Analytical Review Procedure for a Payroll System

C.

The correct answer is C. Performing reasonableness tests by multiplying the number of employees by the average wage rate.

Analytical review procedures involve analyzing and comparing data to identify anomalies or unusual patterns that may indicate errors or potential risks. In the context of a payroll system, analytical review procedures can be used to assess the accuracy and completeness of payroll transactions.

Option A, performing penetration attempts on the payroll system, is not an analytical review procedure for a payroll system. Penetration testing is a form of security testing that involves attempting to exploit vulnerabilities in a system to identify potential security risks. While it may be a valuable test for assessing the security of a payroll system, it is not a relevant procedure for evaluating the accuracy or completeness of payroll transactions.

Option B, evaluating the performance of the payroll system using benchmarking software, is also not an analytical review procedure for a payroll system. Benchmarking involves comparing the performance of a system to industry standards or best practices to identify areas for improvement. While it may be useful for evaluating the efficiency of a payroll system, it does not involve analyzing and comparing payroll data to identify anomalies or unusual patterns.

Option D, testing hours reported on time sheets, is a relevant procedure for assessing the accuracy of payroll transactions. By comparing the hours reported on time sheets to the actual hours worked, an auditor can identify potential errors or fraud. However, this procedure only tests one aspect of the payroll system and may not identify other types of errors or irregularities.

Option C, performing reasonableness tests by multiplying the number of employees by the average wage rate, is a relevant analytical review procedure for a payroll system. This procedure involves comparing the expected total payroll expense, based on the number of employees and average wage rate, to the actual payroll expense. If there is a significant variance between the expected and actual payroll expense, an auditor can investigate to identify potential errors or irregularities.

Overall, while options D and C both involve testing aspects of the payroll system, option C is a more comprehensive analytical review procedure that can identify a wider range of potential errors or irregularities.