Audit Chapters 12

In meeting the control objective of safeguarding of assets, which department should be responsible for distribution of paychecks and custody of unclaimed paychecks

A) CFO CFO

When the risk of material misstatement is assessed as low for assertions related to payroll, substantive tests of payroll balances most likely would be limited to applying analytical procedures and A) observing the distribution of paychecks B) footing and crossfooting the payroll register C) inspecting payroll tax returns D) recalculating payroll accruals

D) recalculating payroll accruals

In meeting the control objective of safeguarding of assets, which department should be responsible for the following? distribution of paychecks and custody of unclaimed paychecks?

Treasurer Treasurer (in the case where they report to the cfo)

The purpose of segregating the duties of hiring personnel and distributing payroll checks is to segregate the a) authorization of transactions from the custody of related assets b) operational responsibility from the record-keeping responsibility c) human resources function from the controllership function d) administrative controls from the internal accounting controls

a) authorization of transactions from the custody of related assets

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 distributing paychecks

a) employees work the number of hours for which they are paid

Which of the following departments most likely would approve changes in pay rates and deductions from employee salaries? a) human resources b) CFO c) controller d) payroll

a) human resources

Which of the following statements is true regarding substantive procedures in the human resource management process? a) if the result of the test of controls for payroll do not support the planned level of control risk, substantive procedures must be increased b) if the result of the test of controls for payroll do not support the planned level of control risk, substantive procedures must be reduced c) if the results of the test 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 test of controls and the substantive procedures that should be performed.

a) if the result of the test of controls for payroll do not support the planned level of control risk, substantive procedures must be increased

Which of the following procedures would an auditor most likely employ to determine that every name on an entity's payroll represents an actual employee that is presently employed? a) make a surprise observation of the entity's regular distribution of paychecks b) examine personnel records for accuracy and completeness c) maintain control over the mailing of w-2 forms to employee addresses as listed in their personnel files d) compare names listed on payroll tax returns with those in the personnel file

a) make a surprise observation of the entity's regular distribution of paychecks

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 labor was understated b) the amount of payroll expense allocated to cost of direct labor was overstated c) too much direct labor was allocated to cost of goods sold as opposed to ending inventory d) payroll taxes were withheld at excessive rates

a) the amount of payroll expense allocated to direct labor was understated

Which of the following is a control activity that most likely could help prevent employee payroll fraud? a) the human resource department promptly sends employee termination notices to the payroll supervisor b) employees who distribute payroll checks forward unclaimed payroll checks to the absent employees' supervisors c) salary rates resulting from new hires are approved by the payroll supervisor d) total hours used for determination of gross pay are calculated by the payroll supervisor

a) the human resource department promptly sends employee termination notices to the payroll supervisor

Which of the following circumstances most likely will cause an auditor to suspect an employee payroll fraud scheme? a) there are significant unexplained variances between standard and actual labor costs b) payroll checks are disbursed by the same employee each payday c) employee time cards are approved by individual departmental supervisors d) a separate payroll bank account is maintained on an imprest basis

a) there are significant unexplained variances between standard and actual labor costs

When appropriate substantive procedures are completed a) each individual error found in the testing is compared to tolerable misstatement to determine the individual materiality of the errors b) all identified misstatements are aggregated (including likely or projected misstatement) and the total is compared to tolerable misstatement to evaluate the materiality of the aggregate (known and likely) 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

b) all identified misstatements are aggregated (including likely or projected misstatement) and the total is compared to tolerable misstatement to evaluate the materiality of the aggregate (known and likely) misstatement

An auditor vouched data for a sample of employees in a payroll register to approved clock card data to provide assurance that a) payments to employees are computed at authorized rates b) employees work the number of hours for which they are paid c) segregation of duties exist between the preparation and distribution of the payroll d) internal control relating to unclaimed payroll checks are operating effectively.

