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Chapter-20 - ACCOUNT
Mecanica del Mineral (12345)
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Chapter 20
Multiple-Choice Questions
The payroll cycle consists of how many classes of transactions? easy a. one a b. two c. three d. four
Which of the following statements is false? easy a. The payroll cycle consists of one class of transactions. b b. Balance sheet accounts related to payroll are generally more significant than related transactions. c. Internal controls over payroll are effective for most companies. d. Small companies usually have effective controls over payroll.
Which of the following is not correct regarding controls over the processing of payroll? easy b
a. The person authorized to sign paychecks should not be otherwise involved in the preparation of the payroll. b. A check-signing machine should not be used to replace a manual signature. c. Distribution of pay checks should be performed by someone who is not involved in the other payroll functions. d. Unclaimed paychecks should be immediately returned for redeposit.
- Which of the following statements about the payroll and personnel cycle is correct? Easy c There are three classes of transactions within the payroll cycle – salaried employees, hourly employees, and commissioned employees.
Transactions are less significant than related balance sheet accounts.
Internal controls over payroll are effective for almost all companies, even small ones. a. No No Yes b. Yes No Yes c. Yes Yes No d. No Yes No
5.
easy
Which of the following types of audit procedures is ordinarily emphasized the least when auditing payroll? d a. Tests of controls b. Tests of transactions c. Analytical procedures d. Tests of details of balances
- easy
A form issued for each employee summarizing the earnings and income tax deductions for the calendar year is the: d a. rate authorization form. b. summary payroll report. c. payroll master file. d. W-2 form.
- The payroll and personnel cycle begins with which of the following events? easy a. Interviewing job candidates.
b b. Hiring a new employee. c. Existing employees submitting requests for payment for work performed. d. Issuance of paychecks.
Most systems of internal control for payroll are: easy a. loosely structured but well controlled. c b. loosely structured and loosely controlled. c. highly structured and well controlled. d. highly structured but loosely controlled.
The payroll and personnel cycle ends with which of the following events? easy a. Interviewing job candidates. d b. Hiring a new employee. c. Existing employees submitting requests for payment for work performed. d. Issuance of paychecks.
easy
The retirement savings deductions, number of exemptions for withholding allowances, union dues deductions, and other deductions are found on what form? b a. Time cards b. Deduction authorization form c. Rate authorization form d. Job time ticket
- easy
A ____________ includes all payroll transactions processed by the accounting system for a given period of time. b a. payroll journal b. payroll transaction file c. time report d. payroll summary
An imprest payroll account ordinarily carries a balance that is: easy a. larger than the other company bank accounts. c b. larger than the amount of the periodic payroll disbursement. c. small. d. below zero.
Records that include data such as employment date, performance ratings and pay rates are the: easy a. personnel records. a b. employee screening forms. c. summary payroll reports. d. employee folders.
a a. payroll master file. b. summary payroll report. c. payroll journal. d. job time ticket.
- medium
Many companies use outside payroll services to process payroll. Auditors _____ rely on the internal controls of these outside payroll services. d a. must b. cannot c. rarely d. can often
The total of the individual employee earnings in the payroll master file equals the total: medium a. balance of gross payroll in general ledger accounts. a b. of the checks drawn to employees for payroll. c. gross payroll plus the total contributed by the employer for payroll taxes. d. gross pay for the current week’s payroll.
medium
If auditors rely on the internal controls of an outside payroll service provider, they will receive a(n) _____ report. b a. reliance b. SAS 70 c. outsourcer’s d. quality assurance
- medium
Most companies use an imprest account to pay the payroll. Which of the following is not an advantage of such an account? d a. It facilitates cash management. b. It limits the company’s exposure to payroll fraud. c. It allows the delegation of payroll check-signing duties. d. It eliminates the requirement of keeping a minimum balance in a checking account.
