Question 1

To minimize the opportunity for fraud, unclaimed salary cheques should be

Accepted Answer

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)  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

Question 2

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 segregation of duties.The payroll supervisor prepares and calculates the commission wages and also decides on the amount to be paid (by doing the calculation).
Impact: There could be errors in the calculation, particularly with respect to taking account of customer write-offs.The payroll supervisor could be taking funds.
Recommendation: The sales wages calculation should be approved by Farah prior to wage calculations.The payroll bank account should be reconciled by someone other than the payroll supervisor.
2.Weakness: There is no check on the payroll supervisor's work.
Impact: She could be making deliberate errors or could have unauthorized personnel on the payroll.
Recommendation: An independent payroll should be prepared (perhaps by another accounting staff person or by an independent accountant), paying particular attention to wage rates and information pertaining to the existence of employees.Farah could check calculations on a test basis.
Farah needs to ensure that the payroll clerk takes appropriate vacation time.She should train another person to do this job.Farah also should approve the sales amount that commission is to be paid on each month before the payment is made.
B)The impact of the weaknesses is that an auditor may be unable to rely on internal controls in the payroll area: payroll could be inaccurate or allocated to the wrong accounts.Control risk needs to be increased and substantive testing of payroll will need to be conducted.

Question 3

Recomputing hours worked from time records provides evidence that

Accepted Answer

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. 
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

Question 4

In auditing the imprest payroll account, which of the following procedures will take the least amount of auditor time?

Accepted Answer

A)  tests of controls 
B)  risk analysis and obtaining an understanding of controls 
C)  analytical procedures 
D)  tests of details of balances 
A)  tests of controls 
B)  risk analysis and obtaining an understanding of controls 
C)  analytical procedures 
D)  tests of details of balances

Question 5

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?

Accepted Answer

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 
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

Question 6

Which of the following type of test is most important for the audit of payroll?

Accepted Answer

A)  internal control 
B)  test of detail 
C)  analytical review 
D)  substantive test 
A)  internal control 
B)  test of detail 
C)  analytical review 
D)  substantive test

Question 7

When examining payroll transactions, an auditor is primarily concerned with the possibility of

Accepted Answer

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)  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.

Question 8

The human resources department would likely provide which of the following internal controls for the human resources and payroll cycle?

Accepted Answer

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 
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

Question 9

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 10

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 segre

Question 11

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?

Accepted Answer

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)  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

Question 12

An important consideration in evaluating the fairness of the amounts accrued for vacation pay, sick pay, and other benefits is the

Accepted Answer

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)  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.

Question 13

When labour is a material factor in inventory valuation, the auditor should place special emphasis on testing the internal controls concerning

Accepted Answer

A)  proper classification of transactions. 
B)  authorization of wage rates. 
C)  fictitious employees. 
D)  completeness of recorded transactions. 
A)  proper classification of transactions. 
B)  authorization of wage rates. 
C)  fictitious employees. 
D)  completeness of recorded transactions.

Question 14

The correct cutoff and valuation of accrued salaries and wages

Accepted Answer

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. 
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.

Question 15

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?

Accepted Answer

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)  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.

Question 16

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 17

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 18

Which of the following internal controls helps ensure that recorded payroll payments are for work actually performed by existing employees?

Accepted Answer

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 
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

Question 19

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

Accepted Answer

A)  understanding internal controls. 
B)  doing tests of controls. 
C)  doing analytical procedures. 
D)  doing tests of balances. 
A)  understanding internal controls. 
B)  doing tests of controls. 
C)  doing analytical procedures. 
D)  doing tests of balances.

Question 20

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

To minimize the opportunity for fraud, unclaimed salary cheques should be

Recomputing hours worked from time records provides evidence that

In auditing the imprest payroll account, which of the following procedures will take the least amount of auditor time?

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?

Which of the following type of test is most important for the audit of payroll?

When examining payroll transactions, an auditor is primarily concerned with the possibility of

The human resources department would likely provide which of the following internal controls for the human resources and payroll cycle?

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

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?

An important consideration in evaluating the fairness of the amounts accrued for vacation pay, sick pay, and other benefits is the

When labour is a material factor in inventory valuation, the auditor should place special emphasis on testing the internal controls concerning

The correct cutoff and valuation of accrued salaries and wages

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?

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?

Which of the following internal controls helps ensure that recorded payroll payments are for work actually performed by existing employees?

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

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?

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Legal Liability

Professional Judgment and Ethics

Audit Responsibilities and Objectives

Client Acceptance and Planning the Audit

Materiality and Risk

Internal Controls and Control Risk

Audit Evidence

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

To minimize the opportunity for fraud, unclaimed salary cheques should be

Recomputing hours worked from time records provides evidence that

In auditing the imprest payroll account, which of the following procedures will take the least amount of auditor time?

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?

Which of the following type of test is most important for the audit of payroll?

When examining payroll transactions, an auditor is primarily concerned with the possibility of

The human resources department would likely provide which of the following internal controls for the human resources and payroll cycle?

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

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?

An important consideration in evaluating the fairness of the amounts accrued for vacation pay, sick pay, and other benefits is the

When labour is a material factor in inventory valuation, the auditor should place special emphasis on testing the internal controls concerning

The correct cutoff and valuation of accrued salaries and wages

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?

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?

Which of the following internal controls helps ensure that recorded payroll payments are for work actually performed by existing employees?

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

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?

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Legal Liability

Professional Judgment and Ethics

Audit Responsibilities and Objectives

Client Acceptance and Planning the Audit

Materiality and Risk

Internal Controls and Control Risk

Audit Evidence

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