Audit Ch 15

1) An 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 the preceding year. 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

15) To minimize the opportunity for fraud, unclaimed salary cheques should be A) immediately returned for redeposit. B) kept in the payroll department. C) left with the employee's supervisor. D) held for the employee in the personnel department.

A

2) Which of the following type of test is most important for the audit of payroll? A) internal control B) test of detail C) analytical review D) substantive test

A

4) Otto decided to outsource the payroll function to Magna Plus. For the purpose of an assurance engagement, Magna is considered a A) service organization. B) user entity. C) payroll administrator. D) human resource company.

A

2) When auditing the human resources and payroll cycle, the auditor should verify the officers' compensation because A) officers are more likely to commit fraud. B) officers' compensation is likely more prone to error. C) some officers may have complex compensation packages. D) some officers may be in a position to pay themselves more than the authorized amounts.

D

29) Recomputing hours worked from time records provides evidence that A) internal controls relating to payroll disbursements were operating effectively. B) payroll cheques were signed by an appropriate officer independent of the payroll preparation process. C) only bona fide employees worked and their pay was properly computed. D) employees worked the number of hours for which their pay was computed.

D

4) Which of the following controls helps to prevent error with set up of access rights, and also helps to prevent unauthorized changes to the access rights? A) independent comparison to check that they have been set up properly B) access rights forms that are signed by the user's manager C) tracking all accesses in an access log by user identification code D) using audit software to provide a list of who has accessed sensitive data

A

6) If there is an error in wage rates, such errors can typically escalate into material amounts. What characteristic of the human resources and payroll cycle causes this? A) many repeated transactions B) the presence of independent verification C) the use of outsourcing organizations for payroll D) an error in the starting cheque number in a cheque run

A

7) Master file data is the semi-permanent data in an employee's file. Changes to the master file A) should be adequately supported. B) should be checked by the originator. C) would be entered only once per month. D) would be implemented on an annual basis.

A

8) The file for recording each payroll transaction for each employee and maintaining total employee wages paid for the year to date is the A) payroll master file. B) payroll transaction file. C) payroll journal. D) job time ticket.

A

1) General controls must be evaluated and their impact considered upon the human resources and payroll transaction cycle because A) there are frequently weaknesses in internal controls in the payroll cycle. B) automated techniques are normally used to prepare and post payroll transactions. C) the best way to test payroll transactions is usually by using test data. D) the best way to test payroll transactions is usually by using generalized audit software.

B

1) The auditor's primary concern in testing payroll liabilities is to make sure that A) expense has not been overstated, thus reducing profits. B) there are no understated or omitted accruals. C) employees' T4 slips are accurate. D) salaries of officers have not been misclassified as wages.

B

12) When manufacturing labour affects inventory valuation, a knowledgeable manager should approve wage rate allocations to make sure that labour is distributed to the proper accounts. Which of the following controls helps to prevent error in the resulting job costing? A) comparison of wage rates to the authorized payroll master file B) independent comparison of the approved amounts to the data entered C) continuity check of the payroll cheque numbers issued D) reconciliation of gross pay on the payroll register with gross pay according to the payroll master file

B

18) The careful and timely preparation of all payroll withholdings and employer's portion of withholdings is necessary to avoid heavy fines. The most important control in the timely preparation of these returns is A) computerized preparation of income 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) a Gantt chart.

B

2) The human resources department would likely provide which of the following internal controls for the human resources and payroll cycle? A) recalculation of net pay for every pay B) independent verification of wage rate C) account for the continuity of employee numbers D) account for the continuity of payroll check numbers

B

20) Which of the following controls will help to detect unauthorized changes to payroll master files and help to detect whether terminated employees are still being paid? A) use of authorized change forms B) periodic review of master files C) use of master files to print T4s D) use of master files to print payroll cheques

B

21) Which of the following is a test of controls? A) reviewing the payroll journal, general ledger, and payroll earnings records for large or unusual amounts B) examining time cards for indication of supervisor approval C) comparing cancelled cheques with payroll journal for name, amount, and date D) examining cancelled cheques for proper endorsement

B

23) Which of the following internal controls helps ensure that recorded payroll payments are for work actually performed by existing employees? A) procedures requiring the recording of transactions as soon as possible B) only valid employees from the computer data files are accepted for processing C) internal verification of payroll file contents D) independent preparation of payroll bank reconciliation

B

24) "Existing payroll transactions are recorded" is the control objective of A) authorization. B) completeness. C) existence. D) accuracy.

