Actg 135 ch 20

A weak internal control system allows a department supervisor to "clock in" for a fictitious employee and then approve the employee's time card at the end of the pay period. This fraud would be detected if other controls were in place, such as having an independent party: A) distribute paychecks. B) recompute hours worked from time cards. C) foot the payroll journal and trace postings to the general ledger and the payroll master file. D) compare the date of the recorded check in the payroll journal with the date on the canceled checks and time cards.

a

Verifying that an adequate chart of accounts is used is a key internal control for the transaction-related objective of: A) classification. B) accuracy. C) existence. D) occurrence.

a

The payroll and personnel cycle ends with which of the following events? A) Interviewing job candidates B) Hiring a new employee C) Existing employees submitting requests for payment for work performed D) Issuance of paychecks

d

Which of the following types of audit procedures is ordinarily emphasized the least when auditing payroll? A) Tests of controls B) Tests of transactions C) Analytical procedures D) Tests of details of balances

d

An auditor is vouching a sample of hourly employees from the payroll master file to approved time clock or time sheet data in order to provide evidence that: A) employees work the number of hours for which they are paid. B) payments are made at the contractual rate. C) product cost information is accurate. D) segregation of duties is present between the payroll function and the payment function for cash disbursements.

a

An imprest payroll account that has a significant balance may indicate the presence of: A) employees have not yet deposited or cashed payroll checks. B) fraudulent transfer of funds by the company. C) lack of controls over payroll distribution. D) the company is overpaying its employees.

a

Audit tests of payroll are usually not extensive because: A) employees will likely complain if underpaid. payroll transactions are typically uniform and uncomplicated. payroll transactions are subject to audit by federal and state governments. Yes Yes Yes B) employees will likely complain if underpaid. payroll transactions are typically uniform and uncomplicated. payroll transactions are subject to audit by federal and state governments. No Yes No C) employees will likely complain if underpaid. payroll transactions are typically uniform and uncomplicated. payroll transactions are subject to audit by federal and state governments. No No Yes D) employees will likely complain if underpaid. payroll transactions are typically uniform and uncomplicated. payroll transactions are subject to audit by federal and state governments. Yes No No

a

Auditors may extend their tests of payroll in which of the following circumstances? A) Payroll materially affects the valuation of inventory. The auditor is concerned there may be nonexistent employees on the payroll. Yes Yes B) Payroll materially affects the valuation of inventory. The auditor is concerned there may be nonexistent employees on the payroll. No No C) Payroll materially affects the valuation of inventory. The auditor is concerned there may be nonexistent employees on the payroll. Yes No D) Payroll materially affects the valuation of inventory. The auditor is concerned there may be nonexistent employees on the payroll. No Yes

a

If an auditor wishes to test the completeness transaction-related audit objective in the payroll and personnel cycle, which of the following would be a reasonable test of control? A) Account for a sequence of payroll checks. B) Examine the procedures manual and observe the recording of transactions. C) Examine the payroll records for indication of pay rate approval. D) Reconcile the payroll bank account.

a

In audits of companies in which payroll is a significant portion of inventory, the improper account classification of payroll can: A) Increase inventory asset valuations. Decrease inventory asset valuations. Yes Yes B) Increase inventory asset valuations. Decrease inventory asset valuations. No No C) Increase inventory asset valuations. Decrease inventory asset valuations. Yes No D) Increase inventory asset valuations. Decrease inventory asset valuations. No Yes

a

Once the auditor determines that the company's policy for accruing wages is consistent with prior years, the appropriate audit procedure to test for accuracy and cutoff is: A) recalculating the client's accrual. B) performing extensive tests of controls. C) performing extensive tests of details. D) none of the above.

a

Records that include data about employees such as employment date, performance ratings and pay rates are the: A) human resource records. B) employee screening forms. C) summary payroll reports. D) employee folders.

a

The ________ has the responsibility for approving the number of hours worked for each employee. A) employee's supervisor B) human resources department C) chief financial officer D) budgeting supervisor

a

The auditor, in auditing payroll, wants to determine that the individuals included in her sample were employees of the company for the period under review. What is the auditor's best source of evidence? A) Examination of human resource records B) Examination of the payroll master file C) Examination of the payroll transaction file D) Examination of the payroll tax records

a

The most important consideration in evaluating the fairness of the amounts accrued for vacation pay, sick pay, and other benefits is the: A) consistent accrual of these liabilities relative to those of preceding periods. B) actual expense incurred for the prior period. C) amount expended to date in the current period. D) profitability of the client which will enable these liabilities to be met.

