Question

The auditor, in auditing payroll, wants to determine that the individuals included in her sample were employees of the company for the period under review. What is the auditor's best source of evidence?

1) Examination of human resource records
2) Examination of the payroll master file
3) Examination of the payroll transaction file
4) Examination of the payroll tax records

Answer 1

The auditor should examine human resource records to verify the employment status of individuals in a payroll audit. This is the most direct evidence of whether or not individuals were employees of the company for the period under review.

Step-by-step explanation:

The best source of evidence for an auditor auditing payroll to determine that individuals were employees of the company for the period under review would be examination of human resource records. These records are the primary source of detailed information about each employee, including hiring dates, employment status, and personal information, which establish their relationship with the company. An auditor would be able to verify that the individuals on the payroll were indeed employees at the relevant times by checking these records.

While examining the payroll master file and payroll transaction file can offer insight into the payments made and the processes around payroll, they don't definitively prove employment status. Similarly, although payroll tax records show that taxes were paid on earnings, they don't necessarily validate employment without correlating them to human resources records.