Question 1

Which of the following internal controls would help ensure that existing payroll transactions are recorded?

Accepted Answer

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 
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

Question 2

General controls must be evaluated and their impact considered upon the human resources and payroll transaction cycle because

Accepted Answer

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. 
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.

Question 3

Even though the tests of controls are the most important part of testing payroll,many auditors spend little time in this area.In many audits,there is a minimal risk of material misstatements,even though payroll is frequently a significant part of total expenses.Explain the reasons the auditors have for justifying this position.

Accepted Answer

There are three reasons:
1.Employees are

Question 4

To test whether the client has fulfilled its legal obligation in submitting payments for all payroll withholdings,the auditor must first

Accepted Answer

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. 
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.

Question 5

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?

Accepted Answer

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 
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

Question 6

Which of the following internal control tests would assist in satisfying the occurrence transaction-related audit objective for payroll?

Accepted Answer

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) 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

Question 7

You have been working on the audit of Ballistic Defence Company for several years now.There are about 15 000 employees working at the company in various positions.
Recently,the company contracted for a new customized payroll system,which is to be implemented next month.You have been asked to assess the acceptance testing plan that is being prepared by accounting staff.In particular,they want you to help assess controls that will improve the accuracy of information entered into the new computer system.
The company uses mainframe computing systems.Assume that the typical payroll information is available on computer files (i.e. ,employee number,employee name,social insurance number,department code,payment type code (salaried or hourly),time worked,wage rate,gross pay,deductions (by type),net pay,and cheque number).
Required:
Identify the tests that should be conducted by the company's accounting staff with respect to accuracy before accepting the software.

Accepted Answer

There are two major areas where accuracy

Question 8

Otto decided to outsource the payroll function to Magna Plus.For the purpose of an assurance engagement,Magna is considered a

Accepted Answer

A) service organization. 
B) user entity. 
C) payroll administrator. 
D) human resource company. 
A) service organization. 
B) user entity. 
C) payroll administrator. 
D) human resource company.

Question 9

Which of the following is most likely to approve changes in pay rates and deductions from employee salaries?

Accepted Answer

A) controller 
B) personnel department 
C) treasurer 
D) payroll department 
A) controller 
B) personnel department 
C) treasurer 
D) payroll department

Question 10

Access rights management is important because it is the organization's method of

Accepted Answer

A) establishing data tables usage. 
B) identifying master file data. 
C) identifying transaction file data. 
D) enforcing segregation of duties. 
A) establishing data tables usage. 
B) identifying master file data. 
C) identifying transaction file data. 
D) enforcing segregation of duties.

Question 11

The WhirlyGig Factory Ltd.manufactures whirly gigs of many different sizes and types.The company employs 55 employees,all paid on an hourly basis.Employees fill in time sheets and hand them in every Monday to the payroll clerk,Pamela.For factory employees,the time sheet shows the hours worked by product job number,and indicates if the job has been completed.The payroll clerk tracks the hours worked by job.When a job is complete,she compares the totals to the estimate made by the owner,Faruq.A bonus is paid for actual hours paid less than the estimated amount.
Every Wednesday,Pamela prepares the cheques and gives them to Faruq for signing.Pamela then staples the cheques to the payroll stubs.Pamela hands out the office cheques and gives the other cheques to the factory supervisor for distribution.
Required:A)Identify control weaknesses and their impact,and provide recommendations for improvement.B)What is the impact of the control weaknesses upon your audit approach?

Accepted Answer

A)1.Weakness: There is inadequate segreg

Question 12

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?

Accepted Answer

A) completeness 
B) classification 
C) valuation 
D) occurrence 
A) completeness 
B) classification 
C) valuation 
D) occurrence

Question 13

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?

Accepted Answer

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 
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

Question 14

Verification of the legitimacy of year-end unpaid bonuses to officers and employees can be accomplished by comparing the recorded accrual to the amount

Accepted Answer

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. 
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.

Question 15

Which of the following describes the class of transactions associated with payroll?

Accepted Answer

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 
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

Question 16

Which of the following controls could help to prevent unauthorized overtime?

