Exam 13: Auditing Human Resources Cycle Process: Personnel and Payroll in Service Industries

Professional Payroll Plus: On a single day in May 2007 six businesses filed complaints against Professional Payroll Plus (PPP). The Florida-based payroll provider filed for bankruptcy. The IRS and the FBI initiated investigations. When PPP processed payroll for its clients it withheld money for federal taxes. But at some point PPP stopped sending the withheld funds to the IRS and instead kept the money for itself. Clients of PPP discovered the problem when they received notices from the IRS regarding unpaid taxes. Many of PPP's clients had to lay off employees or make other cuts to keep their businesses afloat while paying the IRS. Using an outside payroll service exposes a company to risk that must be considered by the auditor. Required: (a) List specific topics the auditor must address during the financial statement and ICFR audits when the audit client uses an outside service provider. (b) List characteristics used to define the role a service organization plays in the user company's information system? For each characteristic, identify how it impacts whether the service provider is part of the company's information processing system. (c) What factors influence an auditor's decision on whether a Type II audit report provides sufficient evidence about the effectiveness of controls at service organizations?

An example in the book cites the case of a young woman who received an incorrect W-2 showing more wages than she received. This is an example of:

The payroll master file serves which purpose?

A W-2 form can be used as a control for:

An example in the book cites the case of a young woman who received an incorrect W-2 showing more wages than she received. How did this occur?

Disclosures associated with payroll include:

The presentation and disclosure assertion is audited by:

AS#5 requires auditors whose public clients use service providers considered significant:

The cut-off assertion is audited by:

Human Resources (personnel) should maintain the payroll master file.

Which of the following must the auditor consider when deciding whether to perform additional testing of a service provider in the presence of a SAS 70 report?

Tracing wages paid to the appropriate time and attendance data is an example of the existence assertion.

A W-4 form is used to report earnings to the appropriate governmental bodies.

The service provider needs to:

The difference between a SAS 70 Type I and Type II report centers on risk.

Dual purpose tests for payroll processing are:

Substantive analytical procedures include:

An output control needed regardless of who processes payroll is:

Reviewing employment contracts for payments due is an example of the cut-off assertion.

An auditor expresses an unqualified opinion on the financial statements of a publically held client. Subsequent to the audit, the client files for bankruptcy protection. If the bankruptcy was caused by poor internal controls at a service provider, the auditor may use as a valid defense which of the following?