Question 1

Give an example of a test of controls that could be used by an auditor to test for the following assertions: Occurrence, Accuracy, and Cutoff.

Accepted Answer

Possible Answer:
Occurrence-The auditor will want to test for payments made that were not earned. This can be tested by observing and evaluating proper segregation of duties and employees' use of the time clock, reviewing and testing personnel files, reviewing and testing the entity's procedures for changing employees' records and entering and removing employee numbers from the payroll master file, and inspecting the time sheets for approval by the supervisor.
Accuracy-This assertion states that all transactions are recorded at the proper amount. To test it, the auditor could review and test the entity's verification procedures, review the payroll register for unusual amounts, review the entity's budgeting procedures and the reconciliation of the payroll master file to the general ledger payroll accounts, examine the reconciliation of "before and after" reports to the payroll master file, and review and test the entity's procedures for changing employees' records.
Cutoff-To test that all transactions were recorded in the proper period, the auditor could review and test the entity's procedures for changing employees' records, processing time sheets, and recording payroll liabilities.

Question 2

If the results of the control tests do not support the planned level of control risk, the detection risk will have to be set higher.

Accepted Answer

A) True 
 B)False  False

Question 3

In the substantive audit procedures for payroll where the control risk is set at low, an auditor most likely would:

Accepted Answer

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. 
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

Question 4

Which of the following internal control activities most likely would prevent direct labor hours from being charged to manufacturing overhead?

Accepted Answer

A) Periodic independent counts of work-in-process for comparison to recorded amounts. 
B) Comparison of daily journal entries with approved production orders. 
C) Use of time sheets to record actual labor worked on production orders. 
D) Reconciliation of work-in-process inventory with periodic cost budgets. 
A) Periodic independent counts of work-in-process for comparison to recorded amounts. 
B) Comparison of daily journal entries with approved production orders. 
C) Use of time sheets to record actual labor worked on production orders. 
D) Reconciliation of work-in-process inventory with periodic cost budgets.

Question 5

There are few inherent risk factors that directly affect the human resource management process and its related accounts for non-officers.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following internal control objectives is likely to be a larger concern in the audit of the payroll cycle?

Accepted Answer

A) Payroll transactions are properly disclosed. 
B) Recorded payroll transactions are valid. 
C) Payroll transactions are recorded in the appropriate time period. 
D) All payroll transactions have been recorded. 
A) Payroll transactions are properly disclosed. 
B) Recorded payroll transactions are valid. 
C) Payroll transactions are recorded in the appropriate time period. 
D) All payroll transactions have been recorded.

Question 7

A CPA reviews an entity's payroll procedures. The CPA would consider internal control to be less than effective if a payroll department supervisor was assigned the responsibility for:

Accepted Answer

A) distributing payroll checks to employees. 
B) reviewing and approving time reports for subordinate employees. 
C) hiring subordinate employees. 
D) initiating requests for salary adjustments for subordinate employees. 
A) distributing payroll checks to employees. 
B) reviewing and approving time reports for subordinate employees. 
C) hiring subordinate employees. 
D) initiating requests for salary adjustments for subordinate employees.

Question 8

The Hamster Stop has $93,650 in the Accrued Payroll account. Hamster's weekly payroll is $156,000 and the accrual represents payroll for 3 days. If controls are strong, determine whether additional audit work should be performed on this account.

Accepted Answer

Because the accrual is for three days, w

Question 9

Key segregations of duties in the human resource management process include all of the following except:

Accepted Answer

A) the supervision function should be separate from the payroll-processing function. 
B) the disbursement function should be separate from the supervision function. 
C) the human resource function should be separate from setting salaries. 
D) the payroll-processing function should be separate from the general ledger function. 
A) the supervision function should be separate from the payroll-processing function. 
B) the disbursement function should be separate from the supervision function. 
C) the human resource function should be separate from setting salaries. 
D) the payroll-processing function should be separate from the general ledger function.

Question 10

Explain how the human resource management process can affect the financial statements.

Accepted Answer

The main human resource transaction that

Question 11

When an auditor sets control risk low, sufficient evidence can be obtained for most payroll accounts through an understanding of internal controls, substantive analytical procedures, and tests of details of transactions. However, there are several accounts in the payroll cycle that may require more attention. Name the accounts and explain why the additional testing is necessary.

Accepted Answer

The accounts that need additional testin

Question 12

For each of the following tests, identify the assertion to which the test applies.
1)Trace a sample of payroll checks to the master employee list.
2)Recalculate a sample of payroll checks.
3)Review supporting documentation to determine that the entity is legally obligated to pay the liability.
4)Estimate sales commissions by applying commission formulas to recorded sales totals.
5)Compare amounts accrued to supporting documentation, such as payroll tax returns.
6)Compare payroll costs as a percentage of sales to industry data.

