Deck 13: Production and Payroll Process

Question 1

Only supervisors have physical custody of materials, equipment and labour while the production work is performed.

Answer 1

False

Question 2

Most of the transactions in the production cycle are cost accounting allocations, unit cost determinations, and standard cost calculations.

Answer 2

True

Question 3

A materials requisition is the document that authorizes the inventory custodian to release raw materials and supplies to production personnel.

Answer 3

True

Question 4

A test of the completeness objective is selecting a sample of payroll register entries and vouching them to employee data in the personnel files such as employee identification, rate of pay, and authorized deductions.

Question 5

The payroll register is the primary original record for payroll accounting.

Question 6

Overall production authorization starts with production planning, which usually is based on a sales forecast.

Question 7

Finished goods inventory is low in inherent risk since production is so well understood.

Question 8

It is permissible for accounting personnel to authorize production orders since they do not have custody of the assets.

Question 9

Recalculating all costs entered on a sample of open and closed job cost reports is a test of the accuracy objective.

Question 10

Reconciling the open production cost reports to the work-in-process inventory control account is a procedure designed to test the control objective of

A)Environment.
B)Validity.
C)Completeness.
D)Authorization.

Question 11

Cost accounting can be performed by those who also:

A)Authorize production.
B)Allocate overhead charges.
C)Have custody of assets.
D)Reconcile labour reports.

Question 12

A payroll "clearing account" is a temporary account that holds payroll transactions until final accounting entries are prepared.

Question 13

One procedure in an audit program for tests of controls reads: "Select a sample of employees from the payroll register and vouch identification numbers, pay rates, and authorized deductions to the personnel files." This procedure is designed to test the validity of payroll information for employees.

Question 14

The following account is not considered in the production cycle.

A)Inventory
B)Cost of goods sold
C)Amortization expense
D)Sales

Question 15

The payroll cycle starts with keeping track of attendance and ends with payment to the employee.

Question 16

Production accounting generates important information for management decisions but also is a source of audit risk because:

A)Production accountants may not be competent.
B)Production processes require a lot of allocations.
C)Goods produced may not be marketable.
D)Goods claimed as produced may not exist.

Question 17

A test of the validity objective is to examine a sample of production cost reports and recalculate all costs entered.

Question 18

Selecting a sample of job orders from the job cost summary and matching them to bills of material and the schedule of production labour requirements is a procedure designed to test the control objective of

A)Accounting.
B)Accuracy.
C)Completeness.
D)Validity.

Question 19

Federal Form T4 Summary is the employer's annual federal employee remittance return.

Question 20

A bill of materials is associated with which duty?

A)Authorization.
B)Custody.
C)Record keeping.
D)Periodic reconciliation.

Question 21

Tracing selected items from the payroll register to approved, employee time cards 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.

Question 22

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

A)Personnel.
B)Treasurer.
C)Controller.
D)Payroll.

Question 23

To best ensure that employees are paid authorized rates, the auditor should trace wage rates from the

A)Master files to payroll journal.
B)Payroll journal to master files.
C)Personnel files to master files.
D)Cheque register to payroll journal.

Question 24

Which of the following is not a major risk in the payroll cycle?

A)Paying fictitious employees.
B)Paying employees more than a market wage.
C)Overpayment for time or production.
D)Incorrect accounting for costs and expenses.

Question 25

The accounting department at Blue Manufacturing Limited receives production information at the end of each week.The production floor supervisor reports time and production data and the payroll department reports labour cost data.How will the accounting department use this information? Why?

Question 26

Describe the major risk areas associated with the payroll cycle.

Question 27

In the area of payroll, which of the following procedures represents proper control over the custody of assets?

A)The supervisor receives a copy of the payroll register for a chance to approve the payroll after it is completed.
B)Individual paycheques are prepared.
C)Unclaimed payroll cheques are held in the office of the chief financial officer.
D)Signatures from employees are obtained for calculation of deductions.

Question 28

What is a clearing account? What are the risks associated with this type of account?

Question 29

If controls over production accounting are found to be strong, an auditor can plan to do less testing at year over:

A)The existence assertion of inventory.
B)The valuation assertion of inventory.
C)The completeness assertion of inventory.
D)The rights assertion over inventory.

Question 30

The five functional responsibilities for the payroll cycle are (1) Personnel and Labour Relations, (2) Supervision, (3) Timekeeping and Cost Accounting, (4) Payroll Accounting, and (5) Payroll Distribution.For each responsibility, identify the type of duty or duties (authorization, custody, record keeping, periodic reconciliation) associated with the function and briefly describe the activity involved.

Question 31

The sampling unit in a test of controls relating to the validity of payroll transactions is ordinarily a (an)

A)Clock card or time ticket.
B)Employee T-4 Form.
C)Employee personnel record.
D)Payroll register entry.

Question 32

Which of the following would raise a red flag in the audit of payroll?

A)One person in the company is authorized to sign all payroll cheques.
B)The endorsement on a cancelled payroll cheque included the words "for deposit only" above the payee's signature.
C)The endorsement on a cancelled payroll cheque included the signature of a supervisor below the signature of the payee.
D)A supervisor initialled the time card of an employee.

Question 33

Selecting a sample of payroll summaries and vouching the details to time records is a procedure designed to test the control objective of

A)Environment.
B)Validity.
C)Completeness.
D)Classification.

Question 34

In the audit of payroll, auditors often examine the endorsements on a sample of cancelled payroll cheques.What is the purpose of this procedure?

Question 35

The purpose of segregating the duties of hiring personnel and distributing payroll cheques is to separate the

A)Human resources function from the controllership function.
B)Administrative controls from the internal accounting controls.
C)Authorization of transactions from the custody of related assets.
D)Operational responsibility from the record keeping responsibility.

Question 36

Selecting a sample of time clock cards and examining them for evidence of approval by a supervisor then tracing the hours recorded to the payroll registers is a procedure designed to obtain evidence about the control objective(s) of

A)Validity only.
B)Authorization only.
C)Completeness only.
D)Authorization and completeness.

Question 37

The following document is not included in the payroll cycle:

A)Payroll Cheques
B)Timekeeping records
C)Termination notices
D)Supplier invoices

Question 38

Small Corporation uses a Wages Clearing Account for its payroll disbursements.At the end of February a reasonably large debit balance remained in this account.The most likely reason for this is that

A)More labour cost had been assigned to the expense accounts than had been paid.
B)Some labour cost had not been properly classified in the expense accounts.
C)Some employees had not yet cashed their cheques.
D)Not enough cash had been transferred to the bank account.

Question 39

An auditor is most likely to assess control risk at maximum if the payroll department supervisor is responsible for

A)Examining authorization forms for new employees.
B)Authorizing payroll rate changes for all employees.
C)Comparing payroll registers with original batch transmittal data.
D)Hiring all subordinate payroll department employees.

Question 40

Which of the following procedures carried out by the personnel department best reduces the risk of payroll fraud and represents an appropriate responsibility for the department?

A)Distributing paycheques.
B)Authorizing overtime hours.
C)Authorizing the addition or removal of employees from the payroll.
D)Collecting and retaining unclaimed paycheques.