12.

The proper use of prenumbered termination notice forms by the Payroll Department should provide
assurance that all
A. Uncashed payroll checks were issued to employees who have not been terminated.
B. Personnel files are kept up to date.
C. Employees who have not been terminated receive their payroll checks.
D. Terminated employees are removed from the payroll.

13. When examining payroll transactions, an auditor is primarily concerned with the possibility of
A. Underpayments and properly authorized payments.
B. Posting of gross payroll amounts to incorrect salary expense accounts.
C. Misfootings of employee time records.
D. Excess withholding of amounts required to be withheld.

14. An auditor vouched data for a sample of employees in a payroll register to approved clock card/time
sheet data to provide assurance that
A. Payments to employees are computed at authorized rates.
B. Employees worked the number of hours for which they are paid.
C. Segregation of duties exist between the preparation and distribution of the payroll.
D. Internal controls relating to unclaimed payroll checks are operating effectively.

15. Which of the following internal control objectives is likely to be a larger concern in the audit of the
payroll cycle?
A. Payroll transactions are properly disclosed.
B. Recorded payroll transactions are valid.
C. Payroll transactions are recorded in the appropriate time period.
D. All payroll transactions have been recorded.

16. Which of the following circumstances most likely would cause an auditor to suspect an employee
payroll fraud scheme?
A. There are significant unexplained variances between standard and actual labor cost.
B. Payroll checks are disbursed by the same employee each payday.
C. Employee time sheets are approved by individual departmental supervisors.
D. A separate payroll bank account is maintained on an imprest basis.

17. Which of the following could test the assertion of cutoff for payroll-related liabilities?
A. Compare items in accrued payroll taxes to the supporting payroll tax return.
B. Search for unrecorded liabilities.
C. Examine payroll tax returns to determine that the expense was recorded in the proper period.
D. Review payroll liabilities for proper classification as short-or long-term.
C

18. Which of the following could test the assertion of classification for payroll-related liabilities?
A. Compare items in accrued payroll taxes to the supporting payroll tax return.
B. Search for unrecorded liabilities.
C. Examine payroll tax returns to determine that the expense was recorded in the proper period.
D. Review payroll liabilities for proper reporting as short- or long-term.

19. All of the following are incorporated into valuation models except:
A. The exercise price of the option.
B. The term of the option.
C. Expected dividends.
D. Current tax rates.

20. A surprise observation by an auditor of an entity's regular distribution of paychecks is primarily

designed to satisfy the auditor that
A. All unclaimed payroll checks are properly returned to the cashier.
B. The paymaster is not involved in the distribution of payroll checks.
C. All employees have in their possession proper employee identification.
D. Names on the company payroll are those of bona fide employees presently on the job.

21. Which of the following is the best reason why an auditor should consider observing an entity's
distribution of regular payroll checks?
A. To ensure that names on the company payroll are those of bona fide employees presently on the job.
B. Total payroll costs are a significant part of total operating costs.
C. The auditor did not observe the distribution of the entire regular payroll during the audit in the prior
year.
D. Employee turnover is excessive.

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22. The purpose of segregating the duties of distributing payroll checks and hiring personnel is to
separate the
A. Duties within the accounting function.
B. Custody of assets from the accounting for those assets.
C. Authorization of transactions from the custody of related assets.
D. Operational responsibility from record keeping responsibility.