Identify five general ledger accounts that are likely to be affected by the payroll and personnel cycle in most audits.
20-2 (OBJECTIVES 20-1, 20-3) Explain the relationship between the payroll and personnel cycle and inventory valuation.
20-3 (OBJECTIVE 20-2) Distinguish among a payroll master file, a W-2 form, and a payroll tax return. Explain the purpose of each.
20-4 (OBJECTIVE 20-2) Explain what is meant by an imprest payroll account. What is its purpose as a control over payroll?
20-5 (OBJECTIVES 20-2, 20-3) List the supporting documents and records the auditor will examine in a typical payroll audit in which the primary objective is to detect fraud.
20-6 (OBJECTIVES 20-2, 20-3) Evaluate the following comment by an auditor: “My job is to determine whether the payroll records are fairly stated in accordance with accounting standards, not to find out whether they are following proper hiring and termination procedures. When I conduct an audit of payroll, I keep out of the human resources department and stick to the time cards, journals, and payroll checks. I don’t care whom they hire and whom they fire, as long as they properly pay the employees they have.”
20-7 (OBJECTIVE 20-3) Distinguish between the following payroll audit procedures and state the purpose of each: (1) trace a random sample of prenumbered time cards to the related payments in the payroll register and compare the hours worked with the hours paid, and (2) vouch a random sample of payments from the payroll register to the related time cards and compare the hours worked with the hours paid. Which of these two procedures is typically more important in the audit of payroll? Why?
20-8 (OBJECTIVE 20-3) Explain why the percentage of total audit time in the cycle devoted to performing tests of controls and substantive tests of transactions is usually far greater for the payroll and personnel cycle than for the sales and collection cycle.
20-9 (OBJECTIVE 20-3) List three audit procedures that are primarily for the detection of fraud and state the type of fraud the procedure is meant to uncover.
20-10 (OBJECTIVE 20-3) Identify three tests of controls or substantive tests of transactions in the payroll and personnel cycle that an auditor may perform using audit software.
20-11 (OBJECTIVE 20-3) List five types of authorizations in the payroll and personnel cycle
and state the type of misstatement that is likely to occur when each authorization is lacking.
20-12 (OBJECTIVE 20-3) Explain how audit sampling can be used to test the payroll and per-sonnel cycle.
20-13 (OBJECTIVE 20-4) In auditing payroll withholding and payroll tax expense, explain why emphasis should normally be on evaluating the adequacy of the payroll tax return preparation procedures rather than the payroll tax liability. If the preparation procedures are inadequate, explain the effect this will have on the remainder of the audit.
20-14 (OBJECTIVE 20-4) List several substantive analytical procedures for the payroll and personnel cycle and explain the type of misstatement that might be indicated when there is a significant difference between current year and previous years’ results.
