Question 1

Auditors typically test details of account balances in the audit of payroll.

Accepted Answer

A) True 
 B)False  False

Question 2

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

Accepted Answer

A)  the computer. 
B)  job time tickets. 
C)  personnel records. 
D)  the canceled check file. 
A)  the computer. 
B)  job time tickets. 
C)  personnel records. 
D)  the canceled check file. C

Question 3

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  False

Question 4

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 5

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 6

Which of the following departments is most likely responsible for pay rate changes and changes in deductible amounts for employees?

Accepted Answer

A)  General Accounting 
B)  Human Resources 
C)  Treasury 
D)  Controller 
A)  General Accounting 
B)  Human Resources 
C)  Treasury 
D)  Controller

Question 7

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 8

Most companies,with the exception of small ones,have effective controls over the payroll cycle.

Accepted Answer

A) True 
 B)False

Question 9

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 10

When examining payroll transactions,an auditor is primarily concerned with the possibility of:

Accepted Answer

A)  incorrect summaries of employee time records. 
B)  overpayments and unauthorized payments. 
C)  under withholding of amounts required to be withheld. 
D)  posting of gross payroll amounts to incorrect salary expense accounts. 
A)  incorrect summaries of employee time records. 
B)  overpayments and unauthorized payments. 
C)  under withholding of amounts required to be withheld. 
D)  posting of gross payroll amounts to incorrect salary expense accounts.

Question 11

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 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

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

Accepted Answer

A) True 
 B)False

Question 14

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 15

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 16

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

Accepted Answer

A) True 
 B)False

Question 17

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 18

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 19

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 20

The payroll and personnel cycle ends with which of the following events?

Accepted Answer

A)  Interviewing job candidates 
B)  Hiring a new employee 
C)  Existing employees submitting requests for payment for work performed 
D)  Issuance of paychecks 
A)  Interviewing job candidates 
B)  Hiring a new employee 
C)  Existing employees submitting requests for payment for work performed 
D)  Issuance of paychecks

Exam 21: Audit of the Payroll and Personnel Cycle

Auditors typically test details of account balances in the audit of payroll.

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

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

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

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

Which of the following departments is most likely responsible for pay rate changes and changes in deductible amounts for employees?

Which of the following statements is correct?

Most companies,with the exception of small ones,have effective controls over the payroll cycle.

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

When examining payroll transactions,an auditor is primarily concerned with the possibility of:

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

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

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

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

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

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

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.

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?

The payroll and personnel cycle ends with which of the following events?

The Assurance Services Market

The Audit Standards Setting Process

Audit Reports

Legal Liability Considerations for Auditors

Ethics and the Audit Profession

Audit Responsibilities and Objectives

Nature and Type of Audit Evidence

Audit Planning

Considering Materiality and Audit Risk

Considering Internal Control

Considering the Risk of Fraud

Implications of Information Technology for the Audit Process

Developing the 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 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

Audit Completion

Other Assurance Services

Internal and Governmental Financial Auditing and Operational Auditing

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