Items 1 through 8 are selected questions typically found ininternal control questionnaires used by auditors to obtain an understanding of internalcontrol 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 apotential deficiency.1. Does an appropriate official authorize initial rates of pay and any subsequent changesin 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 theyare 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 propercoding 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 procedurefor determining whether a material misstatement exists.
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.
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