Proper internal control over the cash payroll function would mandate which of the following

8.23 Which of the following accounts does not appear in the acquisition and expenditure cycle?

a. Cash

b. Purchases Returns

c. Sales Returns

d. Prepaid Insurance

8.23 Answer: C.

Although similiar to purchases because they require a recieving report, sales returns are considered part of the revenue and collection cycle because they affect account recievable.

8.24 For which of the following accounts would the matching concept be the most appropriate?

a. Cost of goods sold

b. reserach and development

c. depreciation expense

d. sales

8.24 Answer: A

Cost of goods sold should be matched with sales by using inventory to record cost of goods not yet sold.

8.25 Which of the following would not overstate current period net income?

a. capitalizing an expenditure that should be expensed

b. failing to record a liability as an expense.

c. failing to record a check paying an item in Vounchers Payable.

d. all of the above would overstate net income.

8.25 Answer: C

has no effect on net income. it overstates cash and payables.

8.26 A Client's purchasing system ends with the recording of a liability and its eventual payment. Which of the following best describes auditors' rpimary concern with respect to liabilities resulting from the purchasing system?

a. accounts payable are not materially understated

b. authority to incur liabilities is restricted to one designated person.

c. acquisition of materials is not made from one vendor or one group of vendors.

d. committments for all purchases are made only after established competitive bidding procedures are followed.

8.26 Answer: A

The completeness assertation is very important in the adult of liabilities.

8.27 Which of the following is an internal control activity that could prevent a paid disbursement voucher from being presented for payment a second time?

a. vouchers should be prepared by individuals who are responsible for signing disbursement checks

b. disbursement vouchters should be within a few days of the date the voucher is presented for payment.

c. the date on a disbursmenet voucher should be within a few days of the date the voucher is presented for payment

d. the official who signs the check should compare the check with the voucher and should stamp "PAID on the voucher documents.

8.27 Answer: D

Cancellation of vouchers (PAID) prevents their use a second time.

8.28  Budd, the purchasing agent of Lake Hardware Wholesalers, has a relative who owns a retail hardware store. Budd arranged for hardware to be delivered by manufactures to the retail store on a cash-on-delivery (COD) basis, thereby enabling his relative to buy at Lake's wholesale prices. Budd was probably able to accomplish this because of Lake's poor internal control over...

a. Purchase requisitions

b. cash receipts

c. perpetual inventory records

d. purchase orders

8.28 Answer: D.

Nobody at Lake was reviewing purchase orders to notice the delivery and payment by another party (budd's relative's store). This deviation caused no direct loss to Lake, but it is a misuse of Lake's pricing agreements with its vendors and puts Lake at risk.

8.29 Which of the following is the best audit procedure for determining the existence of unrecorded liabilities?

a. examine confirmation requests returned by creditors whose accounts are on a subsidiary trial balance of accounts payable.

b. examine a samble of cash disbursements in the period subsequent to year-end.

c. examine a sample of invoices a few days prior to and subsequent to the year-end to ascertain whether they have been properly recorded.

d. examine unusual relationships between montly accoutns payable and recorded purchases.

8.29 Answer: B

auditors may be able to determine that cash disbursments in the subsequent period are paying liabilities of the period under audit.

8.30 Which of the following procedures is least likely to be performed before the balance-sheet date?

a. observation of inventory

b. review of internal control over cash disbursments.

c. search for unrecorded liabilities.

d. confirmation of recievables.

8.30 Answer: C

The serach for unrecorded liabilities generally depends upon using accounting records created in the period after the year end.

8.31 To determine whether accounts payable are complete, auditors perform a test to verify that all merchandise recieved has been recorded. The population for this test consists of all

a. vendors' invoices

b. purchase orders

c. recieving reports

d. canceled checks

8.31 Answer: C

the recieving reports are the population that contains the record of all the goods recieved for which liabilities should be recorded.

8.32 When verifiying debits to the perpetual inventory records of a nonmanufacturing company, auditors would be most interested in examining a sample of purchase...

a. approvals

b. requisitions

c. invoices

d. orders

Answer: C

Invoices supply relevant information about the quantities purchased and prices paid.

8.33 A furniture compay ordered 84 tables from a supplier. The supplier accidentally sent only 48 tables, but the recieiving department at the furniture company accepted the tables. The invoice was eventually recieved but was for the original 84 tables. The furniture company paid the entire amount. Which of the following controls owuld have been least likely to have prevented this erroneous payment.

a. the copy of the purchase order sent to the furniture company's recieiving deparment should not have shown an expected quantitiy.

b. personnel in the furniture company's accounts payable department should compare the recieiving report to the purchase invoice before creation of the voucher.

c. personnel in the furniture company's cash disbursements department should compare the check that is prepared to all the backup docmentation.

d. personnel in the furniture company's purchasing department should compare the purchase requisition with the purchase order.

8.33 Answer: D

The purchase order and requistion would both show 84 tables.

8.34 Curtis, a maintenance supervisor, submitted maintenance invoices from a phony repair company and recieved the checks at a post office box. This should have been prevented by

a. comparison of the ocmpany name to the approved vendor list by the check signer.

b. recognition of the excess maintenance costs by Curtis's supervisor.

c. refusal by the purchasing department to approve the vendor.

d. all of the above

8.34 Answer: C

Vendors should be approved by an independent purchasing department

8.35 An audit team would most likely examine the detail support for charges to which of the following acounts?

a. payroll expense

b. cost of goods sold

c. supplies expense

d. legal expense

8.35 Answer: D

The auditor examines the specific charges to determine potential litigation.

