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In auditing payroll, an auditor most likely would:

A. verify that checks representing unclaimed wages are mailed.

B. trace individual employee deductions to entity journal entries.

C. observe entity employees during a payroll distribution.

D. compare payroll costs with entity standards or budgets.

CCorrect answer is D and I agree. However, I have problem with B. Can anyone explain to me why B is not right? Auditor can verify whether deduction such as insurance deduction and tax deductions by checking individual’s payroll journal. Please let me why I am wrong

[Anonymous]

Individual employee deductions are going to be immaterial to the financial statements as a whole, so although an auditor might perform this procedure, it is not more likely than performing analytical procedures like comparing actual payroll costs vs budgeted payroll costs (Option D).

[Missy]

The journal entry for payroll won't be split out by individual employees so you wouldn't be able to trace to they j/e.

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[ThomasHallberg]

I remember this question, can someone explain why it isn't C? Is it because C is a Test of Controls?

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Thank you all!

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@brickellCPA

I still have problem. The question did not ask us to test the Financial Statement as a whole. Reviewing individual's deductions will can verify whether the company has calculated the deductions correctly. Do you mean the sample size is too small because only reviewing one employee? I felt like choice B meant to say to review many individuals' deductions..

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@mla11692

Hi, actually our company split out the payroll journal entries by each individual. I can easily trace anyone's gross amount, deductions, taxes by looking at the journal entries

[Missy]

xinren then your company is a very rare exception. I've been doing payroll for over 20 years and never split out an entry by individual. Usually the journal entry is prepared by their payroll provider (ADP, Paychex, etc) and while its possible I suppose to split it out its not efficient or cost effective to do so.

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[Author]

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