12-20 (Objectives 12-2, 12-3, 12-4)

Each of the following internal controls has been taken from a standard internal control questionnaire used by a CPA firm for assessing control risk in the payroll and personnel cycle.

1. Approval of department head or foreman on time records is required before preparing payroll. 2. All prenumbered time records are accounted for before beginning data entry for preparation of payroll.

3. The computer calculates gross and net pay based on hours inputted and information in employee master files, and payroll accounting personnel double-check the mathematical accuracy on a test basis. 4. All voided and spoiled payroll checks are properly mutilated and retained. 5. Human resource policies require an investigation of an employment application from new employees. Investigation includes checking the employees background, former employers, and references. 6. The payroll accounting software application will not accept data input for an employee number not contained in the employee master file. 7. Persons preparing the payroll do not perform other payroll duties (e.g., timekeeping or distribution of checks) nor do they have access to payroll data master files or cash. 8. Written termination notices, with properly documented reasons for termination, and approval by an appropriate official are required. 9. All checks and notices of electronic payments not distributed to employees are returned to the treasurer for safekeeping and follow-up. 10. Online ability to add employees or change pay rates to the payroll master file is restricted via passwords to authorized human resource personnel.

Required

a. For each internal control, identify the type(s) of specific control activity (or activities) to which it applies (such as adequate documents and records or physical control over assets and records). b. For each internal control, identify the transaction-related audit objective(s) to which it applies. c. For each internal control, identify a specific misstatement that is likely to be prevented if the control exists and is effective. d. For each control, list a specific misstatement that could result from the absence of the control. e. For each control, identify one audit test that the auditor could use to uncover misstatements resulting from the absence of the control.