Question 1

If the results of the control tests do not support the planned level of control risk, the detection risk will have to be set higher.

Accepted Answer

If the results of control tests do not support the planned level of control risk, then the auditor must either increase the extent of substantive testing (thereby lowering detection risk) or modify the planned level of control risk. The auditor cannot simply increase detection risk.

Question 2

An auditor vouched data for a sample of employees in a payroll register to approved clock card/time sheet data to provide assurance that
A) Payments to employees are computed at authorized rates.
B) Employees worked the number of hours for which they are paid.
C) Segregation of duties exist between the preparation and distribution of the payroll.
D) Internal controls relating to unclaimed payroll checks are operating effectively.

Accepted Answer

The auditor is verifying that the hours recorded in the payroll register match the approved clock card/time sheet data, ensuring employees are paid for the actual hours worked.

Question 3

All of the following are incorporated into valuation models except:
A) The exercise price of the option.
B) The term of the option.
C) Expected dividends.
D) Current tax rates.

Accepted Answer

The exercise price, term, and expected dividends of the option are all important factors to consider in valuation models. However, current tax rates do not typically have a direct impact on the valuation of an option and are not typically incorporated into such models.

Question 4

Inherent risk associated with officer compensation is frequently set high because officers have motive and opportunity to take advantage of their high-ranking offices in the form of excessive compensation.

Accepted Answer

Inherent risk associated with officer compensation is high because officers have the motive and opportunity to take advantage of their high-ranking positions and award themselves excessive compensation.

Question 5

Which of the following could test the assertion of classification for payroll-related liabilities?
A) Compare items in accrued payroll taxes to the supporting payroll tax return.
B) Search for unrecorded liabilities.
C) Examine payroll tax returns to determine that the expense was recorded in the proper period.
D) Review payroll liabilities for proper reporting as short- or long-term.

Accepted Answer

The answer of Which of the following could test the...

Question 6

Proper segregation of duties is critical for the human resource management process.

Accepted Answer

Proper segregation of duties ensures that no one person has complete control over the entire human resource management process, reducing the risk of errors or fraud. It also helps to ensure proper checks and balances are in place.

Question 7

Employees must complete a W-4 form to authorize insurance deductions from his or her pay.

Accepted Answer

The W-4 form is used to determine an employee's tax withholding, not insurance deductions. An employee would typically complete a separate form or enrollment process to authorize insurance deductions from their pay.

Question 8

The payroll-processing function is responsible for paying employees for services and benefits.

Accepted Answer

The answer of The payroll-processing function is responsible for paying...

Question 9

Which of the following internal control objectives is likely to be a larger concern in the audit of the payroll cycle?
A) Payroll transactions are properly disclosed.
B) Recorded payroll transactions are valid.
C) Payroll transactions are recorded in the appropriate time period.
D) All payroll transactions have been recorded.

Accepted Answer

The validity of recorded payroll transactions is a larger concern in the audit of the payroll cycle because it relates to ensuring that employee compensation is accurate and authorized, and that payroll taxes and other deductions are properly calculated and remitted. A failure in this control objective could have a significant impact on both financial reporting and the welfare of employees. The other objectives (disclosure, timing, and completeness) are also important, but not as directly relevant to the accuracy and integrity of payroll transactions.

Question 10

The proper use of prenumbered termination notice forms by the Payroll Department should provide assurance that all
A) Uncashed payroll checks were issued to employees who have not been terminated.
B) Personnel files are kept up to date.
C) Employees who have not been terminated receive their payroll checks.
D) Terminated employees are removed from the payroll.

Accepted Answer

Prenumbered termination notice forms are typically used by the Payroll Department to ensure that all terminated employees are properly removed from the payroll system. By using prenumbered forms, the department can track and document each termination, which helps to ensure that no employees are mistakenly left on the payroll after their employment has ended. While the use of these forms may also have other benefits, such as helping to keep personnel files up to date, the most important use is to ensure accurate and timely termination of employees from the payroll system. Therefore, option D is the best choice.

Question 11

Payroll-related expenses normally are not a material cost to the organization.

Accepted Answer

Payroll-related expenses, including salaries, wages, and benefits, are typically one of the largest cost categories for most organizations, and can significantly impact the overall financial performance of the organization.

Question 12

Tests of details of transactions are often conducted in conjunction with tests of controls.

Accepted Answer

Tests of details of transactions often involve testing the accuracy and completeness of individual transactions, which can be affected by the operation of controls. Therefore, these tests are often conducted together with tests of controls to obtain a better understanding of the effectiveness of the controls in mitigating risks of material misstatements.

Question 13

A surprise observation by an auditor of an entity's regular distribution of paychecks is primarily designed to satisfy the auditor that
A) All unclaimed payroll checks are properly returned to the cashier.
B) The paymaster is not involved in the distribution of payroll checks.
C) All employees have in their possession proper employee identification.
D) Names on the company payroll are those of bona fide employees presently on the job.

