Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Chapter 20, Problem 17.1MCQ
To determine
Identify the audit proposition which evidences that selected items from the payroll are traced to employee time records that have been approved by supervisory personnel.
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The following are typical questions that might appear on an internal control questionnaire for payroll activities:
1. Is there adequate separation of duties between employees who maintain human resources records and employees who approve payroll disbursements?
2. Is there adequate separation of duties between personnel who maintain timekeeping or attendance records for employees and employees who distribute payroll checks?
Describe the manner in which each of the above controls might be tested.
The following are typical questions that might appear on an internal control questionnaire for payroll activities:
1. Is there adequate separation of duties between employees who maintain human resources records and employees who approve payroll disbursements?
2. Is there adequate separation of duties between personnel who maintain timekeeping or attendance records for employees and employees who distribute payroll checks?
Assuming that the operating effectiveness of each of the above controls is found to be inadequate, describe how the auditors might alter their substantive procedures to compensate for the increased level of control risk.
Which of the following activities performed by a department supervisor most likely would help to prevent or detect a payroll fraud?a. Distributing paychecks directly to department employees.b. Setting the pay rate for departmental employees.c. Hiring employees and authorizing them to be added to payroll.d. Approving a summary of hours each employee worked during the pay period.
Chapter 20 Solutions
Auditing And Assurance Services
Ch. 20 - Prob. 1RQCh. 20 - Prob. 2RQCh. 20 - Distinguish among a payroll master file, a W-2...Ch. 20 - Prob. 4RQCh. 20 - Prob. 5RQCh. 20 - Prob. 6RQCh. 20 - Prob. 7RQCh. 20 - Prob. 8RQCh. 20 - Prob. 9RQCh. 20 - Prob. 10RQ
Ch. 20 - Prob. 11RQCh. 20 - Prob. 12RQCh. 20 - Prob. 13RQCh. 20 - Prob. 14RQCh. 20 - Prob. 15RQCh. 20 - Prob. 16.1MCQCh. 20 - Prob. 16.2MCQCh. 20 - Prob. 16.3MCQCh. 20 - Prob. 17.1MCQCh. 20 - Prob. 17.2MCQCh. 20 - Prob. 17.3MCQCh. 20 - Prob. 18.1MCQCh. 20 - Prob. 18.2MCQCh. 20 - Prob. 18.3MCQCh. 20 - Prob. 19DQPCh. 20 - Prob. 20DQPCh. 20 - Prob. 21DQPCh. 20 - Prob. 22DQPCh. 20 - Prob. 23DQPCh. 20 - Prob. 24DQPCh. 20 - Prob. 25DQPCh. 20 - Prob. 26DQPCh. 20 - Prob. 27DQPCh. 20 - Prob. 28C
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- List the supporting documents and records the auditorwill examine in a typical payroll audit in which the primary objective is to detect fraudarrow_forwardControl risk is the risk that a material misstatement in an account will not be prevented or detected on a timely basis by the client’s internal controls. The best controlto prevent or detect fictitious payroll transactions is to(1) use and account for prenumbered payroll checks.(2) obtain authorization from human resources for hiring, pay rate, job status andtermination.(3) verify internally authorized pay rates, computations, and agreement with thepayroll register.(4) conduct periodic independent bank reconciliations of the payroll bank account.arrow_forwardnternal Control Questionnaire Items: Assertions, Tests of Controls, and PossibleErrors or Frauds. Following is a selection of items from the payroll processing internalcontrol questionnaire in Exhibit 5.15.1. Are names of terminated employees reported in writing to the payroll department?2. Are authorizations for deductions signed by the employee on file?3. Is there a timekeeping department (function) independent of the payroll department?4. Are timekeeping and cost accounting records (such as hours, dollars) reconciled withpayroll department calculations of hours and wages?Required:For each of the four preceding questions:a. Identify the assertion to which the question applies.b. Specify one test of controls an auditor could use to determine whether the control wasoperating effectively.c. Provide an example of an error or fraud that could occur if the control were absent orineffective.d. Identify a substantive auditing procedure that could detect errors or frauds that couldresult from…arrow_forward