- medium
The careful and timely preparation of all payroll tax returns is necessary to avoid penalties and criminal charges. The most important control in the timely preparation of these returns is: b a. computerized preparation of tax returns. b. a well-defined set of policies that indicate when each form must be filed. c. independent verification of computer output by a competent individual. d. a Gaant chart.
- medium
Which of the following types of audit tests is usually emphasized due to a lack of independent third-party evidence related to payroll transactions? c a. Analytical procedures b. Tests of details of balances c. Tests of controls d. Each of the above is emphasized.
The most important means of verifying account balances in the payroll and personnel cycle are: medium a. tests of controls and tests of transactions. a b. analytical procedures and tests of controls. c. analytical procedures and tests of transactions. d. test of controls and tests of details of balances.
Tests of payroll are usually not extensive because: Medium a employees will likely complain if underpaid.
payroll transactions are uniform and uncomplicated.
payroll transactions are subject to audit by federal and state governments.
a. Yes Yes Yes b. No Yes No c. No No Yes d. Yes No No
- medium
If an auditor wishes to test the completeness transaction-related audit objective in the payroll and personnel cycle, which of the following would be a reasonable test of control? a a. Account for a sequence of payroll checks. b. Examine procedures manual and observe the recording of transactions. c. Examine payroll records for indication of pay rate approval. d. Reconcile the payroll bank account.
Which of the following is a substantive test of transactions? medium a. Review personnel policies. c b. Account for a sequence of payroll checks. c. Reconcile the disbursements in the payroll journal with the disbursements on the payroll bank statement. d. Examine printouts of transactions rejected by the computer as having invalid employee IDs.
medium
As a part of the auditor’s responsibility for ____________, the auditor should review the preparation of at least one of each type of payroll tax form the client is responsible for filing. d a. doing tests of controls. b. doing tests of balances. c. doing tests of transactions. d. understanding the client’s internal controls.
- medium
Which of the following is not an assertion related to the classes of transactions underlying the payroll cycle? c a. Classification b. Accuracy c. Existence d. Occurrence
- medium
Which of the following circumstances would not cause an auditor to extend payroll procedures considerably? d a. Payroll significantly affects inventory valuation. b. There is a possibility of material fraudulent payroll transactions. c. There is a weak internal control structure. d. There is a lack of independent third-party evidence, such as confirmations.
- medium
When labor is a material factor in inventory valuation, the auditor should place special emphasis on testing the internal controls concerning: c a. fictitious employees. b. authorization of wage rates. c. proper valuation and allocation of balances. d. completeness of recorded transactions.
- medium
Which of the following is not a procedure that can be performed on canceled checks in an effort to detect defalcations? d a. Compare the endorsements on checks with authorized signatures. b. Scan endorsements for unusual or recurring second endorsements. c. Examine voided checks to be sure they haven’t been used. d. Examine the payroll records in subsequent periods to determine that terminated employees are no longer being paid.
Medium a Payroll materially affects the valuation of inventory.
The auditor is concerned there may be nonexistent employees on the payroll. a. Yes Yes b. No No c. Yes No d. No Yes
To check the accuracy of hours worked, an auditor would ordinarily compare clock cards with: medium a. personnel records. b b. job time tickets. c. labor variance reports. d. time recorded in the payroll register.
medium
A surprise payroll payoff in which employees must pick-up and sign for their pay check is one means of: c a. identifying employees who do not have proper work credentials. b. establishing a tightly controlled, fraud-free work environment. c. testing for nonexistent employees. d. identifying employees who have not submitted proper W-2 forms..
- medium
Which of the following is the best way for an auditor to determine that every name on a company’s payroll is that of a bona fide employee presently on the job? c a. Examine personnel records for accuracy and completeness. b. Examine employees’ names listed on payroll tax returns for agreement with payroll accounting records. c. Make a surprise observation of the company’s regular distribution of paychecks. d. Visit the working areas and confirm with employees their badge or identification numbers.
