Deck 13: Payroll and Production Processes

Question 1

An auditor traces an employee's name, job category, and employee number to authorized personnel records. This provides evidence of

A) Ownership.
B) Completeness.
C) Presentation.
D) Existence.

Answer 1

D

Question 2

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.

Answer 2

C

Question 3

Which of the following accounts is not considered in the production cycle?

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

Answer 3

D

Question 4

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 5

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 6

A bill of materials is associated with which duty?

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

Question 7

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 8

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 9

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. What is the most likely reason?

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 10

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

A) clock card or time ticket
B) employee T-4 form
C) employee personnel record
D) payroll register entry

Question 11

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 12

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 13

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 14

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

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

Question 15

Which of the following documents is NOT included in the payroll cycle?

A) payroll cheques
B) timekeeping records
C) termination notices
D) supplier invoices

Question 16

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 17

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 18

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 19

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 20

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 21

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 22

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

Question 23

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

Question 24

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

Question 25

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

Question 26

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

Question 27

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

Question 28

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 29

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

Question 30

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

Question 31

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 32

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

Question 33

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

Question 34

If controls over production accounting are found to be strong, an auditor can plan to do less testing 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 35

If auditors compare the gross profit margin by product and compare it with prior periods, this is an example of a(n)

A) Analytical procedure.
B) Inspection technique.
C) Presentation procedure.
D) Scanning technique.

Question 36

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 37

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 38

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

Question 39

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

Question 40

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

Question 41

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 42

Describe the major risk areas associated with the payroll cycle.