When an entity has more than one class of employee, it is important to evaluate the reasonableness of payroll based on employee class.Which of the following procedures is commonly used to test this?
A)Calculate revenue per employee
B)Calculate total payroll costs as a percent of revenue
C)Comparing payroll expenses with prior year balances or budgets
D)Calculate average payroll cost per employee classification

Question

Quizplus · Accepted Answer

This procedure involves calculating the average payroll cost per employee classification, which enables the auditor to compare the reasonableness of payroll costs for each class of employee with prior year balances or budgets. This approach helps to identify any discrepancies or anomalies that might indicate potential issues with the payroll process. A, B, and C are not as effective in evaluating the reasonableness of payroll based on employee class.

When an Entity Has More Than One Class of Employee