Multiple Choice Questions
The following questions concern audit testing of the payroll and personnel cycle. Choose the best response.
a. When control risk is assessed as low for assertions related to payroll, substantive tests of payroll balances most likely would be limited to applying analytical procedures and
(1) Observing the distribution of payroll checks.
(2) Footing and crossfooting the payroll register.
(3) Inspecting payroll tax returns.
(4) Recalculating payroll accruals.
b. A common audit procedure in the audit of payroll transactions involves tracing selected items from the payroll journal to employee time cards that have been approved by supervisory personnel. This procedure is designed to provide evidence in\ support of the audit proposition that
(1) Only proper employees worked and their pay was correctly computed.
(2) Jobs on which employees worked were charged with the appropriate labor cost.
(3) Internal controls over payroll disbursements are operating effectively.
(4) All employees worked the number of hours for which their pay was computed.
c. 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) Verify the existence of option holders in the entity’s payroll records or stock ledgers.
(3) Determine that sufficient treasury stock is available to cover any new stock issued.
(4) Trace the authorization for the transaction to a vote of the board of directors.