Accepted Answer

1)Occurrence.
2)Accuracy.
3)Ri

Question 13

Inherent risk associated with officer compensation is frequently set high because officers have motive and opportunity to take advantage of their high-ranking offices in the form of excessive compensation.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following could test the assertion of classification for payroll-related liabilities?

Accepted Answer

A) Compare items in accrued payroll taxes to the supporting payroll tax return. 
B) Search for unrecorded liabilities. 
C) Examine payroll tax returns to determine that the expense was recorded in the proper period. 
D) Review payroll liabilities for proper reporting as short- or long-term. 
A) Compare items in accrued payroll taxes to the supporting payroll tax return. 
B) Search for unrecorded liabilities. 
C) Examine payroll tax returns to determine that the expense was recorded in the proper period. 
D) Review payroll liabilities for proper reporting as short- or long-term.

Question 15

Which of the following is required of an auditor who is testing the fair value of options in share-based compensation?

Accepted Answer

A) Using a specialist. 
B) Testing the inputs used in the valuation model. 
C) Becoming an expert in option-pricing. 
D) Using the work of the internal audit function. 
A) Using a specialist. 
B) Testing the inputs used in the valuation model. 
C) Becoming an expert in option-pricing. 
D) Using the work of the internal audit function.

Question 16

Which of the following activities most likely would detect whether payroll data are accurately processed?

Accepted Answer

A) Monitor authorized distribution of data control sheets. 
B) Use computer-assisted audit techniques and test data to verify the accurate performance of payroll processing. 
C) Examine source documents for approval by supervisors. 
D) Segregate duties between approval of hardware and software specifications. 
A) Monitor authorized distribution of data control sheets. 
B) Use computer-assisted audit techniques and test data to verify the accurate performance of payroll processing. 
C) Examine source documents for approval by supervisors. 
D) Segregate duties between approval of hardware and software specifications.

Question 17

An auditor vouched data for a sample of employees in a payroll register to approved clock card/time sheet data to provide assurance that:

Accepted Answer

A) payments to employees are computed at authorized rates. 
B) employees worked the number of hours for which they are paid. 
C) segregation of duties exists between the preparation and distribution of the payroll. 
D) internal controls relating to unclaimed payroll checks are operating effectively. 
A) payments to employees are computed at authorized rates. 
B) employees worked the number of hours for which they are paid. 
C) segregation of duties exists between the preparation and distribution of the payroll. 
D) internal controls relating to unclaimed payroll checks are operating effectively.

Question 18

An auditor most likely would assess control risk at high if the payroll department supervisor is responsible for:

Accepted Answer

A) examining authorization forms for new employees. 
B) comparing payroll registers with original batch transmittal data. 
C) authorizing payroll rate changes for all employees. 
D) hiring all subordinate payroll department employees. 
A) examining authorization forms for new employees. 
B) comparing payroll registers with original batch transmittal data. 
C) authorizing payroll rate changes for all employees. 
D) hiring all subordinate payroll department employees.

Question 19

A substantive test of transactions to test the completeness assertion includes:

Accepted Answer

A) tracing a sample of time sheets to the payroll register. 
B) testing a sample of payroll checks for the presence of an authorized time sheet. 
C) testing postings to the payroll register for a sample of payroll checks. 
D) recomputing the accuracy of a sample of payroll checks. 
A) tracing a sample of time sheets to the payroll register. 
B) testing a sample of payroll checks for the presence of an authorized time sheet. 
C) testing postings to the payroll register for a sample of payroll checks. 
D) recomputing the accuracy of a sample of payroll checks.

Question 20

Identify whether the following tests are substantive analytical procedures, tests of details of transactions, or tests of details of account balances.
1)Trace a sample of payroll checks to the master employee list to verify occurrence.
2)Recalculate the mathematical accuracy of a sample of payroll checks.
3)Test a sample of bank reconciliations for the payroll bank account.
4)Estimate sales commissions by applying commission formulas to recorded sales totals.
5)Compare amounts accrued to supporting documentation, such as payroll tax returns.
6)Compare payroll costs as a percentage of sales to industry data.

Accepted Answer

1)Tests of details of transactions.
2)Te

Give an example of a test of controls that could be used by an auditor to test for the following assertions: Occurrence, Accuracy, and Cutoff.

If the results of the control tests do not support the planned level of control risk, the detection risk will have to be set higher.

In the substantive audit procedures for payroll where the control risk is set at low, an auditor most likely would:

Which of the following internal control activities most likely would prevent direct labor hours from being charged to manufacturing overhead?

There are few inherent risk factors that directly affect the human resource management process and its related accounts for non-officers.

