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41. A CPA reviews a client’s payroll procedures. The CPA would consider internal control to be
less than effective if a payroll department supervisor was assigned the responsibility for
42. An auditor would consider internal control over a client’s payroll procedures to be
ineffective if the payroll department supervisor is responsible for
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43. Which of the following is a control activity that most likely could help prevent employee
payroll fraud?
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45. Key segregations of duties in the human resource management process include all of the
following except:
46. In testing the payroll of a large company, the auditor wants to establish that the individuals
included in a sample actually were employees of the company during the period under review.
What will be the best source to determine this?
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47. During the current year being audited, Hitech, Inc. changed from a conventional payroll
punch clock to a computerized payroll time system. Factory employees now record time in and
out with magnetic cards and the IT system automatically updates all payroll records. Because of
this change
48. Which of the following internal control activities could best prevent direct labor from being
charged to manufacturing overhead?
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49. Which of the following internal control activities most likely would prevent direct labor
hours from being charged to manufacturing overhead?
50. An auditor most likely would assess control risk at the maximum if the payroll department
supervisor is responsible for
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51. In determining the effectiveness of an entity’s policies and procedures relating to the
existence or occurrence assertion for payroll transactions, an auditor most likely would inquire
about and
52. In the substantive audit procedures for payroll where the control risk is set at low, an auditor
most likely would
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53. Tracing a sample of time cards before and after period end to the weekly payroll report and
tracing the weekly payroll report to the general ledger to verify that payroll transactions are
54. Comparing amounts selected from the payroll account analysis for payroll accruals to
supporting documentation would provide evidence primarily for which assertion?
Chapter 12 – Auditing the Human Resource Management Process
55. Explain how the human resource management process can affect the financial statements.
56. Listed below are descriptions of various types of documents used in the payroll process.
Identify the document being described for each of the following
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57. Brownstein, CPA, has been engaged to audit the financial statements of Young Computer
Outlets, Inc., a new client. Young is a privately owned chain of retail stores that sells a variety
of computer software and video products. Young uses an in-house payroll department at its
corporate headquarters to compute payroll data and to prepare and distribute payroll checks to
its 300 salaried employees. Brownstein is preparing an internal control questionnaire to assist in
obtaining an understanding of Young’s internal control and in setting control risk.
Prepare a “Payroll” segment of Brownstein’s internal control questionnaire that would assist in
obtaining an understanding of Young’s internal control and for setting the client’s control risk.
Do not prepare questions relating to cash payroll, IT applications, or payments based on hourly
rates, piecework, commissions, employee benefits (pensions, health care, vacations, and so on),
or payroll tax accruals other than withholdings. Use the following format:
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58. Generally, is the inherent risk level for the human resource management process set at low,
moderate or high? For what area of the process might the appropriate level differ from the
previous answer? Why?
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59. Give an example of a test of controls that could be used by an auditor to test for the
following assertions: Occurrence, Accuracy, and Cutoff.
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60. Identify whether the following tests are substantive analytical procedures, tests of details of
transactions, or tests of details of account balances.
1) Trace a sample of payroll checks to the master employee list to verify occurrence.
2) Recalculate the mathematical accuracy of a sample of payroll checks.
3) Test a sample of bank reconciliations for the payroll bank account.
4) Estimate sales commissions by applying commission formulas to recorded sales totals.
5) Compare amounts accrued to supporting documentation, such as payroll tax returns.
6) Compare payroll costs as a percentage of sales to industry data.
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61. For each of the following tests, identify the assertion to which the test applies.
1) Trace a sample of payroll checks to the master employee list to verify occurrence.
2) Recalculate the mathematical accuracy of a sample of payroll checks.
3) Test a sample of bank reconciliations for the payroll bank account.
4) Estimate sales commissions by applying commission formulas to recorded sales totals.
5) Compare amounts accrued to supporting documentation, such as payroll tax returns.
6) Compare payroll costs as a percentage of sales to industry data.
62. The Hamster Stop has $93,650 in the Accrued Payroll account. Hamster’s weekly payroll is
$156,000 and the accrual represents payroll for 3 days. If controls are strong, determine
whether additional audit work should be performed on this account.
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63. When an auditor sets control risk low, sufficient evidence can be obtained for most payroll
accounts through an understanding of internal controls, substantive analytical procedures, and
tests of details of transactions. However, there are several accounts in the payroll cycle that may
require more attention. Name the accounts and explain why the additional testing is necessary.
64. FASB ASC Topic 715 requires specific disclosures regarding human resources, which of
course must be verified and audited by the CPA. What are those disclosures?