Inherent risk is typically _____ for balance-related audit objectives as they relate to payroll. medium a. not considered b b. low c. moderate d. high
medium
It would be appropriate for the payroll department to be responsible for which of the following functions? d a. Approval of employee time records. b. Maintain records of employment, firings, and raises. c. Temporary retention of unclaimed employee paychecks. d. Preparation of governmental reports as to employees’ earnings and withholding taxes.
What are the two major balance-related audit objectives in testing payroll liabilities? medium a. Accuracy and detail tie-in d b. Completeness and valuation c. Completeness and rights and obligations d. Accuracy and cutoff
Which of the following best describes proper internal control over payroll? medium a. The preparation of the payroll must be under the control of the personnel department. c b. The confidentiality of employee payroll data should be carefully protected to prevent fraud. c. The duties of hiring, payroll computation, and payment to employees should be segregated. d. The payment of cash to employees should be replaced with payment by checks.
medium
The periodic payment from the general cash account to the payroll account for net payroll should be tested for at least one payroll period. The primary audit procedure is a(n): d a. analytical review procedure that net pay is reasonable. b. test of controls that an imprest account is being used for payroll. c. substantive test that the correct amount was transferred for this test period. d. test of transactions that the check is prepared for the proper amount and deposited before payroll checks are handed out.
- challenging
Once the auditor determines that the company’s policy for accruing wages is consistent with prior years, the appropriate audit procedure to test for accuracy and cutoff is: a a. recalculating the client’s accrual. b. performing extensive tests of controls. c. performing extensive tests of details. d. none of the above.
- challenging
In auditing payroll, which of the following procedures will ordinarily require the least amount of auditor time under normal circumstances? d a. Tests of controls. b. Substantive tests of transactions. c. Analytical procedures. d. Tests of details of balances.
- challenging a
A weak internal control system allows a department supervisor to “clock in” for a fictitious employee and then approve the employee’s time card at the end of the pay period. This fraud would be detected if other controls were in place, such as having an independent party: a. distribute paychecks. b. recompute hours worked from time cards. c. foot the payroll journal and trace postings to the general ledger and the payroll master file. d. compare the date of the recorded check in the payroll journal with the date on the canceled checks and time cards.
- challenging
The most important consideration in evaluating the fairness of the amounts accrued for vacation pay, sick pay, and other benefits is the: a a. consistent accrual of these liabilities relative to those of preceding periods. b. actual expense incurred for the prior period. c. amount expended to date in the current period. d. profitability of the client which will enable these liabilities to be met.
- challenging
Effective internal accounting control over unclaimed payroll checks that are kept by the company would include accounting department procedures that require: d a. effective cancellation and stop payment orders for checks representing unclaimed wages. b. preparation of a list of unclaimed wages on a periodic basis. c. accounting for all unclaimed wages in a current liability account. d. periodic accounting for the actual checks representing unclaimed wages.
64.
easy
What events initiate and terminate the payroll and personnel cycle?
Answer: The hiring of an employee initiates the cycle and the payments to employees, governments, and other organizations terminate the cycle.
65.
easy
What types of audit procedures are typically emphasized during the audit of the payroll cycle?
Answer: Auditors typically emphasize tests of controls, tests of transactions and analytical procedures.
- easy
Discuss the procedures involved in, and the purpose of, a surprise payroll payoff.
Answer: A surprise payroll payoff is a procedure in which each employee must pick up and sign for his or her check in the presence of a supervisor and the auditor. Any checks that are not claimed are subject to an extensive investigation to determine whether an unclaimed check is fraudulent. The purpose is to test for nonexistent employees; that is, the issuance of payroll checks to individuals who do not work for the company.
67.
medium
Discuss three important differences between the payroll and personnel cycle and other cycles in a typical audit.
Answer: Three important differences between the payroll and personnel cycle and other cycles in a typical audit are: There is only one class of transactions for payroll, whereas most cycles include at least two classes of transactions. In the payroll cycle, transactions are far more significant than related balance sheet accounts. Internal controls over payroll are effective for almost all companies, even small ones. This is primarily due to severe federal and state penalties for errors in withholding and paying payroll taxes and employee morale problems if employees are not paid or are underpaid.
