Chapter 12

An imprest payroll bank account is: a bank account where a company only deposits sufficient funds to process net payroll transactions. a bank account that processes all payroll withholding transactions. a bank account devoted to all payroll transactions. a bank account where a company only deposits sufficient funds to process gross payroll amounts.

a bank account where a company only deposits sufficient funds to process net payroll transactions

An evaluated receipt system is: a highly automated business process between suppliers and purchasers to exchange data electronically to execute a purchase transaction. a highly automated business process between retailers and customers to receive payment electronically for a purchase transaction. a highly automated process between suppliers and purchasers to manage the receipt of goods. a highly automated process associated with the initiation of a purchase transaction.

a highly automated business process between suppliers and purchasers to exchange data electronically to execute a purchase transaction

The key documents involved in recording a purchase adjustment involve: a purchase return authorization, a shipping report, and a debit memo. a vendor's invoice, a receiving report, and a credit memo. a purchase order, a vendor's invoice, and a voucher. a purchase return authorization, a shipping report, and a credit memo.

a purchase return authorization, a shipping report, and a debit memo

Which of the following situations could most likely lead to an embezzlement scheme? The accounts receivable bookkeeper receives a list of payments prepared by the cashier and personally makes entries in the customers' accounts receivable subsidiary ledger. Each vendor invoice is matched with the related purchase order and receiving report by the vouchers payable bookkeeper who personally approves the voucher for payment. Access to blank checks and signature plates is restricted to the cash disbursements bookkeeper who personally reconciles the monthly bank statement. Vouchers and supporting documentation are examined and then canceled by the treasurer who personally mails the checks to vendors.

access to blank checks and signature plates is restricted to the cash disbursements bookkeeper who personally reconciles the monthly bank statement

The auditor is studying a ratio of accounts payable turnover in days. Which of the following indicates a potential risk of unrecorded liabilities? Accounts payable turnover in days increased from 28 days to 45 days from year one to year two. Accounts payable turnover in days increased from 28 days to 30 days from year one to year two. Accounts payable turnover in days decreased from 28 days to 15 days from year one to year two. Accounts payable turnover in days decreased from 30 days to 25 days from year one to year two.

accounts payable turnover in days decreased from 28 days to 15 days from year one to year two

Purchasing/procurement is concerned with _______. disposing of all of the goods and services that are vital to an organization acquiring all of the goods and services that are vital to an organization acquiring all of the goods and services that are vital to an organization's customers selling all of the goods and services that are vital to an organization

acquiring all of the goods and services that are vital to an organization.

In auditing payroll, an auditor most likely would Verify that checks representing unclaimed wages are mailed. Trace individual employee deductions to entity journal entries. Observe entity employees during a payroll distribution. Compare payroll costs with entity standards or budgets.

compare payroll costs with entity standards or budgets

An auditor decided to confirm accounts payable to accomplish a low level of detection risk for the completeness assertion. Which of the following is the most reasonable sampling plan? Confirm accounts payable with an emphasis on all vendors including zero and small balances. Confirm accounts payable with an emphasis on the largest account payables. Confirm accounts payable using probability-proportionate-to-size sampling. Confirm accounts payable with an emphasis on new vendors, irrespective of the size of the account balance.

confirm accounts payable with an emphasis on all vendors including zero and small balances

When the shipping department returns nonconforming goods to a vendor, the purchasing department should send to the accounting department the Unpaid voucher. Debit memo. Vendor invoice. Credit memo.

debit memo

Purchases of inventory on credit should involve _______. debits to payables and credits to inventory debits to inventory and credits to payables debits to payables and credits to expenses debits to expenses and credits to cash

debits to inventory and credits to payables

Which of the following purchases must be managed aggressively to minimize inventory obsolescence? Electronic computer manufacturing Hotels and motels Universities and colleges Supermarkets and grocery stores

electronic computer manufacturing

If the auditor is concerned about the risk of fraud in the purchasing process, which of the following best describes the auditor's potential fraud risk assessments? Fraudulent financial reporting-high risk; misappropriation of assets-high risk. Fraudulent financial reporting-high risk; misappropriation of assets-low risk. Fraudulent financial reporting-low risk; misappropriation of assets-high risk. Fraudulent financial reporting-low risk; misappropriation of assets-low risk.

fraudulent financial reporting-high risk; misappropriation of assets-high risk

An auditor reviews the reconciliation of payroll tax forms that a client is responsible for filing in order to Verify that payroll taxes are deducted from employees' gross pay. Determine whether internal control activities are operating effectively. Uncover fictitious employees who are receiving payroll checks. Identify potential liabilities for unpaid payroll taxes.

identify potential liabilities for unpaid payroll taxes

In testing controls over cash disbursements, an auditor would be most likely to determine that the person who signs checks also Reviews the monthly bank reconciliation. Returns the checks to accounts payable. Is denied access to the supporting documents. Is responsible for mailing the checks.

