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FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Payroll Tests of Controls. The diagram in Exhibit 8C.22.1 describes several payroll tests of controls. It shows the direction of the tests, leading from samples of clock cards, payrolls, and cumulative year-to-date earnings records to blank squares.
Required:
For each blank square in Appendix Exhibit 8C.22.1, write a payroll test of controls procedure and describe the evidence it can produce.

Transcribed Image Text:EXHIBIT 8C.22.1
Clock
Bank
YTD
General
Management
Reports
Cards
Statements
Payrolls
Records
Ledger
Diagram of Payroll
Tests of Controls
Sample
Trace Time
Trace
Sample
Vouch Time
Trace
Vouch
Checks
Trace
Vouch
Transfer
Recalculate
All
Reconcile
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- In which of the following situations does the auditor potentially lack objectivity?Select one: a. An auditor reviews the procedures for a new electronic data interchange connection to a major customer before it is implemented b. A former purchasing assistant performs a review of internal controls over purchasing four months after being transferred to the internal auditing department c. An auditor recommends standards of control and performance measures for a contract with a service organization for the processing of payroll and employee benefits. d. A payroll accounting employee assists an auditor in verifying the physical inventory of some fixed assets with value that is not considered material.arrow_forwardA client operates two plants. In Plant A, throughout the entire cutoff test window, all sales have been recorded as FOB shipping point. In Plant B, all sales have been recorded as FOB shipping point in the cutoff window prior to year-end and either FOB shipping point or FOB destination in the cutoff window subsequent to year end. Which plant would an auditor judge to have higher fraud risk? Question 27 options: Plant A would have higher fraudulent financial reporting risk than Plant B. Plant B would have higher risk of the misappropriation of assets than Plant A. Plant A would have higher risk of the misappropriation of assets than Plant B. Plant B would have higher fraudulent financial reporting risk than Plant A.arrow_forwardThe practice of auditing firms to spread work throughout the year by carrying out as many auditing procedures as practicable before the balance sheet date, in order to minimize the load during the peak period. This is called a. Test of recorded transactions b. Confirmation of receivable and payablesc. Observation and test-check of inventoriesd. Interim workarrow_forward
- pa.3arrow_forwardAn auditor is likely to perform each of the below procedures to obtain evidence regarding the potential understatement of accounts payable at year-end (i.e., the Completeness assertion) except… Question options: Inspect purchase orders and receiving reports for accounts payable recorded at year-end. Inspect the open invoice file for invoices to be paid after year-end. All options describe procedures that can be used to identify a potential understatement of accounts payable. Analyze cash disbursements made during the first few weeks of the subsequent year and inspect supporting documentation for each disbursement.arrow_forwardFigure 4.1 below presents the payroll procedures of AAA Limited. We discussed various aspects of such payroll procedures. In the light of that discussion, identify the potential frauds possible in the payroll system of AAA Limited. Also, discuss the control techniques to avoid these frauds.arrow_forward
- The following are 5 audit procedures taken from an audit program: 1. Conduct cash count for the petty cash kept in office to verify the amount counted by the accountant.e 2. Select samples of payroll records and compute the overtime payment. 3. Observe the endorsement of incoming checks by the accountant. e 4. Interview the sales manager and the credit manager to understand if there is a segregation of duties between the credit-granting function and the sales function. 5. Divide individual manufacturing expenses by total manufacturing expenses and compare the results with those in previous years to check for unusual fluctuations. Required: Identify the type of evidence for each procedure using the following table: inspection of asset, confirmation, inspection of documents, analytical procedures, inquiries, recalculation, reperformance, and observation. Audit Procedures Type of evidence (list out the item numbers)arrow_forwardAn audit client has engaged a third-party service organization tohost its payroll software package on servers located at the service organization. What optionsdo you have to obtain assurance about the controls embedded in the payroll application?arrow_forwardWhy is it important for a business to have good internal controls where payroll is concerned? What might happen if controls are inadequate? Your response should use a minimum of 100 words.arrow_forward
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