Which of the following internal control objectives is likely to be a larger concern in the audit of the payroll cycle?

A CPA reviews an entity's payroll procedures. The CPA would consider internal control to be less than effective if a payroll department supervisor was assigned the responsibility for:

The Hamster Stop has $93,650 in the Accrued Payroll account. Hamster's weekly payroll is $156,000 and the accrual represents payroll for 3 days. If controls are strong, determine whether additional audit work should be performed on this account.

Key segregations of duties in the human resource management process include all of the following except:

Explain how the human resource management process can affect the financial statements.

Inherent risk associated with officer compensation is frequently set high because officers have motive and opportunity to take advantage of their high-ranking offices in the form of excessive compensation.

Which of the following could test the assertion of classification for payroll-related liabilities?

Which of the following is required of an auditor who is testing the fair value of options in share-based compensation?

Which of the following activities most likely would detect whether payroll data are accurately processed?

An auditor vouched data for a sample of employees in a payroll register to approved clock card/time sheet data to provide assurance that:

An auditor most likely would assess control risk at high if the payroll department supervisor is responsible for:

A substantive test of transactions to test the completeness assertion includes:

An Introduction to Assurance and Financial Statement Auditing

The Financial Statement Auditing Environment

Audit Planning, Types of Audit Tests, and Materiality

Risk Assessment

Evidence and Documentation

Internal Control in a Financial Statement Audit

Auditing Internal Control Over Financial Reporting

Audit Sampling: An Overview and Application to Tests of Controls

Audit Sampling: An Application to Substantive Tests of Account Balances

Auditing the Revenue Process

Auditing the Purchasing Process

Auditing the Inventory Management Process

Auditing the Financinginvesting Process: Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment

Auditing the Financinginvesting Process: Long-Term Liabilities, Stockholders' Equity, and Income Statement Accounts

Auditing the Financinginvesting Process: Cash and Investments

Completing the Audit Engagement

Reports on Audited Financial Statements

Professional Conduct, Independence, and Quality Control

Legal Liability

Assurance, Attestation, and Internal Auditing Services

Filters

Exam 12: Auditing the Human Resource Management Process

Give an example of a test of controls that could be used by an auditor to test for the following assertions: Occurrence, Accuracy, and Cutoff.

If the results of the control tests do not support the planned level of control risk, the detection risk will have to be set higher.

In the substantive audit procedures for payroll where the control risk is set at low, an auditor most likely would:

Which of the following internal control activities most likely would prevent direct labor hours from being charged to manufacturing overhead?

There are few inherent risk factors that directly affect the human resource management process and its related accounts for non-officers.

Which of the following internal control objectives is likely to be a larger concern in the audit of the payroll cycle?

A CPA reviews an entity's payroll procedures. The CPA would consider internal control to be less than effective if a payroll department supervisor was assigned the responsibility for:

The Hamster Stop has $93,650 in the Accrued Payroll account. Hamster's weekly payroll is $156,000 and the accrual represents payroll for 3 days. If controls are strong, determine whether additional audit work should be performed on this account.

Key segregations of duties in the human resource management process include all of the following except:

Explain how the human resource management process can affect the financial statements.

Inherent risk associated with officer compensation is frequently set high because officers have motive and opportunity to take advantage of their high-ranking offices in the form of excessive compensation.

Which of the following could test the assertion of classification for payroll-related liabilities?

Which of the following is required of an auditor who is testing the fair value of options in share-based compensation?

Which of the following activities most likely would detect whether payroll data are accurately processed?

An auditor vouched data for a sample of employees in a payroll register to approved clock card/time sheet data to provide assurance that:

An auditor most likely would assess control risk at high if the payroll department supervisor is responsible for:

A substantive test of transactions to test the completeness assertion includes:

An Introduction to Assurance and Financial Statement Auditing

The Financial Statement Auditing Environment

Audit Planning, Types of Audit Tests, and Materiality

Risk Assessment

Evidence and Documentation

Internal Control in a Financial Statement Audit

Auditing Internal Control Over Financial Reporting

Audit Sampling: An Overview and Application to Tests of Controls

Audit Sampling: An Application to Substantive Tests of Account Balances

Auditing the Revenue Process

Auditing the Purchasing Process

Auditing the Inventory Management Process

Auditing the Financinginvesting Process: Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment

Auditing the Financinginvesting Process: Long-Term Liabilities, Stockholders' Equity, and Income Statement Accounts

Auditing the Financinginvesting Process: Cash and Investments

Completing the Audit Engagement

Reports on Audited Financial Statements

Professional Conduct, Independence, and Quality Control

Legal Liability

Assurance, Attestation, and Internal Auditing Services

Filters