is responsible for mailing the checks

If the purchasing department establishes strong controls over putting authorized vendors on an authorized vendor list, _______. it is easy for employees to initiate transactions with legitimate vendors it is difficult for employees to initiate transactions with legitimate vendors it is difficult for employees to initiate transactions with fictitious vendors it is easy for employees to initiate transactions with fictitious vendors

it is difficult for employees to initiate transactions with fictitious vendors

In a well-designed internal control structure, employees in the same department most likely would approve purchase orders, and also Reconcile the open invoice file. Inspect goods upon receipt. Authorize requisitions of goods. Negotiate terms with vendors.

negotiate terms with vendors

An auditor wishes to perform tests of controls on a client's cash disbursements procedures. If the control procedures leave no audit trail of documentary evidence, the auditor will be most likely to test the procedures by Confirmation and observation. Observation and inquiry. Analytical procedures and confirmation. Inquiry and analytical procedures.

observation and inquiry

Relevant assertions relating to purchases of materials or goods are _______. going concern, completeness, accuracy, cutoff, classification occurrence, completeness, accuracy, cutoff, verifiability occurrence, completeness, accuracy, comparability occurrence, completeness, accuracy, cutoff, classification

occurrence, completeness, accuracy, cutoff, classification

An auditor most likely would extend substantive tests of payroll when Payroll is extensively audited by the state government. Payroll expense is substantially higher than in the prior year. Overpayments are discovered in performing tests of details. Employees complain to management about too much overtime.

overpayments are discovered in performing tests of details

An auditor may plan to test controls in the payroll process because, among other factors: the chance of employee fraud is remote. outside governmental auditors spend considerable time investigating the payroll area in most companies. audit risk in the area relates primarily to the hiring of competent personnel. payroll transactions are generally routine and processed in a high volume, which makes controls effective for management to employ.

payroll transactions are generally routine and processed in a high volume, which makes controls effective for management to employ

A client just read about a business paying extraordinary sums of money to a variety of employees. How would the client company use an IT application control to prevent this type of valuation problem? Test a check digit embedded in the employee number. Perform a limit test related to the class of employee. Check the employee number against the master payroll file. Compare the total number of payroll disbursements with a predetermined batch total.

perform a limit test related to the class of employee

The purchasing process normally includes all of the following transactions: purchases, inventory transactions, and cash receipts. purchases on account, purchase returns, and cash receipts. purchases on account, purchase returns, and cash disbursements. purchases of inventory, plant and equipment, and depreciation.

purchases on account, purchase returns, and cash disbursements.

Describe the IT application control procedure that provides assurance that all the merchandise for which the client was billed was received. Assume the software application prepares an exception report and follow-up procedures are effective. IT application edit checks compare: quantities and prices on the voucher with quantities and prices on the purchase order. quantities on the vendor's invoice with quantities entered in receiving. quantities and prices on the voucher with quantities and prices on the vendor's invoice. quantities times price on the voucher with the amount of cash disbursements.

quantities on the vendor's invoice with quantities entered in receiving

When control risk is assessed as low for assertions related to payroll, substantive tests of payroll balances most likely would be limited to applying analytical procedures and Observing the distribution of paychecks. Footing and crossfooting the payroll register. Inspecting payroll tax returns. Recalculating payroll accruals.

recalculating payroll accruals

In a properly designed internal control structure, the same employee would most likely match vendors' invoices with receiving reports and also Post the detailed accounts payable records. Recompute the calculations on vendors' invoices. Reconcile the accounts payable ledger. Cancel vendors' invoices after payment.

recompute the calculations on vendors' invoices

Which of the following industries would have the greatest concerns about purchases cutoff at month end, unrecorded liabilities, and accounting for advertising allowances provided by vendors? Manufacturer of construction equipment. Retail grocer. Hotel. Local school district.

retail grocer

Which of the following procedures is best for identifying unrecorded trade accounts payable? Examining unusual relationships between monthly accounts payable balances and recorded cash payments. Reconciling vendors' statements to the file of receiving reports to identify items received just prior to the balance sheet date. Investigating payables recorded just prior to and just subsequent to the balance sheet date to determine whether they are supported by receiving reports. Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period.

reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period.