B

3) Which of the following describes the class of transactions associated with payroll? A) posting costs of purchasing inventory B) payment of employee services C) payment of withholding taxes and benefits D) writing off damaged inventory dropped by employees

B

32) Which of the following internal control tests would help to assess whether payroll transactions were recorded on the correct dates? A) Compare cancelled cheques with payroll journal for name, amount, and date. B) Compare date on cheque with date the cheque cleared the bank. C) Compare cancelled cheques with personnel records. D) Recompute hours worked from pay records.

B

39) Because of the lack of available evidence, it is usually difficult for an auditor to discover if an employee records more time on his or her time card than they actually worked. One procedure is to reconcile the total hours A) paid this period with a previous period. B) paid according to the payroll records with an independent record of the total hours worked, such as those maintained by production control. C) worked this period with a previous period. D) worked according to the summary payroll report with the total hours worked as recorded on the time card for the period.

B

4) In most audits, the amounts of the balance sheet accounts related to payroll are A) large and require substantial effort to audit. B) small compared with the transactions. C) large on the liability side but small on the asset side. D) significantly larger than the related accounts on the income statement.

B

9) A wage rate form that also documents a change in job responsibility for one of the warehouse employees should be approved by A) human resources and the corporate controller. B) the warehouse supervisor and human resources. C) the warehouse supervisor. D) human resources.

B

14) Which of the following controls could help to prevent unauthorized overtime? A) review by payroll supervisor of a report that lists all employees whose wage rate does not match the permanent file B) print a gap report for all employees who have not submitted their time reports for the current pay period C) review by payroll supervisor of a report that lists all employees working more than the required hours per week D) have a calculation check for payroll calculations (gross pay less deductions = net pay)

C

17) Which of the following controls prevents error and helps to ensure that only authorized wages are paid by the payroll service provider? A) duplicate signatures required on payments to the Receiver General B) use of an imprest payroll account for the payment of all payroll payments C) independent approval of the payroll journal prior to payroll payment release D) reconciliation of the payroll imprest bank account on a timely basis

C

19) "Recorded payroll payments are for work actually performed by existing employees" is the control objective of A) authorization. B) completeness. C) occurrence. D) accuracy.

C

2) 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 and recorded in the minutes of the board of directors. D) paid in the subsequent period.

C

25) Which of the following internal controls would help ensure that existing payroll transactions are recorded? A) time records are approved by supervisors B) a time clock is used to record time C) independent preparation of payroll bank reconciliation D) comparison of payroll master file totals with general ledger control account

C

3) Which of the following is an example of semi-permanent information that would be included in personnel records? A) gross pay for the monthly pay issued in September B) net pay for the weekly pay issued in the first week of October C) category of job the person is employed in D) income tax deducted for the current pay

C

30) Which of the following internal control tests would be used in assessing that recorded payroll transactions are for the amount of time actually worked and at the proper pay rate, and that withholdings are properly calculated? A) Foot the payroll journal and trace to the general ledger. B) Prove the bank reconciliation. C) Recompute gross pay. D) Review the payroll journal for large or unusual amounts.

C

33) Which of the following is a substantive test of transactions? A) Review personnel policies. B) Account for a sequence of payroll cheques. 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 numbers.

C

5) Otto decided to outsource the payroll function to Magna Plus. The controller of Otto should still A) recalculate the payroll and its remittance to ensure accuracy. B) review and authorize each individual payment to employees. C) review the payroll journal and compare the total hours worked with the payroll time records. D) inquire with the manager of Magna Plus if they suspect any unusual transactions.

C

6) Which of the following best describes proper internal control over payroll? A) Preparation of the payroll must be under the control of the personnel department. B) Confidentiality of employee payroll data should be carefully protected to prevent fraud. C) Duties of hiring, payroll computation, and payment to employees should be segregated. D) Payment by cheque to employees should be replaced with payment by automatic deposits.

C

1) A form issued for each employee summarizing the earnings record for the calendar year is the A) rate authorization form. B) summary payroll report. C) payroll master file. D) T4 form.

D

1) The human resources and payroll cycle is the transaction cycle that begins with A) processing the payment to the employees. B) the creation of the employee profile in the payroll master file. C) the employee performing work for the company. D) the hiring of personnel.

D

11) Access rights management is important because it is the organization's method of A) establishing data tables usage. B) identifying master file data. C) identifying transaction file data. D) enforcing segregation of duties.

D

13) Which of the following controls best prevents employees from checking in for more than one employee? A) use of numerically controlled punch-in cards B) placing the punch clock in full view of the receptionist C) time cards stored in a wall rack D) a personalized swipe card

D

16) A weak internal control system allows a foreman to clock in daily for a fictitious employee and to approve the time card at the end of the payroll period. This fraud would be detected if other controls were in place, such as having an independent party A) compare the date of the recorded cheque in the payroll journal with the date on the cancelled cheques and time cards. B) foot the payroll journal and trace postings to the general ledger and the payroll master file. C) recompute hours worked from time cards. D) distribute paycheques.

