Question 1

Internal control over payroll is normally highly structured and well controlled.

Accepted Answer

A) True 
 B)False

Question 2

________ is not a transaction-related audit objective for the classes of transactions underlying the payroll cycle.

Accepted Answer

A)  Classification 
B)  Existence 
C)  Timing 
D)  Completeness 
A)  Classification 
B)  Existence 
C)  Timing 
D)  Completeness

Question 3

Which of the following best describes inherent risk for balance-related audit objectives as they relate to payroll?

Accepted Answer

A)  Not considered 
B)  Low 
C)  Moderate 
D)  High 
A)  Not considered 
B)  Low 
C)  Moderate 
D)  High

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

Audit tests of payroll are usually not extensive because:

Accepted Answer

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

Question 6

Which of the following is an accurate statement regarding nonexistent employees?

Accepted Answer

A)  In order to prevent this type of fraud, the foreman should distribute the paychecks and approve the time cards. 
B)  Records for all terminated employees should be destroyed to prevent this type of fraud. 
C)  The person committing this type of fraud is generally the CEO or CFO of the company. 
D)  This type of fraud often results from the continuance of an employee on the payroll after the employee has been terminated. 
A)  In order to prevent this type of fraud, the foreman should distribute the paychecks and approve the time cards. 
B)  Records for all terminated employees should be destroyed to prevent this type of fraud. 
C)  The person committing this type of fraud is generally the CEO or CFO of the company. 
D)  This type of fraud often results from the continuance of an employee on the payroll after the employee has been terminated.

Question 7

Payroll checks should be distributed by someone independent of the payroll and timekeeping functions.

Accepted Answer

A) True 
 B)False

Question 8

Auditors may extend their tests of payroll in which of the following circumstances?

Accepted Answer

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

Question 9

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 10

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 11

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 12

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

Accepted Answer

A) True 
 B)False

Question 13

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 14

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 15

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 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

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.

Question 18

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?

Accepted Answer

A)  Must 
B)  Cannot 
C)  Rarely 
D)  Can often 
A)  Must 
B)  Cannot 
C)  Rarely 
D)  Can often

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

Generally set low since there is only on

Exam 21: Audit of the Payroll and Personnel Cycle

Internal control over payroll is normally highly structured and well controlled.

________ is not a transaction-related audit objective for the classes of transactions underlying the payroll cycle.

Which of the following best describes inherent risk for balance-related audit objectives as they relate to payroll?

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

Audit tests of payroll are usually not extensive because:

Which of the following is an accurate statement regarding nonexistent employees?

Payroll checks should be distributed by someone independent of the payroll and timekeeping functions.

Auditors may extend their tests of payroll in which of the following circumstances?

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.

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

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

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

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

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

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

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

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?

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

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

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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