(Objectives 20-2, 20-3) Items 1 through 8 are selected questions typically found in internal control questionnaires used by auditors to obtain an understanding of internal control in the payroll and personnel cycle. In using the questionnaire for a client, a “yes” response to a question indicates a possible internal control, whereas a “no” indicates a potential deficiency.
1. Does an appropriate official authorize initial rates of pay and any subsequent changes in rates?
2. Are formal records such as time cards used for keeping time?
3. Is approval by a department head or foreman required for all time cards before they are submitted for payment?
4. Does an adequate means exist for identifying jobs or products, such as work orders, job numbers, or some similar identification provided to employees to ensure proper coding of time records?
5. Is the issuance of payments to employees independent of timekeeping?
6. Are employees required to show identification to receive paychecks?
7. Are written notices required documenting reasons for termination?
8. Does anyone independently verify the payroll bank account reconciliation?
a. For each of the questions, state the transaction-related audit objective(s) being fulfilled if the control is in effect.
b. For each control, list a test of control to test its effectiveness.
c. For each of the questions, identify the nature of the potential financial misstatement( s) if the control is not in effect.
d. For each of the potential misstatements in part c., list a substantive audit procedure for determining whether a material misstatement exists.
Objective 20-2
Describe the business functions and the related documents and records in the payroll and personnel cycle.
Objective 20-3
Understand internal control and design and perform tests of controls and substantive tests of transactions for the payroll and personnel cycle.
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