b) employees work the number of hours for which they are paid

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

b) executive compensation

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

b) general accounting

Which of the following department/individuals would likely approve changes in pay rates and deductions from employee earnings? a) treasurer b) human resources c) payroll d) controller

b) human resources

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) distribution of paychecks to employees

b) preparation of periodic governmental reports as to employees' earnings and withholding taxes

with properly designed internal controls, an entity's payroll department would be responsible for which of the following functions? a) approval of employee time records b) preparation of periodic reports of employee earnings and withholding taxes c) temporary retention of unclaimed employee paychecks d) maintenance of records of employment, termination, pay increases, etc

b) preparation of periodic reports of employee earnings and withholding taxes

An auditor is most likely to perform substantive test 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) cutoff tests indicate a large accrued payroll expense at year-end

b) substantive analytical procedures indicate possible unusual fluctuations in recurring payroll entries

Which of the following procedures would normally be performed by the auditor when conducting test of payroll transactions? a) interview employees selected in a statistical sample of payroll transactions b) trace number of hours worked as shown on payroll to time cards and time reports signed by the foreman c) confirm amounts withheld from employees salaries with proper governmental authorities d) examine signatures on paid salary checks

b) trace number of hours worked as shown on payroll to time cards and time reports signed by the foreman

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

b) verification of agreement of job time cards with employee clock card hours by a payroll department employee

An auditor most likely would perform substantive test of details on payroll transactions and balances when a) cutoff test indicate a substantial amount of accrued payroll expense b) the assessed risk of material misstatement relative to payroll transactions is low c) analytical procedures indicate unusual fluctuations in recurring payroll expenses d) accrued payroll expenses consist of primarily of unpaid commissions

c) analytical procedures indicate unusual fluctuations in recurring payroll expenses

the purpose of segregating the duties of hiring personnel and distributing payroll checks 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

c) authorization of transactions from the custody-related assets

Which of the following is not a required disclosure for payroll-related items? a) healthcare coverage for retirees b) profit sharing plans c) average percentage rate of salary increases d) deferred compensation arrangements

c) average percentage rate of salary increases

Which of the following control activities could best prevent direct labor 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 labor summary d) recomputation of direct labor based on inspection of time cards

c) comparison of daily journal entries with factory labor summary

An auditor most likely increases substantive tests of payroll when a) payroll is extensively audited by the state government b) payroll expense is substantially higher than in the prior year c) overpayments are discovered in performing test of details d) employees complain to management about too much overtime

c) overpayments are discovered in performing test of details

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 test 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

c) plan and perform substantive tests on payroll transactions

An auditor is most likely to perform substantive test of details on payroll transactions and balances when a) cutoff 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.

c) substantive analytical procedures indicate unusual fluctuations in recurring payroll entries

Which of the following procedures would most likely be considered a weakness in an entity's internal controls over payroll? a) a voucher for the amount of the payroll is prepared in the general accounting department based on the payrolls department's payroll summary b) payroll checks are prepared by the payroll department and signed by the treasurer c) the employee who distributes payroll checks returns unclaimed payroll checks to the payroll department d) the personnel department sends employees termination notices to the payroll department

c) the employee who distributes payroll checks returns unclaimed payroll checks to the payroll department

which of the following audit tests would be most likely to 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 checks c) trace a sample of payroll checks 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

c) trace a sample of payroll checks to the approved time sheet summary and the master employee list to verify validity

which of the following is not a function in the payroll process? a) human resources b) timekeeping c) payroll processing d) accounts payable

d) accounts payable

which of the following activities performed by a department supervisor most likely would help in the prevention or detection of a payroll fraud? a) distributing paychecks directly to department employees b) setting the pay rate for departmental employees c) hiring employees and authorizing them to be added to payroll d) approving a summary of hours each employee worked during the pay period

d) approving a summary of hours each employee worked during the pay period

In auditing payroll when control risk is assessed as low, an auditor most likely will a) verify that checks representing unclaimed wages are mailed b) trace individual employee deductions to entity journal entries c)observe entity employees during a payroll distribution d) compare payroll costs with entity standards or budgets

d) compare payroll costs with entity standards or budgets

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

d) payments to valid employees at a rate in excess of the authorized amount