68.
medium
What key separation of duties should the auditor expect to find within the payroll and personnel cycle?
Answer: The human resources department should be independent of the payroll function and should be responsible for hiring and terminating employees, as well as changes in pay rates and deductions. In additional payroll processing should be separate from the custody of signed payroll checks.
69.
medium
Discuss each of the following primary documents and records used in the personnel and employment function in the payroll and personnel cycle: personnel records, deduction authorization form, and the rate authorization form.
Answer: Personnel records. These records include employees’ date of employment, personnel investigations, rates of pay, authorized deductions, performance evaluations, and termination of employment. Deduction authorization form. This form authorizes payroll deductions, including the number of exemptions for withholding of income taxes, U. savings bonds, and union dues. Rate authorization form. This form authorizes employees’ rate of pay.
- medium
Discuss each of the following documents and records used in the timekeeping and payroll preparation function in the payroll and personnel cycle: time card, job time ticket, summary payroll report, payroll journal and payroll master file.
Answer: The primary documents and records used in the timekeeping and payroll preparation function are: Time card. The time card is used to indicate the time the employee started and stopped working each day and the number of hours the employee worked. Job time ticket. This document indicates jobs on which a factory employee worked during a given time period. This form is used only when an employee works on different jobs or in different departments. Summary payroll report. This report summarizes payroll for a period. Payroll journal. This journal is used to record payroll checks. Payroll master file. This file contains each payroll transaction for each employee, along with total employee wages paid for the year to date.
71.
medium
Discuss each of the following primary documents and records used in the (1) payment of payroll function, and (2) preparation of payroll tax returns and payment of taxes function in the payroll and personnel cycle: payroll check, W-2 form, and payroll tax returns.
Answer: The primary documents and records used in the payment of payroll function and the preparation of payroll tax returns and payment of taxes function are: Payroll check. This is a check written to the employee for services performed. W-2 form. This form is issued for each employee summarizing the earnings record for the calendar year. Payroll tax returns. These are tax forms submitted to local, state, and federal units of government for the payment of withheld taxes and the employer’s tax.
72.
medium
There are several key internal controls over the payment of payroll function that should be present. For example, the payroll should be distributed by someone who is not involved in the other payroll functions. Discuss other key internal controls over the payment of payroll function.
77.
challenging
There are several internal controls in the personnel and employment function that are important from an audit perspective. For example, there should be an adequate investigation of the competence and trustworthiness of new employees. Discuss other internal controls in the personnel and employment function that are important from an audit perspective.
Answer: From an audit perspective, the most important internal controls in personnel involve formal methods of informing the timekeeping and payroll preparation personnel of new employees, the authorization of initial and periodic changes in pay rates, and the termination date of employees no longer working for the company. As part of these controls, segregation of duties is extremely important. No individual with access to time cards, payroll records, or checks should also be permitted access to personnel records.
78.
challenging
There are several key internal controls over the timekeeping and payroll preparation function that should be present. For example, adequate control over the time on employees’ time cards includes the use of a time clock or other method of making certain that employees are paid for the number of hours they worked. Discuss other key internal controls over the timekeeping and payroll preparation function.
Answer: Internal controls over the timekeeping and payroll preparation function should include controls to prevent anyone from checking in for several employees or submitting a fraudulent time card. The summarization and calculation of the payroll can be controlled by well-defined policies for the payroll department, separation of duties to provide automatic cross-checks, reconciliation of payroll hours with independent production records, and independent internal verification of all important data. Controls over the preparation of payroll checks include preventing those responsible for preparing the checks from having access to time cards, signing or distributing checks, or independently verifying payroll output. In addition, the checks should be prenumbered and verified through independent bank reconciliation procedures.