- Ed Caluag, CPA was engaged to audit the financial statement of KMJS, Company, a continuing audit client. Ed is about to audit KMJS’s payroll transactions. KMJS uses an in-house payroll department to compute payroll data and prepare and distribute checks. During the planning process, Ed determined that the inherent risks of overstatement of payroll expense is high. In addition, Ed obtained an understanding of internal control and assessed control risk at the maximum level for payroll related assertions. Required: Describe the audit procedures Ed Caluag should consider performing in an audit of KMJS’s payroll transactions to address the risk of overstatement.arrow_forwardAn audit team most likely would assess control risk at the maximum if the payroll department supervisor is responsible fora. 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.arrow_forwardWhich of the following is a preventive control?a. Reconciliation of a bank account.b. Recalculation of a sample of payroll entries by internal auditors.c. Separation of duties between the payroll and personnel departments.d. Detailed fluctuation analysis completed by the CFO for revenue.arrow_forward
- Below are some audit procedures. Classify each procedure according to the following types of audit evidence: 1) inspection, 2) external confirmation, 3) recalculation, 4) observation, 5) inquiry of the client, 6) reperformance, and 7) analytical procedure. (each procedure can be used more than once or not at all) Audit Procedures Count inventory items and record the amount in the audit working papers. Stand by the payroll time clock to determine whether any employee "punches in" more than one time. Calculate the ratio of cost of goods sold to sales as a test of overall reasonableness of gross margin relative to the preceding year. Obtain information about the client's internal controls by asking questions of client personnel. Examine the purchase invoice for a piece of equipment and ensure that the equipment was received and is in operation. The auditor computes the debt covenant based on the financial information to ensure that the client's calculation was performed correctly. Obtain…arrow_forwardAs a high fraud-risk area, payroll data is used to conduct fraud tests. Which of the following is a fraud test for ghost employees? O Payroll processed for employees before their start dates or after their termination dates Comparison of timecard data to payroll data to identify variances Comparison of wages earned to employee job classification O Cumulative payroll journalarrow_forwardAs part of a normal payroll audit, the auditor will review a variety of supporting papers and records.arrow_forward
- ) The following audit procedures are typical of thosefound in auditing the payroll and personnel cycle:1. Obtain a schedule of all payroll liabilities and trace to the general ledger.2. Scan journals for all periods for unusual transactions to determine whether they arerecorded correctly.3. Select a sample of 40 entries in the payroll journal and trace each to an approvedtime card.4. Discuss with management any payroll liabilities recorded in the prior year that arenot provided for in the current period.5. Examine evidence that payroll hours and wage rates are verified by an independentperson.6. Select a sample of 20 cancelled payroll checks and account for the numerical sequence.7. Review board of director meeting minutes to verify the salary for the chief executiveofficer.8. Compute payroll tax expense as a percentage of total wages, salaries, and commissions.9. Select a sample of 20 payroll payments and trace to payroll journal entries for name,date, and amounts.10. Examine owner…arrow_forwardMatch the four functions of payroll activities with their related internal controls: a. An independent employee should sign and distribute the prenumbered checks. select a function Hiring EmployeesPaying the PayrollPreparing the PayrollTimekeeping b. Supervisors should monitor hours worked through time reports. select a function Hiring EmployeesPaying the PayrollPreparing the PayrollTimekeeping c. Human Resources department should authorize employment. select a function Hiring EmployeesPaying the PayrollPreparing the PayrollTimekeeping d. Two or more employees should verify payroll amounts. select a functionarrow_forwardThe purpose of separating the duties of hiring personnel and distributing payroll checks is toseparate thea. Authorization of transactions from the custody of related assets.b. Operational responsibility from the record-keeping responsibility.c. Human resources function from the controllership function.d. Administrative controls from the internal accounting controls.arrow_forward
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