping and payroll preparation 
C)  reconciliation of payroll account 
D)  human resources and employment 
A)  payment of payroll 
B)  timekeeping and payroll preparation 
C)  reconciliation of payroll account 
D)  human resources and employment

Question 5

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 6

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 7

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

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A)  an error that indicates possible fraud 
B)  computational errors in formulas when a computerized system is used 
C)  classification errors in charging labor to inventory and job cost accounts 
D)  Each of the above gives the auditor significant concern. 
A)  an error that indicates possible fraud 
B)  computational errors in formulas when a computerized system is used 
C)  classification errors in charging labor to inventory and job cost accounts 
D)  Each of the above gives the auditor significant concern.

Question 9

Although significant client business risks affecting payroll are unlikely for most companies, an area that would have the most business risk would be

Accepted Answer

A)  payment of hourly employees. 
B)  payment of salaried employees. 
C)  payments to employees for stock options and bonus plans. 
D)  payments to employees who have direct deposit of their payroll checks. 
A)  payment of hourly employees. 
B)  payment of salaried employees. 
C)  payments to employees for stock options and bonus plans. 
D)  payments to employees who have direct deposit of their payroll checks.

Question 10

In most accounting systems, accruals for salaries and wages are recorded by adjusting entries at the end of the period for any earned-but-unpaid labor related costs.

Accepted Answer

A) True 
 B)False

Question 11

Hiring personnel initiates the payroll and personnel cycle.

Accepted Answer

A) True 
 B)False

Question 12

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 13

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 14

How do auditors commonly verify sales commission expense?

Accepted Answer

If all employees receive the same commis

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

Which department should be authorized to add and delete employees from the payroll or change pay rates and deductions?

Accepted Answer

A)  the supervising department 
B)  the accounting department 
C)  the human resources department 
D)  the treasurer's department 
A)  the supervising department 
B)  the accounting department 
C)  the human resources department 
D)  the treasurer's department

Question 17

An analytical procedure to determine a possible misstatement of commission expense is to compare commission expense to salaries payable.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

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

Question 20

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.

Exam 20: Audit of the Payroll and Personnel Cycle

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

What events initiate and terminate the payroll and personnel cycle?

Which of the following best describes effective internal control over payroll?

Which of the following is not one of the business functions for the payroll and personnel cycle?

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.

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

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

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

Although significant client business risks affecting payroll are unlikely for most companies, an area that would have the most business risk would be

In most accounting systems, accruals for salaries and wages are recorded by adjusting entries at the end of the period for any earned-but-unpaid labor related costs.

Hiring personnel initiates the payroll and personnel cycle.

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

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?

How do auditors commonly verify sales commission expense?

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.

Which department should be authorized to add and delete employees from the payroll or change pay rates and deductions?

An analytical procedure to determine a possible misstatement of commission expense is to compare commission expense to salaries payable.

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

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

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

The Demand for Audit and Other Assurance Services

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Professional Ethics

Legal Liability

Audit Responsibilities and Objectives

Audit Evidence

Audit Planning and Materiality

Assessing the Risk of Material Misstatement

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Assessing Control Risk and Reporting on Internal Controls

Overall Audit Strategy and Audit Program

Audit of the Sales and Collection Cycle: Tests of Controls

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

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