In the Substantive Audit Procedures for Payroll Where the Control

question 22

Multiple Choice

In the substantive audit procedures for payroll where the control risk is set at low, 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.

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Definitions:

Stockholders' Equity

Stockholders' equity represents the ownership interest of shareholders in a company, calculated as total assets minus total liabilities.

Common Stock

Equity ownership in a corporation, dividing ownership into shares where each share entitles the owner to a share of the company's profits and a vote in certain company decisions.

Retained Earnings

Accumulated net income that a company decides to keep rather than distribute to shareholders as dividends, often used for reinvestment.

Dividends

Funds disbursed by a company to its shareholders, representing a share of the profits earned by the company.