Other Objective Answer Format Questions
79.
medium
Match seven of the terms for documents and records (a-k) used in the payroll and personnel cycle with the descriptions provided below (1-7):
a. Personnel records b. Deduction authorization form c. Rate authorization form d. Time card e. Job time ticket f. Summary payroll report g. Payroll check h. W-2 form i. Payroll tax returns j. Payroll journal k. Payroll master file
k 1. A file used for recording payroll transactions for each employee and maintaining total employee wages paid for the year to date.
d 2. A document indicating the time the hourly employee stated and stopped working.
g 3. A document written in exchange for services received from an employee.
i 4. Forms submitted to local, state, and federal units of government for the payment of withheld taxes and the employer’s tax.
b 5. A form authorizing payroll deductions, including the number of exemptions for withholding of income taxes, U. savings bonds, and union dues.
c 6. A form used to authorize the amount of pay.
a 7. Records including date of employment, personnel investigations, rates of pay, etc.
- easy b
Payroll checks do not need to be distributed by someone independent of the payroll and timekeeping functions. a. True b. False
- easy a
Hiring personnel initiates the payroll and personnel cycle. a. True b. False
- easy b
Firing personnel terminates the payroll and personnel cycle. a. True b. False
- easy a
Paying employees for their services ends the payroll and personnel cycle. a. True b. False
95.
easy b
The job time ticket indicates the starting and stopping times of work during the pay period. a. True b. False
- easy a
The use of an imprest payroll account prevents losses from payment of unauthorized payroll to no more than the balance in the imprest account. a. True b. False
- easy b
Imprest accounts usually carry a significant balance. a. True b. False
- easy a
There is very little opportunity for confirmation from third parties of balance sheet accounts related to the payroll and personnel cycle. a. True b. False
- medium a
When a client uses an outside payroll service for processing payroll, professional auditing standards permit the auditor to rely on the internal controls of the service organization if the service organization’s auditor has issued a favorable report on the internal controls of the service organization. a. True. b. False.
- medium b
When a client uses an outside payroll service for processing payroll, professional auditing standards require the auditor to rely on the internal controls of the service organization if the service organization’s auditor has issued a favorable report on internal controls. a. True. b. False.
- medium a
For good internal control, the payroll function should be independent of the personnel department. a. True. b. False.
- (Public) medium b
If an audit client is a public company, the understanding of internal control must be sufficient to identify opportunities to increase audit effectiveness. a. True b. False
- medium b
Tests of controls and tests of details of balances are the auditor’s most important means of verifying account balances in the payroll and personnel cycle. a. True b. False
- medium b
Because of the cycle’s pervasive nature, audit tests of the payroll cycle are usually extensive. a. True b. False
105.
medium b
The primary purpose of a surprise payroll payoff is to detect employees who have reported more time than was actually worked (fraudulent hours). a. True b. False
- medium a
The two major balance-related audit objectives in testing payroll liabilities are accuracy and cutoff. a. True b. False
- medium b
Because of confidentiality requirements and potential losses of payroll funds, outside service center systems are rarely used by companies for payroll-related functions. a. True b. False
- medium a
Internal control over payroll is normally highly structured and well controlled. a. True b. False
- medium b
Supervisory personnel in the functional department responsible for evaluating employees should be responsible for authorizing the addition and deletion of employees from the payroll. a. True b. False
- medium a
Despite the large dollar amounts involved in the payroll and personnel cycle, auditors typically spend less time auditing this cycle than others. a. True b. False
- medium a
It is generally more difficult for the auditor to detect payment of fraudulent hours than payment of fictitious employees. a. True b. False
- medium a
One common substantive test of payroll transactions for the existence objective is to compare canceled payroll checks with personnel records. a. True b. False
- medium b
The audit procedure “Recompute hours worked from time cards” is normally performed when testing the completeness objective for payroll. a. True b. False
- challenging a
In most audits, payroll tax expense is not tested because the audit risk does not justify the time required to perform the tests. a. True b. False
Chapter-20 - ACCOUNT
Course: Mecanica del Mineral (12345)
University: Azerbaycan Memarliq ve Insaat Universiteti
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