Auditing Principles & Procedures Flashcards
7 cards from real CPS practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Auditing Principles & Procedures flashcards as text
An auditor is examining a company's Section 125 cafeteria plan. Which payroll tax is NOT reduced when an employee makes pre-tax benefit elections?
Answer: FUTA tax
While Section 125 pre-tax elections reduce income tax, Social Security, and Medicare withholding, FUTA is computed on wages up to $7,000 regardless of cafeteria plan elections (though employer FICA is also reduced).
Which audit procedure is most effective at detecting payroll fraud involving falsified time records for hourly employees?
Answer: Comparing badge access logs or time-clock data to payroll hours claimed
Matching electronic badge or time-clock records to claimed hours directly reveals discrepancies that indicate falsified timesheets.
When reviewing a company's FUTA tax liability, what is the standard federal unemployment tax rate before the maximum state credit?
Answer: 6.0%
The gross FUTA tax rate is 6.0% on the first $7,000 of wages; employers in states with no credit reduction typically pay an effective net rate of 0.6% after the 5.4% state credit.
A payroll auditor selects a sample of terminated employees to test. What specific risk is this procedure designed to detect?
Answer: Continued wage payments to employees after separation
Testing terminated employee records helps detect ghost employee schemes where payments continue after an individual has left the company.
Which document must employers complete and retain to verify each new employee's identity and work authorization?
Answer: Form I-9
Form I-9 (Employment Eligibility Verification) must be completed for every new hire and retained by the employer to demonstrate compliance with immigration employment law.
An auditor identifies that a company did not withhold Social Security tax from a non-resident alien employee's wages. Under what circumstance would this be correct?
Answer: The employee holds an F-1 student visa performing on-campus work
Non-resident alien students on F-1 visas performing authorized on-campus work are generally exempt from FICA taxes under specific IRS rules.
Which AICPA auditing standard concept requires the auditor to maintain an impartial, unbiased attitude throughout the engagement?
Answer: Independence and objectivity
Independence and objectivity require auditors to remain free from conflicts of interest and to approach findings without bias or predetermined conclusions.