D

26) Which of the following tests of controls would pertain to whether existing payroll transactions are recorded? A) Compare cancelled cheques with payroll journal details. B) Compare cancelled cheques with payroll records. C) Foot the payroll journal and trace details to the general ledger. D) Conduct gap testing for a sequence of payroll cheques.

D

27) "Recorded payroll transactions are for the amount of time actually worked and at the proper pay rate; withholdings are properly calculated" relates to which control objective? A) authorization B) completeness C) existence D) accuracy

D

3) The correct cutoff and valuation of accrued salaries and wages A) is to calculate the exact hours of pay that were earned in the current period and paid in a subsequent period. B) is to compute an approximate proportion of the wages that were earned in the current period and use that amount as the accrual. C) allows the client to choose between A and B (above) each year. D) depends on company policy and whether it is consistently followed.

D

31) Which of the following internal control tests would help to assess whether payroll transactions were properly classified? A) Test clerical accuracy by footing the payroll journal. B) Recompute net pay and gross pay. C) Reconcile the disbursements in the payroll journal with the payroll bank statement. D) Review time records and job records, tracing to labour distribution.

D

35) The internal auditor is running a computer-assisted audit test that compares names and wage rates in the personnel files (stored on optical disk) with the wage rates in the payroll master file and the whole year's payroll transaction files. What is the purpose of these tests? A) to determine whether any employees were not paid in the most recent pay B) to check for wage rates that are under the amount specified by the union contract C) to help with the reconciliation of wage rates to the T4 summary D) to determine whether terminated employees are still being paid

D

36) To test whether the client has fulfilled its legal obligation in submitting payments for all payroll withholdings, the auditor must first A) contact client's independent legal counsel. B) know the dates when tax payments are due. C) trace these payments to the imprest payroll account. D) determine the client's requirements for submitting the payments.

D

5) In auditing the imprest payroll account, which of the following procedures will take the least amount of auditor time? A) tests of controls B) risk analysis and obtaining an understanding of controls C) analytical procedures D) tests of details of balances

D

5) The most important control in the payroll cycle is clear, proper documentation of the employees job responsibilities and wages by the appropriate level of authority. This control is associated with which audit objective? A) completeness B) classification C) valuation D) occurrence

D

10) Ricky recently changed jobs from payroll analyst to assistant regional manager of production. An employee at the production facility came to see Ricky and complained that he was not paid on the last payroll cheque for the overtime he had done. Ricky apologized for this mistake and logged into the payroll system to modify the next paycheque for the employee to ensure that he would be paid for the additional hours. Which of the following statements correctly applies to this scenario? A) The company did not properly allocate access rights. B) The company did not properly complete the access rights approval form. C) The company did not properly check employee background when they hired Ricky. D) Ricky did not do anything wrong since the employee had worked the hours.

A

2) Payroll and personnel costs at ABC Manufacturing are a major expense. This means that improper allocation or misclassification of labour costs could result in A) a material misstatement of net income. B) a net effect that is negligible when costing inventory. C) quality control problems with respect to the production of finished products. D) incorrect payment of payroll to employees. Audit Ch 15

A

22) Which of the following internal control tests would assist in satisfying the occurrence transaction-related audit objective for payroll? A) examining payroll records for evidence of approval B) proving the payroll bank reconciliation C) reviewing the chart of accounts D) accounting for a sequence of payroll cheques

A

28) Which of the following internal controls would assist in ensuring that recorded payroll transactions are for the amount of time actually worked and at the proper pay rate, and that withholdings are properly calculated? A) comparison of batch totals with computer summary reports B) comparison of payroll master file with payroll general ledger totals C) adequate personnel files D) separation of duties between personnel, timekeeping, and payroll disbursements

A

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

A

34) The auditor should review the preparation of at least one of each type of payroll tax form the client is responsible for filing, as a part of the auditor's responsibility for A) understanding internal controls. B) doing tests of controls. C) doing analytical procedures. D) doing tests of balances.

A

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

A

38) When the employees are paid automatically by bank deposits to the employees' accounts, in an effort to identify potential fraud, the auditor can look for A) duplicated bank account numbers. B) duplicated names in the master payroll files. C) unusual employee names. D) cancelled cheques.

A

4) Once the auditor has determined the company's policy for accruing wages and knows it is consistent with that of previous years, the appropriate audit procedure to test for cutoff and accuracy is to A) recalculate the client's accruals. B) compare the ledger balance with the journal and the T4 form. C) confirm the amount with employees. D) compare the recorded accrued wages with the amount approved in the minutes of the Board.

A