Items 1 through 9 are selected questions typically found in internal control questionnaires used by auditors to obtain an understanding of internal
control in the payroll and personnel cycle. In using the questionnaire for a client, a “yes” response to a question indicates a possible internal control, whereas a “no” indicates a potential deficiency.
1. Is the ability to enter or delete employees in the employee master file restricted to the human resources function?
2. Does an appropriate official authorize initial rates of pay and any subsequent changes in rates?
3. Are formal records prepared based on information about time worked as entered by
employees into an online time system application or point-of-sale machine?
4. Is approval by a department head or supervisor required for all time records before
they are submitted for payment?
5. Does an adequate process exist to ensure proper coding of time records to specific
jobs or products such as work orders, job numbers, or some similar identification
provided to employees?
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694Part 4 / APPLICATION OF THE AUDIT PROCESS TO OTHER CYCLES
6. Is the distribution of payments to employees independent of timekeeping?
7. Are employees required to show identification to receive paychecks or are they re-
quired to use direct deposit?
8. Are written notices documenting reasons for termination required?
9. Does anyone independently verify the payroll bank account reconciliation?
a. For each of the questions, state the transaction-related audit objective(s) being ful-
filled if the control is in effect.
b. For each control, list a test of control to test its effectiveness.
c. For each of the questions, identify the nature of the potential financial misstatement(s)
if the control is not in effect.
d. For each of the potential misstatements in part c., list a substantive audit procedure
for determining whether a material misstatement exists.
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