Accepted Answer

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) 
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)

Question 17

Joan has been the payroll supervisor at York Distribution Company (YDC)for ten years.She has never missed a payroll and Farah,the owner of the company,is delighted with her conscientiousness and knowledge.This is particularly important,as Farah spends a lot of time on the road drumming up new business,and needs competent personnel back at the office.
There are two accounting personnel at the office,a receptionist,five shipping and receiving personnel,and thirty sales people employed by YDC.Office and shipping/receiving personnel are paid a salary,while the sales people are paid a monthly base salary plus a percentage of their sales,calculated quarterly.The base salary is low,at $20 000,with a 2% commission,calculated based on sales less any bad debts written off related to their customers.
Joan prints off the sales by customer every month and uses this information to calculate commissions.She then prepares the payroll cheques and gives them to Farah,who signs them and gives them to the sales staff at the monthly sales meeting.The cheques are written against a payroll imprest bank account,kept at a balance of $1000.This account is not reconciled,as the staff are very overworked with the increasing volume of business handled by the company.
Required:A)Identify control weaknesses and their impact,and provide recommendations for improvement.B)What is the impact of the control weaknesses upon your audit approach?

Accepted Answer

A)1.Weakness: There is inadequate segreg

Question 18

In most audits,the amounts of the balance sheet accounts related to payroll are

Accepted Answer

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. 
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.

Question 19

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

Accepted Answer

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. 
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.

Question 20

Which of the following controls best prevents employees from checking in for more than one employee?

Accepted Answer

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 
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

Which of the following internal controls would help ensure that existing payroll transactions are recorded?

General controls must be evaluated and their impact considered upon the human resources and payroll transaction cycle because

To test whether the client has fulfilled its legal obligation in submitting payments for all payroll withholdings,the auditor must first

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?

Which of the following internal control tests would assist in satisfying the occurrence transaction-related audit objective for payroll?

Otto decided to outsource the payroll function to Magna Plus.For the purpose of an assurance engagement,Magna is considered a

Which of the following is most likely to approve changes in pay rates and deductions from employee salaries?

Access rights management is important because it is the organization's method of

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?

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?

Verification of the legitimacy of year-end unpaid bonuses to officers and employees can be accomplished by comparing the recorded accrual to the amount

Which of the following describes the class of transactions associated with payroll?

Which of the following controls could help to prevent unauthorized overtime?

In most audits,the amounts of the balance sheet accounts related to payroll are

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

Which of the following controls best prevents employees from checking in for more than one employee?

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Professional Ethics and Legal Liability

Audit Responsibilities and Objectives

Audit Evidence

Client Acceptance,Planning,and Materiality

Assessing the Risk of Material Misstatement

Internal Control and COSO Framework

Assessing Control Risk and Designing Test of Controls

Develop Risk Response: Audit Strategy and Audit Program

Audit Sampling Concepts

Audit of the Revenue Cycle

Audit of the Acquisition and Payment Cycle

Audit of the Inventory and Distribution Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Completing the Audit

Audit Reports on Financial Statements

Other Assurance and Nonassurance Services

Filters

Exam 15: Audit of the Human Resources and Payroll Cycle

Which of the following internal controls would help ensure that existing payroll transactions are recorded?

General controls must be evaluated and their impact considered upon the human resources and payroll transaction cycle because

To test whether the client has fulfilled its legal obligation in submitting payments for all payroll withholdings,the auditor must first

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?

Which of the following internal control tests would assist in satisfying the occurrence transaction-related audit objective for payroll?

Otto decided to outsource the payroll function to Magna Plus.For the purpose of an assurance engagement,Magna is considered a

Which of the following is most likely to approve changes in pay rates and deductions from employee salaries?

Access rights management is important because it is the organization's method of

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?

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?

Verification of the legitimacy of year-end unpaid bonuses to officers and employees can be accomplished by comparing the recorded accrual to the amount

Which of the following describes the class of transactions associated with payroll?

Which of the following controls could help to prevent unauthorized overtime?

In most audits,the amounts of the balance sheet accounts related to payroll are

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

Which of the following controls best prevents employees from checking in for more than one employee?

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Professional Ethics and Legal Liability

Audit Responsibilities and Objectives

Audit Evidence

Client Acceptance,Planning,and Materiality

Assessing the Risk of Material Misstatement

Internal Control and COSO Framework

Assessing Control Risk and Designing Test of Controls

Develop Risk Response: Audit Strategy and Audit Program

Audit Sampling Concepts

Audit of the Revenue Cycle

Audit of the Acquisition and Payment Cycle

Audit of the Inventory and Distribution Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Completing the Audit

Audit Reports on Financial Statements

Other Assurance and Nonassurance Services

Filters