Payroll Audit & SOX Controls Flashcards

A payroll auditor is performing a 'floor-to-register' test by starting with a list of employees who badged into the building and tracing them to the payroll register. Which audit assertion is this test primarily designed to address?

Answer: Completeness

A floor-to-register test moves from a physical population to the records, testing completeness — that all employees who worked are included in payroll.

A 'register-to-floor' payroll audit test starts with the payroll register and traces selected employees to confirm they are real, active employees. This test primarily addresses which assertion?

Answer: Existence/occurrence

Starting from the register and confirming employees exist (are real, active people) tests the existence/occurrence assertion — ensuring recorded payees are legitimate.

Which of the following best describes a 'walk-through' in the context of a SOX payroll audit?

Answer: Tracing a single transaction from initiation through recording to confirm the auditor's understanding of the control process

A walk-through follows one transaction end-to-end through the process to confirm the auditor's understanding of how the control actually operates.

A company grants stock options to executives as part of their compensation. Under SOX and related SEC rules, executives must report changes in beneficial ownership of company securities within:

Answer: 2 business days of the transaction

SOX Section 403 accelerated the reporting deadline for insider transactions to 2 business days, filed electronically on Form 4.

An auditor reviewing a company's SOX payroll controls finds no written policies for how payroll adjustments and manual checks are authorized. Which COSO component is most deficient?

Answer: Control Activities

Control Activities include the policies and procedures that ensure management directives are carried out; lack of documented authorization policies is a deficiency in this component.

During a payroll audit, the auditor wants to determine whether payroll-related journal entries were recorded in the correct accounting period. Which audit assertion is being tested?

Answer: Cutoff

The cutoff assertion tests whether transactions are recorded in the proper accounting period, which is critical for payroll accruals at period-end.

A company's payroll whistleblower hotline receives a tip that a manager is adding fictitious hours to subordinates' timesheets and splitting the resulting overpayments. Under SOX Section 806, which employees are protected if they report this fraud?

Answer: Employees of publicly traded companies and their subsidiaries who report suspected fraud through internal or external channels

SOX Section 806 protects employees of publicly traded companies and their subsidiaries from retaliation when they report suspected fraud through any lawful channel, internal or external.