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Auditing and Assurance Services, 14e (Arens)
Chapter 20 Audit of the Payroll and Personnel Cycle
Learning Objective 20-1
1)Which of the following statements about the payroll and personnel
cycle is correct? A)
There are three classes of
transactions within
the payroll cycle — Transactions are Internal controls
salaried employees, more significant over payroll are
hourly employees, and than related effective for almost
commissioned balance sheet all companies, even
employees. accounts. small ones.
No No Yes
B)
There are three classes of
transactions within
the payroll cycle — Transactions are Internal controls
salaried employees, more significant over payroll are
hourly employees, and than related effective for almost
commissioned balance sheet all companies, even
employees. accounts. small ones.
Yes No Yes
C)
There are three classes of
transactions within
the payroll cycle — Transactions are Internal controls
salaried employees, more significant over payroll are
hourly employees, and than related effective for almost
commissioned balance sheet all companies, even
employees. accounts. small ones.
No Yes Yes
D)
There are three classes of
transactions within
the payroll cycle — Transactions are Internal controls
salaried employees, more significant over payroll are
hourly employees, and than related effective for almost
commissioned balance sheet all companies, even
employees. accounts. small ones.
No Yes No
1
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Answer: C
Terms: Payroll and personnel cycle
Diff: Easy
Objective: LO 20-1
AACSB: Reflective thinking skills
2)Discuss three important differences between the payroll and personnel cycle and
other cycles in a typical audit.
Answer: Three important differences between the payroll and personnel cycle and
other cycles in a typical audit are:
• There is only one class of transactions for payroll, whereas most cycles include at least
two classes of transactions.
• In the payroll cycle, transactions are far more significant than related balance sheet
accounts.
• Internal controls over payroll are effective for almost all companies, even small ones.
This is primarily due to severe federal and state penalties for errors in withholding and
paying payroll taxes and employee morale problems if employees are not paid or are
underpaid.
Terms: Important differences between payroll and personnel cycle and other cycles in audit
Diff: Moderate
Objective: LO 20-1
AACSB: Reflective thinking skills
3)Most companies, with the exception of small ones, have effective controls over the
payroll cycle.
A) True
B)False
Answer:
B
Terms: Effective controls over payroll cycle
Diff: Easy
Objective: LO 20-1
AACSB: Reflective thinking skills
4)While most cycles include at least two classes of transactions, the payroll and personnel
cycle includes only one class of transactions.
A) True
B) False
Answer:
A
Terms: Payroll and personnel cycle includes one class of transactions
Diff: Easy
Objective: LO 20-1
AACSB: Reflective thinking skills
5)Because of the cycle's pervasive nature, audit tests of the payroll cycle are usually
extensive.
A) True
B)False
Answer:
B
Terms: Audit tests of payroll cycle
Diff: Moderate
Objective: LO 20-1
AACSB: Reflective thinking skills
2
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Learning Objective 20-2
1)Which of the following departments is most likely responsible for pay rate changes
and changes in deductible amounts for employees?
A) General
Accounting B)
Human Resources
C) Treasury
D)
Controller
Answer: B
Terms: Department responsible for pay rate changed
Diff: Easy
Objective: LO 20-2
AACSB: Reflective thinking skills
2)The payroll and personnel cycle ends with which of the following events?
A) interviewing job candidates
B)hiring a new employee
C) existing employees submitting requests for payment for work performed
D) issuance of paychecks
Answer: D
Terms: Payroll and personnel cycle
Diff: Easy
Objective: LO 20-2
AACSB: Reflective thinking skills
3)Which of the following includes all payroll transactions processed by the accounting
system for a given period of time?
A) payroll journal
B) payroll transaction
file C) time report
D) payroll
summary Answer:
B
Terms: Includes all payroll transactions processed by the accounting system
Diff: Easy
Objective: LO 20-2
AACSB: Reflective thinking skills
4)An imprest payroll account that has a significant balance may indicate the presence of:
A) employees have not yet deposited or cashed payroll checks.
B)fraudulent transfer of funds by the company.
C) lack of controls over payroll distribution.
D) the company is overpaying its employees.
Answer: A
Terms: Imprest payroll account has significant balance
Diff: Easy
Objective: LO 20-2
AACSB: Analytic skills
3
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5)Records that include data about employees such as employment date, performance
ratings and pay rates are the:
A) human resource
records. B) employee
screening forms. C)
summary payroll reports.
D) employee folders.
Answer: A
Terms: Records that include data about employees
Diff: Easy
Objective: LO 20-2
AACSB: Reflective thinking skills
6)The computer file used for recording payroll transactions for each employee and
maintaining total wages paid for the year to date is the:
A) payroll transaction
file. B) payroll master
file.
C) payroll bank account
reconciliation. D) payroll tax
returns.
Answer: B
Terms: Computer file used for recording payroll transactions
Diff: Moderate
Objective: LO 20-2
AACSB: Reflective thinking skills
7)The file for recording each payroll transaction for each employee and maintaining
total employee wages paid for the year to date is the:
A) payroll master file.
B) summary payroll
report. C) payroll
journal.
D) job time
ticket. Answer:
A
Terms: File for recording each payroll transaction
Diff: Moderate
Objective: LO 20-2
AACSB: Reflective thinking skills
8)The total of the individual employee earnings in the payroll master file should equal the
total:
A) balance of gross payroll in general ledger accounts.
B)of the checks drawn to employees for payroll.
C) gross payroll plus the total contributed by the employer for payroll taxes.
D) gross pay for the current week's payroll.
Answer: A
Terms: Total of individual employee earnings in payroll master file equals
Diff: Moderate
Objective: LO 20-2
AACSB: Reflective thinking skills
4
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