An auditor is performing tests of controls related to the client's payroll processing system. Which of the following audit procedures would provide the MOST relevant evidence for the completeness assertion of recorded payroll expenses?
- ARecalculating the mathematical accuracy of a sample of individual employee paychecks.
- BObserving the client's segregation of duties between payroll preparation and disbursement.
- CVouching a sample of recorded payroll entries to approved timecards and personnel files.
- DTracing a sample of approved timecards to the payroll register and ultimately to the general ledger.
Show answer & explanationAnswer & explanation
Correct answer: D. Tracing a sample of approved timecards to the payroll register and ultimately to the general ledger.
Tracing a sample of approved timecards (source documents) to the payroll register and general ledger ensures that all valid payroll transactions are recorded. This directly addresses the completeness assertion, which states that all transactions that should have been recorded, were recorded.
Why the other options are wrong
- A. Recalculating paychecks tests the accuracy assertion for individual payroll transactions, not the completeness of all transactions.
- B. Observing segregation of duties tests the operating effectiveness of a control, not directly the completeness of recorded transactions.
- C. Vouching from recorded entries to source documents primarily tests the occurrence assertion, ensuring recorded transactions are valid.
Tracing for Completeness
An audit procedure where the auditor selects a sample of source documents (e.g., shipping documents, timecards) and traces them forward to the corresponding entry in the accounting records (e.g., sales journal, payroll register) to ensure that all valid transactions have been recorded.
- Tests the completeness assertion.
- Starts with source documents and moves to ledgers.
- Aims to detect unrecorded items.
Memory trick: Completeness is about catching EVERYTHING that should be there.