Chapter 20

Question 1

The liability accounts associated with payroll; these include accounts for accrued salaries and wages, accrued commissions, accrued bonuses, accrued benefits, and accrued payroll taxes

Answer 1

Accrued Payroll Expenses

Question 2

Records that include data such as the date of employment, personnel investigations, rates of pay, authorized deductions, performance evaluations, and termination of employment

Answer 2

Human Resource Records

Question 3

A bank account where the exact amount of payroll for the pay period is transferred by check or wire transfer from the employer’s general cash account

Answer 3

Imprest Payroll Account

Question 4

The transaction cycle that begins with the hiring of personnel, includes obtaining and accounting for services from the employees, and ends with the payment to the employees for the services performed

Answer 4

Payroll and Personnel Cycle

Question 5

A computer file for recording each payroll transaction for each employee and maintaining total employee wages paid and related data for the year to date

Answer 5

Payroll Master File

Question 6

A document indicating the time that the employee started and stopped working each day and the number of hours worked

Answer 6

Time Record

Question 7

The main differences between the payroll and personnel cycle and other cycles are:

Answer 7

1) Only one class of transactions for payroll exist
2) Transactions are generally far more significant than related balance sheet accounts
3) Internal controls over payroll are effective for almost all companies, even small ones

Question 8

The overall objective in the audit of the payroll and personnel cycle is

Answer 8

To evaluate whether the account balances affected by the cycle are fairly stated in accordance with applicable accounting standards

Question 9

The payroll and personnel cycle begins with BLANK and ends with BLANK

Answer 9

Hiring employees and paying employees for services performed

Question 10

Adequate controls are necessary to prevent misstatements in:

Answer 10

1) Prepare time records by employees
2) summarize and calculate gross pay, deductions, and net pay
3) Payment of payroll
4) Prepare payroll records

Question 11

Used as a holding account to clear payroll checks and also referred to as a zero dollar account

Answer 11

Imprest Payroll Account

Question 12

In order by employee

Answer 12

Payroll Master File

Question 13

Internal control for payroll is normally BLANK and BLANK

Answer 13

Highly structured and well controlled to manage cash disbursed

Question 14

Because processing payroll is similar in most organizations

Answer 14

Companies commonly use an outside payroll service for processing payroll

Question 15

It is usually BLANK for companies to establish good control in the payroll and personnel cycle

Answer 15

Easy

Question 16

Test of control and substantive tests of transactions procedures are the BLANK means of verifying account balances in the payroll and personnel cycle

Answer 16

Most important

Question 17

The three reasons audits have a minimal risk of material misstatements in the payroll and personnel cycle

Answer 17

1) Employees are likely to complain to management if they are underpaid
2) All payroll transactions are typically uniform and uncomplicated
3) Payroll transactions are subject to audit by federal and state governments for income tax withholding, social security, and unemployment taxes

Question 18

The payroll function should be independent of the

Answer 18

Human Resource Department

Question 19

The two major balance-related audit objectives in testing payroll liabilities are

Answer 19

1) Accruals in the trial balance are stated at the correct amounts (accuracy)
2) Transactions in the payroll and personnel cycle are recorded in the proper period (cutoff)

Question 20

Key internal control for Payroll (occurrence)

Answer 20

Time records approved by supervisor

Question 21

Key internal control for Payroll (completeness)

Answer 21

Payroll checks are prenumbered

Question 22

Key internal control for Payroll (accuracy)

Answer 22

Calculations and amounts are internally verified

Question 23

Key internal control for Payroll (posting and summarization)

Answer 23

Payroll master file is internally verified

Question 24

Key internal control for Payroll (classification)

Answer 24

Account classifications are internally verified

Question 25

Key internal control for Payroll (timing)

Answer 25

Dates are internally verified

Question 26

Common Test of Controls (occurrence)

Answer 26

Examine time records for indication of approvals

Question 27

Common Test of Controls (completeness)

Answer 27

Account for a sequence of payroll checks

Question 28

Common Test of Controls (accuracy)

Answer 28

Examine indication of internal verification

Question 29

Common Test of Controls (posting and summarization)

Answer 29

Examine indication of internal verification

Question 30

Common Test of Controls (classification)

Answer 30

Examine indication of internal verification

Question 31

Common Test of Controls (timing)

Answer 31

Examine indication of internal verification

Question 32

Common Substantive test of transaction (occurrence)

Answer 32

Examine cancelled checks for proper endorsement

Question 33

Common Substantive test of transaction (completeness)

Answer 33

Prove the bank reconciliation

Question 34

Common Substantive test of transaction (accuracy)

Answer 34

Recompute hours worked from time records

Question 35

Common Substantive test of transaction (posting and summarization)

Answer 35

Test clerical accuracy by footing payroll journal

Question 36

Common Substantive test of transaction (classification)

Answer 36

Compare classification with chart of accounts

Question 37

Common Substantive test of transaction (timing)

Answer 37

Compare date on check with date the check cleared