Mailing disbursement checks and remittance advices should be controlled by the employee who Approves the vouchers for payment. Matches the receiving reports, purchase orders, and vendors' invoices. Maintains possession of the mechanical check-signing device. Signs the checks last.

signs the checks last

Mailing disbursement checks and remittance advices should be controlled by the employee who Matches the receiving reports, purchase orders, and vendors' invoices. Signs the checks last. Prepares the daily voucher summary. Agrees the check register to the daily check summary.

signs the checks last

Many clients build in redundant controls _______. so if one control does not find a misstatement, another control will also not detect the problem to increase automation and reduce human error so if one control does not find a misstatement, another control will detect the problem due to their large size and lack of communication across the organization

so if one control does not find a misstatement, another control will detect the problem

Which of the following controls should prevent an invoice for the purchase of merchandise from being paid twice? The check signer accounts for the numerical sequence of receiving reports used in support of each payment. An individual independent of cash operations prepares a bank reconciliation. The check signer reviews and cancels the voucher packets. Two check signers are required for all checks over a specified amount.

the check signer reviews and cancels the voucher packets

Which of the following audit assertions is least likely to be accomplished by vouching payroll transactions to supporting documentation (e.g., time cards and employee contracts)? The occurrence of payroll transactions. The completeness of payroll transactions. The accuracy of payroll transactions. Proper cutoff related to payroll transactions.

the completeness of payroll transactions

Which of the following comparisons would an auditor most likely make in evaluating an entity's costs and expenses? The current year's accounts receivable with the prior year's accounts receivable. The current year's payroll expense with the prior year's payroll expense. The budgeted current year's sales with the prior year's sales. The budgeted current year's warranty expense with the current year's contingent liabilities.

the current year's payroll expense with the prior year's payroll expense

When auditing the payroll process, the auditor will normally want to understand: the relationship between payroll and significant customers. the extent to which a company is capital-intensive or labor-intensive. the predictability of the relationship between payroll expense and capital expenditures for the year. the relationship between net payroll and the company's tax liability.

the extent to which a company is capital-intensive or labor intensive

The net operating cycle represents _______. the gross operating cycle reduced by accounts payable turnover days, the amount of time that an entity's suppliers will let it use trade credit before requiring payment for goods and services the gross financing cycle reduced by accounts payable turnover days, the amount of time that an entity's suppliers will let it use trade credit before requiring payment for goods and services the gross operating cycle reduced by accounts receivable turnover days, the amount of time that an entity's suppliers will let it use trade credit before requiring payment for goods and services the gross operating cycle reduced by accounts payable turnover days, the amount of time that an entity's customers will let it use trade credit before requiring payment for goods and services

the gross operating cycle reduced by accounts payable turnover days, the amount of time that an entity's suppliers will let it use trade credit before requiring payment for goods and services

An inherent risk of major concern to the auditor in the payroll process is: the completeness of payroll. the occurrence assertion for payroll. the occurrence and cutoff assertions for payroll. the completeness and occurrence assertions for payroll.

the occurrence and cutoff assertions for payroll

Which of the following controls would most likely prevent a vendor's invoice from being paid twice? An independent bank reconciliation is prepared. The software application compares information on the check with information on the receiving report. The software application compares the daily total in the cash disbursements journal with the total vouchers submitted for payment. The software application has a field that identifies a vendor's invoice has been paid and the voucher number cannot be reused.

the software application has a field that identifies a vendor's invoice has been paid and the voucher number cannot be reused

The internal document commonly used to record a credit purchase in the purchases journal is a: purchase requisition. purchase order. vendor's invoice. voucher.

voucher

Which of the following IT application control procedures would be most effective in assuring that recorded purchases are accurately recorded for transactions that actually occurred? The software application compares the quantity ordered from purchase order information with the quantity received from the receiving department. Vendor invoice information is compared with purchase order information. Receiving reports require the signature of the individual who authorized the purchase. The software application matches voucher information with information supporting purchase orders, receiving reports, and vendor invoices.

the software application matches voucher information with information supporting purchase orders, receiving reports, and vendor invoices.

Which of the following circumstances most likely would cause an auditor to suspect an employee payroll fraud scheme? There are significant unexplained variances between standard and actual labor costs. Payroll checks are disbursed by the same employee each payday. Employee time cards are approved by individual departmental supervisors. A separate payroll bank account is maintained on an imprest basis.

there are significant unexplained variances between standard and actual labor costs

A treasury or cash management function is responsible for determining that _______. paid payables are processed for payment on their due dates unpaid payables are processed for payment on their due dates unpaid receivables are processed for payment on their due dates unpaid dividends are processed for payment on their due dates

unpaid payables are processed for payment on their due dates

Which of the following is in an assertion of relevant account balances of a key purchase transaction? Purchase returns Purchase returns and allowances Accounts payable Valuation and allocation at historical cost

valuation and allocation at historical cost

Management and the auditor have to be alert to the risk of collusion with _______. customers and customer kickbacks to employees vendors and vendor kickbacks to stockholders vendors and vendor kickbacks to employees customers and vendor kickbacks to employees

vendors and vendor kickbacks to employees

Assume an auditor is testing an IT application control over the accuracy of purchases. The auditor is most likely to submit test data for a: voucher with different quantities than on the receiving report. purchase order without appropriate authorization. voucher with no receiving report. purchase order with an invalid vendor number.

voucher with different quantities than on the receiving report