8.36 Which of the following would most likely be audited in connection with a related balance-sheet account?

a. property tax expense

b. payroll expense

c. research and development

d. legal expense

8.36 Answer: A

Property tax expesne is audited in conjunction with accrued property taxes

8.37 When auditing account balances of liablities, auditors are most concerned with management's assertation about

a. existence

b. rights and obligations

c. completeness

d. valuation and allocation

8.37 Answer: C

Completeness is the most important assertation in this cycle. the hididng of liabilities is a primary concern for all auditors in the liability and expense areas. Supplies expense is genearlly audited in connection with supplies inventory.

8.38 In a test of controls, auditors may trace recieving reports to vouchers recorded in the voucher register. This is a test for

a. occurrence

b. completeness

c. classification

d. cutoff

8.38 Answer: B

This test ensures that liabilities generated by the reciept of goods are recorded in the voucher register.

8C.8 An audit team most likely would assess control risk at the maximum if the payroll department supervisor is responsible for

a. examining authorization forms for new employee

b. comparing payroll registers with original batch transmittal data

c. authorizing payroll rate changes for all employees

d. hiring all subordinate payroll department employees

8c.8 Answer: C

The payroll department should be independent of the personnel department, which would be responsible for authorizing all payroll rate changes for the employees of the entity. A supervisor would be authorized, however, to inititate requests for rate increases for supervised employees.

8c.9 Which of the following departments most likely would approve changes in pay rates and deductions from employee salaries?

a. personnel

b. treasurer

c. controller

d. payroll

8c.9 Answer: A

The personnel department provides the authorization for payroll-related transactions (e.g. hiring, termination, and changes in pay rates and deductions).

8c.10 Matthew Corp. has changed from a system of recording time worked on clock cards to a computerized payroll system in which employees record time in and out with magnetic cards. The computerized systems automatically updates all payroll records. Because of this change

a. a generalized computer audit program must be used

b. part of the audit trail is altered

c. the potential for payroll-related fraud is diminished

d. transactions must be processed in batches

8c.10 Answer: B

In a manual payroll system, a paper trail of documents would be created to provide audit evidence tht controls over each step in processing were in place and functioning. One element of a computer system that differentiates it from a manual system is that a transaction trail useful for auditing puroposes might exist only for a brief time or only in a computer-readable form.

8c. 11 Effective control over the cash payroll function would mandate which of the following?

a. the payroll clerk should fill the envelopes with cash and a computation of the net wages.

b. unclaimed payroll enevelopes should be retained by the paymaster.

c. each employee should be asked to sign a receipte

d. a separate checking account for payroll be maintained

8c.11 Answer: C

Under a cash payroll system, the reciept signed by the employee is the only document in support of payment. The signed receipt is essential to verify proper payment.

8c.12 A large retail enterprise has established a policy that requires the paymaster to deliver all unclaimed payroll checks to the internal audit department at the end of each payroll distribution day. This policy was most likely adopted to

a. ensure that employees who were absent on a payroll distriubtion day are not paid for that day

b. prevent the paymaster from cashing checks that are unclaimed for several weeks.

c. prevent bona fide employee's check from being claimed by another employee

d. detect any fictitious employee who may have been placed on the payroll.

8c.12 Answer: D

A follow-up of unclaimed checks may result in identification of fictitious or terminated employees, thus eliminating an employee's opportunity to clai a paycheck belonging to a terminated employee. The unclaimed checks should then be turned over to a custodian so the internal audit function does not assume operating responsibilities.

8c.13 Auditors ordinarily ascertain whether payroll checks are properly endorsed during the audit of

a. clock cards

b. the voucher system

c. cash in bank

d. accrued payroll

8c.13 Answer: A

Ordinarily, the auditor examines the endorsements on payroll checks while obtaining an understanding of and testing the payroll cycle, which includes consideration of clock cards.

8c.14 In determining the effectiveness of an entitity's policies and procedures relating to the occurrence assertation for payroll transactions, auditors most likely would inquire about and

a. observe the separation of duties concering personnel responsibilities and payroll disbursement.

b. inspect evidence of accounting for prenumbered payroll checks.

c. recompute the payroll deductions for employee fringe benefits.

d. verify the perpartion of the monthly payroll account bank reconciliation.

8c.14 Answer: A

In considering whether transactions actually occurred, the auditory is most conerned about th eproper separation of duties between the personnel department (authorization) and the payroll department (processing the transactions).

8c.15 Which of the following activities most likely would be considered a weakness in an entity's internal control over payroll?

a. a voucher for the maount of the payroll is prepared in the general accounting department based on the payroll department's payroll summary.

b. payroll checks are prepared by the accoutns payable department and signed by the treasurer.

c.. the employee who distributes payroll check returns unclaimed payroll checks to the payroll department.

d. the personnel department sends employees' termination noties to the payroll department

8c.15 Answer: C

The payroll department assembles payroll information, which is a recording function. Custody of assests, such as an unclaimed payroll checks, is incompatible with record keeping.

What are the internal control objectives for payroll?

Which of the following departments should have the responsibility for authorizing payroll rate changes?

Which of the following departments most likely would approve changes in pay rates and deductions from employee salaries quizlet?

Which of the following procedures would be most likely to be considered a weakness in an entity's internal controls over payroll?