a

The most important means of verifying account balances in the payroll and personnel cycle are: A) tests of controls and substantive tests of transactions. B) analytical procedures and tests of controls. C) analytical procedures and substantive tests of transactions. D) tests of controls and tests of details of balances.

a

The total of the individual employee earnings in the payroll master file should equal the total: A) balance of gross payroll in general ledger accounts. B) of the checks drawn to employees for payroll. C) gross payroll plus the total contributed by the employer for payroll taxes. D) gross pay for the current week's payroll.

a

The usual audit test for a public company's officer compensation is to obtain the authorized salary of each officer from the minutes of the board of directors and compare it with: A) the SEC's 10-K report. the company's federal income tax return. Yes Yes B) the SEC's 10-K report. the company's federal income tax return. No No C) the SEC's 10-K report. the company's federal income tax return. Yes No D) the SEC's 10-K report. the company's federal income tax return. No Yes

a

To minimize the opportunity for fraud, unclaimed salary checks should be: A) redeposited. B) kept in the payroll department. C) left with the employee's supervisor. D) held for the employee in the personnel department

a

When performing the tests of details of balances for expense accounts, ________ is (are) generally not necessary. A) extensive additional testing B) analytical procedures C) tests of controls D) substantive tests of transactions

a

Which of the following audit procedures would be the most effective in testing for nonexistent employees? A) Trace transactions recorded in the payroll journal to the human resources department to determine employment status. B) Examine cancelled checks for proper endorsement. C) Recalculate net pay. D) Reconcile the disbursements in the payroll journal with the disbursements on the payroll bank statement.

a

Many audits have a ________ risk of misstatement for the payroll cycle. A) high B) minimal C) moderate D) zero

b

The careful and timely preparation of all payroll tax returns is necessary to avoid penalties and criminal charges. The most important control in the timely preparation of these returns is: A) computerized preparation of tax returns. B) a well-defined set of policies that indicate when each form must be filed. C) independent verification of computer output by a competent individual. D) the use of an outside payroll service.

b

The computer file used for recording payroll transactions for each employee and maintaining total wages paid for the year to date is the: A) payroll transaction file. B) payroll master file. C) payroll bank account reconciliation. D) payroll tax returns.

b

When examining payroll transactions, an auditor is primarily concerned with the possibility of: A) incorrect summaries of employee time records. B) overpayments and unauthorized payments. C) under withholding of amounts required to be withheld. D) posting of gross payroll amounts to incorrect salary expense accounts.

b

When the auditor compares the cancelled check or direct deposit with the payroll journal for amount, they are concerned with the transaction-related audit objective of: A) occurrence. B) accuracy. C) classification. D) timing.

b

Which of the following best describes inherent risk for balance-related audit objectives as they relate to payroll? A) Not considered B) Low C) Moderate D) High

b

Which of the following departments is most likely responsible for pay rate changes and changes in deductible amounts for employees? A) General Accounting B) Human Resources C) Treasury D) Controller

b

Which of the following includes all payroll transactions processed by the accounting system for a given period of time? A) Payroll journal B) Payroll transaction file C) Time report D) Payroll summary

b

Which of the following is a major balance-related audit objective in testing payroll liabilities? A) Payroll tax expense is properly recorded. B) Transactions in the payroll and personnel cycle are recorded in the proper period. C) Accrual of salaries is the same as the amounts paid on the payroll tax returns. D) Time records are recorded by supervisors.

b

Which of the following statements is false? A) The payroll cycle consists of one class of transactions. B) Balance sheet accounts related to payroll are generally more significant than related transactions. C) Internal controls over payroll are effective for most companies. D) Small companies usually have effective controls over payroll.

b

Which of the following would have the least amount of importance regarding controls over the processing of payroll? A) The person authorized to sign paychecks should not be otherwise involved in the preparation of the payroll. B) A check-signing machine should not be used to replace a manual signature. C) Distribution of pay checks should be performed by someone who is not involved in the other payroll functions. D) Unclaimed paychecks should be immediately returned for redeposit.

