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anewfoundsin
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Joined: 08 Jan 2009
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Posted: 26 Jul 2011 at 20:02 \| IP Logged

In auditing payroll, an auditor is most likely to:

a. observe entity employees during payroll distribution
b. compare payroll costs with entity standards or budgets

i thought it would be "a" because that is a better source of evidence,
observation. but the answer is 'B'. Why is this?

nancy2008
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Joined: 29 Apr 2010
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Posts: 62

Posted: 27 Jul 2011 at 16:18 \| IP Logged

A has a exception when the company use direct deposit. And for payroll audit, auditor most like using Analytical Procedure, which is answer B.

anewfoundsin wrote:

In auditing payroll, an auditor is most likely to:

a. observe entity employees during payroll distribution
b. compare payroll costs with entity standards or budgets

i thought it would be "a" because that is a better source of evidence,
observation. but the answer is 'B'. Why is this?

CanadianCPA
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Joined: 19 May 2010
Location: United States
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Posts: 554

Posted: 27 Jul 2011 at 23:29 \| IP Logged

Also for B, the auditor would compare the budgeted amounts to the actual amounts and investigate any unusual discrepancies. Maybe payroll for the year was lower than the budget because they laid off a bunch of employees or employees quit and the company couldn't find suitable replacements. Maybe everyone was given a 10% raise which wasn't considered at the time of the budget. Many situations that could occur and you as the auditor have to determine if they are reasonable explanations for the variances.

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OZZMAN
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Posted: 28 Jul 2011 at 05:53 \| IP Logged

Very simply put...........the question asks "an auditor is MOST LIKELY"

He is most likely to compare actuals against budgeted amounts as (s)he begins the payroll audit, (s)he is not NOT most likely to observe a payroll distribution unless there is reason to do so.

Hope this helps............

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JuliePate1
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Posted: 23 Jul 2016 at 03:01 \| IP Logged

Great post.

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