Question

The following questions concern audit testing of the payroll and personnel cycle. Choose the best
response.
a A common aud it 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 wh ich employees worked were charged with the appropriate labour cost
(3) internal controls over payroll payments are operating effectively
(4) all employees worked the number of hours for which their pay was computed.

b An auditor reviews the reconciliation of PAYG tax payments that a client is responsible for filing to:
(1) verify that PAYG tax w ithheld is deducted from employees' gross pay

(2) determine whether internal control activities are operating effectively
(3) uncover fictitious employees who are receiving payroll payments
(4) identify potentialliabilities for unremitted PAYG tax w ithheld.

Answer 1

Solution 1)

Answer is 4. all employees worked the number of hours for which their pay was computed. Because from payroll journal auditor get to know wages with breakup i.e. rate x time. And from employee time card. He get to know the time for which employee worked. Hence, they get to know whether employee worked for hours for which they get paid.

Solution 2)

Answer is 4. An auditor reviews the reconciliation of PAYG tax payments that a client is responsible for filing in order to identify potential liabilities for unremitted PAYG tax withheld.