Question 1

When testing informational technology (IT) application controls in payroll, the auditor may do any of the following, EXCEPT _______.

Accepted Answer

The answer of When testing informational technology (IT) application controls...

Question 2

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?

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.

Question 3

Which of the following is important for the auditor to understand before proceeding with an audit of the payroll process?

Accepted Answer

All of the answer choices are important for the auditor to understand before proceeding with an audit of the payroll process. Knowledge of whether the entity is labor or capital intensive is important for understanding the overall impact of payroll expenses on the entity's financial statements. The nature of compensation (hourly vs. salaried) is important for understanding the calculations involved in payroll and for testing the accuracy of those calculations. The importance of bonuses or other compensation arrangements is important for ensuring that these types of compensation are properly accounted for and disclosed in the financial statements.

Question 4

If pay periods do not align well with month-end, quarter-end, or year-end, which of the following key assertions is most at risk of misstatement?

Accepted Answer

Cutoff is the key assertion most at risk of misstatement if pay periods do not align well with month-end, quarter-end, or year-end. This is because the timing of payments and recording of expenses or liabilities may be incorrect, which can affect the accuracy of financial statements.

Question 5

All of the following are risks associated with payroll, EXCEPT _______.

Accepted Answer

All the options listed (paying fictitious payroll, inaccurate period-end cutoff, and "padded" labor costs in contract arrangements) are indeed risks associated with payroll, making option D correct as it states all answer choices are correct risks associated with payroll.

Question 6

All of the following controls relate to the process of preparing payroll, EXCEPT:

Accepted Answer

All of the answer choices relate to controls that should be in place during the process of preparing payroll. None of the options are excluded from this process.

Question 7

All of the following are true when an auditor uses audit data analytics, EXCEPT:

Accepted Answer

The use of audit data analytics provides auditors with insights for identifying potential anomalies. However, it is still necessary for the auditor to investigate any flagged items, as legitimate business reasons may exist and further investigation may be necessary to determine the nature and cause of the anomaly.

Question 8

If factory workers are paid based on time and/or productivity, there is likely high inherent risk for which of the following key assertions?

Accepted Answer

When factory workers are paid based on time and/or productivity, there is a high inherent risk for the accuracy of the amounts recorded, as there may be errors in recording the time worked or the output produced, leading to incorrect payment amounts.

Question 9

Which of the following is a measure of productivity per employee?

Accepted Answer

Revenue per employee is a measure of how effectively and efficiently each employee is contributing to the overall revenue of the business, making it a measure of productivity per employee. B measures the percentage of revenue spent on payroll, not productivity. C compares payroll expenses with prior year balances or budgets, not productivity. D measures the average cost of payroll per employee classification, not productivity.

Question 10

Accounting software starts with the population of payroll disbursements and develops a one-for-one match with underlying approved hours worked.A report is generated each pay period disclosing any payroll that is not supported by hours worked.The employee number is also compared with the approved master payroll file.A report is generated listing any transactions that are not supported by underlying documents or files.This is a description of a control over which of the following assertions for the payroll process?

Accepted Answer

The control described ensures that each payroll disbursement is matched with approved hours worked and employee numbers are verified, which supports the occurrence assertion by confirming that payroll transactions actually occurred and are valid.

Question 11

Data controls over payroll processing relate to which of the following assertions?

Accepted Answer

Data controls over payroll processing ensure that all payroll transactions are recorded (completeness), are recorded accurately (accuracy), are classified correctly (classification), and that the transactions actually occurred (occurrence).

Question 12

Which of the following is a reasonableness test of gross payroll for a group of employees?

Accepted Answer

The answer of Which of the following is a reasonableness...

Question 13

After evaluating inherent risk and control risk, the auditor is in a position to evaluate which of the following types of risk?

Accepted Answer

Fraud risk is the risk that the financial statements are materially misstated as a result of fraud. Inherent risk and control risk are two of the factors that the auditor considers when assessing fraud risk.

Question 14

Which of the following is tested by dividing current year payroll expenses by prior year payroll expenses?

Accepted Answer

Dividing current year payroll expenses by prior year payroll expenses tests the percentage change in payroll expenses from the prior year.

Question 15

Suppose an auditor is preparing for an audit of the payroll process of an entity and has identified that the entity is labor-intensive and depends largely on hourly compensation.The auditor still needs to understand all of the following about the entity, EXCEPT _______.

Accepted Answer

The capital intensiveness of the entity is not relevant to the audit of the payroll process as it does not directly impact the hourly compensation of employees. The importance of bonuses or other compensation arrangements, as well as the level of variability of pay throughout the period, are important factors to consider in the audit of the payroll process.

Question 16

All of the following are source documents or files related to the payroll process, EXCEPT _______.

Accepted Answer

The payroll authorization and time card are both directly related to tracking employee hours and wages for payroll processing. The vacation request form, while indirectly related to payroll (as the time off may affect the employee's pay), is not a source document or file specifically used in the payroll process.

Question 17

Which of the following is a control to address the risk that payroll may not be recorded?

Accepted Answer

This control ensures that all hours worked are accounted for and flagged if they haven't been paid, addressing the risk of payroll not being recorded.

Question 18

Payroll fraud may occur in which of the following ways?

Accepted Answer

The answer of Payroll fraud may occur in which of...

Question 19

If a client relies on information technology (IT) controls and the auditor plans to assess control risk as low for payroll assertions, the auditor will usually do all of the following, EXCEPT _______.

Accepted Answer

If the auditor plans to assess control risk as low for payroll assertions and the client relies on IT controls, then the auditor will not test the effectiveness of manual controls as they are not relied upon. Instead, the auditor will use CAATs to evaluate the effectiveness of IT application controls and test the effectiveness of manual procedures to follow up on exceptions.

Question 20

When testing the effectiveness of information technology (IT) general controls in payroll, the auditor may do any of the following, EXCEPT _______.

Accepted Answer

All the options (A, B, C) are relevant actions an auditor might take when assessing the effectiveness of IT general controls in payroll. Therefore, none of the given choices are exceptions to what an auditor may do, making D the correct answer.

Quiz 12: Auditing the Purchases Cycle and Payroll Cycle