b

________ is not a transaction-related audit objective for the classes of transactions underlying the payroll cycle. A) Classification B) Existence C) Timing D) Completeness

b

A surprise payroll payoff in which employees must pick-up and sign for their pay check is one means of: A) identifying employees who do not have proper work credentials. B) establishing a tightly controlled, fraud-free work environment. C) testing for nonexistent employees. D) identifying employees who have not submitted proper W-2 forms.

c

Although significant client business risks affecting payroll are unlikely for most companies, an area that would have the most business risk would be: A) payment of hourly employees. B) payment of salaried employees. C) payments to employees for stock options and bonus plans. D) payments to employees who have direct deposit of their payroll checks.

c

An auditor traces a sample of electronic time cards before and after the bi-weekly payroll report and then traces to the payroll master file to determine that payroll transactions are reported in the correct period. The auditor is gathering evidence for which audit objective? A) Completeness B) Existence C) Cut-off D) Accuracy

c

No individual with access to time cards, payroll records, or checks should also be permitted access to: A) the computer. B) job time tickets. C) personnel records. D) the canceled check file.

c

The primary concern in testing payroll-related liabilities is to make sure that: A) accruals are properly valued. B) transactions are recorded in the proper period. C) there are no understated or omitted accruals. D) the accruals are not overstated.

c

Verification of the legitimacy of year-end unpaid bonuses to officers and employees can be accomplished by comparing the recorded accrual to the amount: A) in the expense account. B) used in the prior period. C) authorized in the minutes of the board. D) paid in the subsequent period.

c

When auditing the payroll and personnel cycle, the auditor should keep in mind that: A) since payroll transactions are typically uniform, all companies have the same internal controls over payroll. B) the substantive tests of transactions for the payroll cycle are the same for all audit clients. C) controls the auditor intends to rely on to reduce assessed control risk must be tested with tests of controls. D) the tests of controls and the substantive tests of transactions for payroll cannot be combined.

c

When labor is a material factor in inventory valuation, the auditor should place special emphasis on testing the internal controls concerning: A) fictitious employees. B) authorization of wage rates. C) proper classification of payroll transactions. D) completeness of recorded transactions.

c

Which department should be authorized to add and delete employees from the payroll or change pay rates and deductions? A) The supervising department B) The accounting department C) The human resources department D) The treasurer's department

c

Which of the following best describes effective internal control over payroll? A) The preparation of the payroll must be under the control of the personnel department. B) The confidentiality of employee payroll data should be carefully protected to prevent fraud. C) The duties of hiring, payroll computation, and payment to employees should be segregated. D) The payment of cash to employees should be replaced with payment by checks.

c

Which of the following best describes the systems of internal control for payroll for large companies? A) Loosely structured but well controlled B) Loosely structured and loosely controlled C) Highly structured and well controlled D) Highly structured but loosely controlled

c

Which of the following internal control objectives is likely to be the most important in the audit of the payroll cycle? A) Payroll transactions are properly disclosed and presented in the notes to the financial statements. B) Payroll transactions are processed by an outside service provider. C) Recorded transactions represent valid payments. D) Recorded transactions are recorded in the proper accounting period.

c

Which of the following is a substantive test of transactions? A) Review personnel policies. B) Account for a sequence of payroll checks. C) Reconcile the disbursements in the payroll journal with the disbursements on the payroll bank statement. D) Examine printouts of transactions rejected by the computer as having invalid employee IDs.

c

Which of the following is not one of the business functions for the payroll and personnel cycle? A) Payment of payroll B) Timekeeping and payroll preparation C) Reconciliation of payroll account D) Human resources and employment

c

Which of the following is the best way for an auditor to determine that every name on a company's payroll for the Rodgers factory is that of a bona fide employee presently on the job? A) Examine personnel records for accuracy and completeness. B) Examine employees' names listed on payroll tax returns for agreement with payroll accounting records. C) Make a surprise observation of the company's regular distribution of paychecks. D) Visit the working areas and confirm with employees their badge or identification numbers.

