A common audit procedure in the audit of payroll transactions involves tracing se- lected items from the payroll journal to employee time records that have been ap- proved by supervisory personnel. This procedure is designed to provide evidence in support of the audit proposition that:all employees worked the number of hours for which their pay was computed.

The following questions concern audit testing of the payroll and personnel cycle. Choose the best response.
a. A common audit procedure in the audit of payroll transactions involves tracing se-
lected items from the payroll journal to employee time records that have been ap-
proved by supervisory personnel. This procedure is designed to provide evidence in
support of the audit proposition that
(1) all employees worked the number of hours for which their pay was computed.
(2) only proper employees worked and their pay was correctly computed.
(3) jobs on which employees worked were charged with the appropriate labor cost.
(4) internal controls over payroll disbursements are operating effectively.
b. In performing tests concerning the granting of stock options, an auditor should
(1) confirm the transaction with the Secretary of State in the state of incorporation.
(2) trace the authorization for the transaction to a vote of the board of directors.
(3) verify the existence of option holders in the entity’s payroll records or stock ledgers.
(4) determine that sufficient treasury stock is available to cover any new stock issued.
c. An auditor reviews the reconciliation of payroll tax forms that a client is responsible
for filing to
(1) verify that payroll taxes are deducted from employees’ gross pay.
(2) determine whether internal control activities are operating effectively.
Chapter 20 / AUDIT OF THE PAYROLL AND PERSONNEL CYCLE 693
(3) uncover fictitious employees who are receiving payroll checks.
(4) identify potential liabilities for unpaid payroll taxes

Last Completed Projects