Question

When auditing the payroll and personnel cycle, the auditor should keep in mind that:

1) since payroll transactions are typically uniform, all companies have the same internal controls over payroll.
2) the substantive tests of transactions for the payroll cycle are the same for all audit clients.
3) controls the auditor intends to rely on to reduce assessed control risk must be tested with tests of controls.
4) the tests of controls and the substantive tests of transactions for payroll cannot be combined.

Answer 1

When auditing payroll and personnel cycle, auditors should keep in mind the importance of testing controls, tailoring tests to each client, and combining tests for a comprehensive assessment.

Step-by-step explanation:

When auditing the payroll and personnel cycle, the auditor should keep in mind the following:

1. Controls the auditor intends to rely on to reduce assessed control risk must be tested with tests of controls. As part of the audit process, auditors need to test the internal controls in place for payroll to ensure their effectiveness and reliability.
2. The substantive tests of transactions for the payroll cycle cannot be the same for all audit clients. Each company may have different policies and procedures around payroll processing, so the auditor needs to tailor their tests to each specific client.
3. The tests of controls and the substantive tests of transactions for payroll can be combined. Auditors can perform both tests to gain a comprehensive understanding of the payroll process and to assess control risk.