Accepted Answer

A surprise observation of regular distribution of paychecks is primarily designed to satisfy the auditor that the names on the company payroll are those of bona fide employees presently on the job. By observing the distribution of paychecks, the auditor can ensure that only actual employees are receiving their paychecks and that there are no fictitious employees on the payroll. The other options, such as unclaimed checks and employee identification, may be important but are not the primary objective of this observation.

Question 14

There are few inherent risk factors that directly affect the human resource management process and its related accounts for non-officers.

Accepted Answer

Inherent risk factors such as economic conditions, industry competition, legal and regulatory environment, and technological changes can indirectly affect the human resource management process and its related accounts for non-officers. However, there are also specific inherent risk factors related to HR practices such as employee turnover, recruitment and retention challenges, labor laws, and diversity and inclusion issues that directly affect the HR management process and its related accounts.

Question 15

Which of the following departments most likely would approve changes in pay rates and deductions from employee salaries?
A) Human resource.
B) Treasurer.
C) Controller.
D) Payroll.

Accepted Answer

The answer of Which of the following departments most likely...

Question 16

The human resource function is responsible for managing the personnel needs of the organization.

Accepted Answer

The human resource function is responsible for the recruitment, selection, training, development, compensation, and retention of employees. Its ultimate goal is to ensure that the organization has the necessary talent and skills to achieve its objectives.

Question 17

When examining payroll transactions, an auditor is primarily concerned with the possibility of
A) Underpayments and properly authorized payments.
B) Posting of gross payroll amounts to incorrect salary expense accounts.
C) Misfootings of employee time records.
D) Excess withholding of amounts required to be withheld.

Accepted Answer

An auditor is primarily concerned with the accuracy of financial statements, which includes ensuring that payroll expenses are recorded in the correct accounts. Misposting could lead to misstated financial statements.

Question 18

Possible misstatements related to the occurrence assertion for payroll transactions include all of the following except:
A) Payments to fictitious employees.
B) Payments to terminated employees.
C) Payments to valid employees who have not worked.
D) Payments to valid employees at a rate in excess of the authorized amount.

Accepted Answer

The occurrence assertion for payroll transactions is concerned with ensuring that recorded transactions actually occurred. Payments to fictitious employees, terminated employees, or valid employees who have not worked all relate to transactions that may not have occurred. However, payments to valid employees at a rate in excess of the authorized amount relate to the accuracy or valuation assertion, not occurrence.

Question 19

Which of the following could test the assertion of cutoff for payroll-related liabilities?
A) Compare items in accrued payroll taxes to the supporting payroll tax return.
B) Search for unrecorded liabilities.
C) Examine payroll tax returns to determine that the expense was recorded in the proper period.
D) Review payroll liabilities for proper classification as short-or long-term.

Accepted Answer

The answer of Which of the following could test the...

Question 20

Which of the following circumstances most likely would cause an auditor to suspect an employee payroll fraud scheme?
A) There are significant unexplained variances between standard and actual labor cost.
B) Payroll checks are disbursed by the same employee each payday.
C) Employee time sheets are approved by individual departmental supervisors.
D) A separate payroll bank account is maintained on an imprest basis.

Accepted Answer

Significant unexplained variances between standard and actual labor costs could indicate that some employees are being paid for time they didn't actually work or that some employees are being paid at a higher rate than they should be. This could potentially point to a payroll fraud scheme. The other options provided do not necessarily indicate payroll fraud.

Quiz 12: Auditing the Human Resource Management Process

If the results of the control tests do not support the planned level of control risk, the detection risk will have to be set higher.

An auditor vouched data for a sample of employees in a payroll register to approved clock card/time sheet data to provide assurance that

All of the following are incorporated into valuation models except:

Inherent risk associated with officer compensation is frequently set high because officers have motive and opportunity to take advantage of their high-ranking offices in the form of excessive compensation.

Which of the following could test the assertion of classification for payroll-related liabilities?

Proper segregation of duties is critical for the human resource management process.

Employees must complete a W-4 form to authorize insurance deductions from his or her pay.

The payroll-processing function is responsible for paying employees for services and benefits.

Which of the following internal control objectives is likely to be a larger concern in the audit of the payroll cycle?

The proper use of prenumbered termination notice forms by the Payroll Department should provide assurance that all

Payroll-related expenses normally are not a material cost to the organization.

Tests of details of transactions are often conducted in conjunction with tests of controls.

A surprise observation by an auditor of an entity's regular distribution of paychecks is primarily designed to satisfy the auditor that

There are few inherent risk factors that directly affect the human resource management process and its related accounts for non-officers.

Which of the following departments most likely would approve changes in pay rates and deductions from employee salaries?

The human resource function is responsible for managing the personnel needs of the organization.

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

Possible misstatements related to the occurrence assertion for payroll transactions include all of the following except:

Which of the following could test the assertion of cutoff for payroll-related liabilities?

Which of the following circumstances most likely would cause an auditor to suspect an employee payroll fraud scheme?