1
During the year being audited, the Matthews Corporation changed from a system of recording time worked on clock cards to an IT payroll system in which employees record time in and out with magnetic cards. The IT system automatically updates all payroll records. Because of this change
A)
A generalized computer audit program must be used.
B)
Without paper clock cards, part of the audit trail is altered.
C)
The potential for payroll-related fraud is diminished.
D)
Transactions must be processed in batches.
2
Which of the following is not a function in the payroll process?
A)
Human resources.
B)
Timekeeping.
C)
Payroll processing.
D)
Accounts payable.
3
Which of the following departments/individuals would likely approve changes in pay rates and deductions from employee earnings?
A)
Treasurer.
B)
Human Resources.
C)
Payroll.
D)
Controller.
4
For an appropriate segregation of duties, journalizing and posting summary payroll transactions should be assigned to
A)
The treasurer’s department.
B)
General accounting.
C)
Payroll accounting.
D)
The timekeeping department.
5
The purpose of segregating the duties of hiring personnel and disbursement of payroll payments is to separate the
A)
Human resource function from the controllership function.
B)
Administrative controls from the internal accounting controls.
C)
Authorization of transactions from the custody-related assets.
D)
Operational responsibility from the record-keeping responsibility.
6
Which of the following account types would typically be assessed with a higher level of inherent risk?
A)
Payroll expense for office staff.
B)
Executive compensation.
C)
Commission expense.
D)
Social security taxes payable.
7
Which of the following is not part of the control risk assessment process for the human resource management process?
A)
Understand and document the human resource management process.
B)
Plan and perform tests of controls on payroll transactions.
C)
Plan and perform substantive tests on payroll transactions.
D)
Set and document the control risk for the human resource management process.
8
Which of the following possible misstatements related to payroll do not involve the assertions of occurrence or existence?
A)
Payments to fictitious employees.
B)
Payments to terminated employees.
C)
Payments to valid employees who have not worked.
D)
Payments to valid employees at a rate in excess of the authorized amount.
9
Which of the following control activities could best prevent direct labour from being charged to manufacturing overhead?
A)
Examination of routine tickets from finished goods on delivery.
B)
Reconciliation of work-in-process inventory with cost records.
C)
Comparison of daily journal entries with factory labour summary.
D)
Recomputation of direct labour based on inspection of time cards.
10
An auditor who is testing IT controls in a payroll system would most likely use test data (discussed in Advanced Module 1 in Chapter 6) that contain conditions such as
A)
Deductions not authorized by employees.
B)
Overtime not approved by supervisors.
C)
Time cards with invalid job numbers.
D)
Payroll cheques with unauthorized signatures.
11
It would be appropriate for the payroll department to be responsible for which of the following functions?
A)
Approval of employee time records.
B)
Preparation of periodic governmental reports as to employees’ earnings and withholding taxes.
C)
Maintenance of records of employment, discharges, and pay increases.
D)
Disbursement of payroll payments to employees.
12
Which of the following audit tests would most likely be used to test the occurrence assertion for payroll transactions?
A)
Trace a sample of time sheets to the payroll register.
B)
Recompute the mathematical accuracy of a sample of payroll payments.
C)
Trace a sample of payroll payments to the approved time sheet summary and the master employee list to verify validity.
D)
Test a sample of time sheets for the presence of authorization.
13
Effective control activities over the payroll function may include
A)
Reconciliation of totals on job time cards with job reports by employees responsible for those specific jobs.
B)
Verification of agreement of job time cards with employee clock card hours by a payroll department employee.
C)
Preparation of payroll transaction journal entries by an employee who reports to the supervisor of the personnel department.
D)
Custody of rate authorization records by the supervisor of the payroll department.
14
Which of the following statements is true regarding substantive procedures in the human resource management process?
A)
If the results of the tests of controls for payroll do not support the planned level of control risk, substantive procedures must be increased.
B)
If the results of the tests of controls for payroll do not support the planned level of control risk, substantive procedures must be reduced.
C)
If the results of the tests of controls for payroll support the planned level of control risk, substantive procedures must be increased.
D)
There is no relationship between the results of the tests of controls and the substantive procedures that should be performed.
15
An auditor is most likely to perform substantive tests of details on payroll transactions and balances when
A)
Cut-off tests indicate a substantial amount of accrued payroll expense.
B)
The level of control risk relative to payroll transactions is set at low.
C)
Substantive analytical procedures indicate unusual fluctuations in recurring payroll entries.
D)
Accrued payroll expense consists primarily of unpaid commissions.
16
Which of the following is the best possible explanation for a manufacturing firm with a gross profit substantially higher this year in comparison with last year?
A)
The amount of payroll expense allocated to direct labour was understated.
B)
The amount of payroll expense allocated to direct labour was overstated.
C)
Too much direct labour was allocated to cost of goods sold as opposed to ending inventory.
D)
Payroll taxes were withheld at excessive rates.
17
An auditor may vouch data for a sample of hourly employees in a payroll register back to the approved weekly time card/time sheet files to provide assurance that
A)
Employees work the number of hours for which they are paid.
B)
Payments to employees agree with authorized rates.
C)
Segregation of duties exist in the processing of payroll.
D)
Those approving time card/time sheet files are not disbursing payroll payments.
18
An auditor is most likely to perform substantive tests of details on payroll transactions and balances when
A)
The assessed level of control risk is low.
B)
Substantive analytical procedures indicate possible unusual fluctuations in recurring payroll entries.
C)
Accrued payroll expenses relate primarily to unpaid sales commissions.
D)
Cut-off tests indicate a large accrued payroll expense at year-end.
19
Which of the following is not a required disclosure for payroll-related items?
A)
Pensions.
B)
Profit sharing plans.
C)
Average percentage rate of salary increases.
D)
Deferred compensation arrangements.
20
When appropriate substantive procedures are completed
A)
Each individual error found in the testing is compared to performance materiality to determine the individual materiality of the errors.
B)
All identified misstatements are aggregated and the total is compared to performance materiality to evaluate the materiality of the aggregate misstatement.
C)
All identified errors must be adjusted in order for the auditor to be satisfied with the payroll accounts.
D)
Appropriate testing of controls can begin.
Which of the following control activities could best prevent direct labor from being charged to manufacturing overhead?
Terms in this set (59) Which of the following internal control activities most likely would prevent direct labor hours from being charged to manufacturing overhead? Use of time tickets to record actual labor worked on production orders.
Which of the following is an effective internal control over accounts receivable?
6. Which of the following is an effective internal control over accounts receivable? documents that reduce accounts receivable balances.