c

Which of the following statements about the payroll and personnel cycle is correct? A) There are three classes of transactions within the payroll cycle — salaried employees, hourly employees, and commissioned employees. Transactions are more significant than related balance sheet accounts. Internal controls over payroll are effective for almost all companies, even small ones. No No Yes B) There are three classes of transactions within the payroll cycle — salaried employees, hourly employees, and commissioned employees. Transactions are more significant than related balance sheet accounts. Internal controls over payroll are effective for almost all companies, even small ones. Yes No Yes C) There are three classes of transactions within the payroll cycle — salaried employees, hourly employees, and commissioned employees. Transactions are more significant than related balance sheet accounts. Internal controls over payroll are effective for almost all companies, even small ones. No Yes Yes D) There are three classes of transactions within the payroll cycle — salaried employees, hourly employees, and commissioned employees. Transactions are more significant than related balance sheet accounts. Internal controls over payroll are effective for almost all companies, even small ones. No Yes No

c

Which of the following types of audit tests is usually emphasized due to a lack of independent third-party evidence related to payroll transactions? A) Analytical procedures B) Tests of details of balances C) Tests of controls D) Each of the above is emphasized.

c

As a part of the auditor's responsibility for ________, the auditor should review the preparation of at least one of each type of payroll tax form the client is responsible for filing. A) fraud awareness B) doing tests of balances C) doing tests of transactions D) understanding the client's internal controls

d

In auditing payroll, which of the following procedures will normally require the least amount of auditor time under normal circumstances? A) Tests of controls B) Substantive tests of transactions C) Analytical procedures D) Tests of details of balances

d

It would be appropriate for the payroll department to be responsible for which of the following functions? A) Approval of employee time records B) Maintain records of employment, firings, and raises C) Temporary retention of unclaimed employee paychecks D) Preparation of governmental reports as to employees' earnings and withholding taxes

d

Many companies use outside payroll services to process payroll. Which of the following regarding the auditor's responsibilities is most correct regarding their reliance on the internal controls of these outside payroll services? A) Must B) Cannot C) Rarely D) Can often

d

There is inherent risk of payroll fraud because most transactions involve: A) expense accounts. B) accrued liabilities. C) estimates. D) cash.

d

What are the two major balance-related audit objectives in testing payroll liabilities? A) Accuracy and detail tie-in B) Completeness and valuation C) Completeness and rights and obligations D) Accuracy and cutoff

d

What potential problems may arise when an auditor considers the relationship between payroll and inventory valuation? A) Improper account classification. Improper allocation to jobs or processes. The overpayment or underpayment of factory employees Yes Yes Yes B) Improper account classification. Improper allocation to jobs or processes. The overpayment or underpayment of factory employees No Yes No C) Improper account classification. Improper allocation to jobs or processes. The overpayment or underpayment of factory employees No No Yes D) Improper account classification. Improper allocation to jobs or processes. The overpayment or underpayment of factory employees Yes Yes No

d

Which of the following errors gives the auditor the least concern in auditing payroll transactions? A) An error that indicates possible fraud B) Computational errors in formulas when a computerized system is used C) Classification errors in charging labor to inventory and job cost accounts D) Each of the above gives the auditor significant concern.

d

Which of the following is an accurate statement regarding nonexistent employees? A) In order to prevent this type of fraud, the foreman should distribute the paychecks and approve the time cards. B) Records for all terminated employees should be destroyed to prevent this type of fraud. C) The person committing this type of fraud is generally the CEO or CFO of the company. D) This type of fraud often results from the continuance of an employee on the payroll after the employee has been terminated.

d

Which of the following is not a correct statement regarding fraudulent hours? A) Fraudulent hours occur when an employee reports more time than was actually worked. B) It is difficult for an auditor to discover fraudulent hours. C) It is ordinarily easier for the client to prevent fraudulent hours by adequate internal controls than for the auditor to detect it. D) To detect fraudulent hours, the auditor should examine the cancelled checks written to the employees.

d

Which of the following statements is correct? A) The overhead charged to inventory at the balance sheet date can be understated if the salaries of administrative personnel are inadvertently or intentionally charged to indirect manufacturing overhead. B) When jobs are billed on a cost-plus basis, revenue and total expenses are both affected by charging labor to incorrect jobs. C) Payroll is a significant portion of inventory for retail and service industry companies. D) The valuation of inventory is affected if the direct labor cost of individual employees is improperly charged to the wrong job or process.

d