Final answer:
The statement that auditors typically test details of account balances in the audit of payroll is true. Payroll audits involve substantive tests on account balances to validate the transactions' accuracy and are a vital part of ensuring the financial statements are free from material misstatements.
Step-by-step explanation:
The question pertains to the audit procedures related to payroll. The statement that auditors typically test details of account balances in the audit of payroll is true. During a payroll audit, it is essential for auditors to verify the accuracy and completeness of payroll transactions. This often involves performing substantive tests on various account balances to ensure they reflect the true nature of the payroll liabilities. They would consider items such as gross wages, tax withholdings, and other deductions detailed on pay stubs and in the company's accounting records. These procedures are vital since payroll expenses are a significant part of total expenditures for many organizations, and the payroll process is susceptible to various risks like fraudulent activities, clerical errors, or misinterpretation of employment laws. By testing the details of account balances, auditors aim to garner evidence that the company's financial statements, including the reported payroll expenses, are free from material misstatement and are in accordance with applicable accounting frameworks.
Moreover, auditors may test the operational effectiveness of the internal controls around payroll, which could include verifying the authorization of transactions, the timely and accurate processing of payroll, and the appropriate segregation of duties. The extent of these tests can vary depending on the perceived risks and controls in place.