Deck 7: Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts, Audit of the Payroll and Personnel Cycle, Audit of the Inventory and Warehousing Cycle

Question 1

Which of the following expenses is not typically evaluated as part of the audit of the acquisition and payment cycle?

A) Depreciation expense.
B) Property tax expense.
C) Insurance expense.
D) Bad debts expense.

Answer 1

Bad debts expense.

Question 2

Debits to manufacturing equipment arise from which cycle(s)?

A) Payroll.
B) Sales and collection.
C) Inventory and warehousing.
D) Acquisition and disbursement.

Answer 2

Acquisition and disbursement.

Question 3

During the audit of prepaid insurance, the auditor should keep in mind that the amount in insurance expense is based on:

A) the payment of premiums during the year.
B) the ending balance in prepaid insurance.
C) the beginning balance in prepaid insurance.
D) all three of the above.

Answer 3

all three of the above.

Question 4

Which of the following is not a category of tests commonly associated with the audit of manufacturing equipment?

A) Verification of depreciation expense.
B) Analytical procedures.
C) Verification of current year disposals.
D) Verification of the beginning balance in accumulated depreciation.

Question 5

Which of the following audit objectives is not typically a major objective in the audit of current year fixed asset additions?

A) Completeness.
B) Detail tie- in.
C) Classification.
D) Accuracy.

Question 6

The extent to which auditors verify current period acquisitions of property, plant and equipment normally depends upon:

A) assessed control risk for acquisitions.
B) tolerable misstatement.
C) Both A and B.
D) Neither A nor B.

Question 7

Which of the following is not likely to be a test related to the audit of manufacturing equipment?

A) Verify depreciation expense.
B) Verify current year additions.
C) Observe current year disposals.
D) Perform analytical procedures.

Question 8

In rare cases, the auditor may believe it is necessary that a complete physical inventory of fixed assets be taken to make sure they actually exist. If an inventory is taken, the auditor normally:

A) requires that it be done by an outside, independent third party.
B) takes the inventory.
C) requires client to take the inventory and provide documentation to the auditor.
D) observes the count.

Question 9

The auditor ________ to test the accuracy or classification of fixed assets recorded in prior periods.

A) never needs
B) is required
C) normally needs
D) normally does not need

Question 10

Internal controls for prepaid insurance are typically categorized into all but which of the following?

A) Controls over the insurance register.
B) Controls over the charge- off of insurance expense.
C) Controls over the acquisition and recording of insurance.
D) All of the above.

Question 11

Expense accounts analysis is closely related to tests of controls and substantive tests of transactions. The major difference is:

A) that one emphasizes transactions and the other emphasizes amounts.
B) the degree of concentration on an individual account.
C) the difference in the types of underlying documentation which is examined.
D) the use or nonuse of cutoff tests.

Question 12

Once the initial audit of a newly constructed industrial plant has been performed, with respect to consistency, which of the following is of least concern to the continuing auditor in the following year?

A) Prior years' depreciable life.
B) Prior years' depreciation methods.
C) Prior years' capitalization costs.
D) Prior years' capitalization policy.

Question 13

The approach used to verify manufacturing equipment is different than the one used to verify:

A) copyrights.
B) current assets.
C) patents.
D) all other types of property, plant, and equipment.

Question 14

Which type of audit procedure (tests of controls, tests of transactions, tests of details, or analytical procedures) is most often sufficient for the audit of prepaid expenses?

Question 15

Why does the auditor not normally test the accuracy or classification of fixed assets recorded in prior periods?

Question 16

Auditors should be aware that the life of certain fixed assets might be reduced due to various circumstances. What circumstances might give rise to a reduction in the useful life of a fixed asset?

Question 17

A major issue in verifying the ending balance in property, plant and equipment is the possibility of legal encumbrances. Describe the procedures that auditors may perform to obtain evidence about existing legal encumbrances.

Question 18

What are the auditor's two main objectives in the audit of the ending balance in accumulated depreciation?

Question 19

Discuss the key internal controls over existing fixed assets that affect the auditor's extent of testing of fixed assets acquired in prior years.

Question 20

One of the auditor's primary objectives when auditing manufacturing equipment is accuracy.

Question 21

Wages expense is normally considered to be associated with the acquisition and payment cycle.

Question 22

In deciding the useful life of an asset, the company's policy is relatively unimportant.

Question 23

Ordinarily, it is unnecessary to test the accuracy objective or the classification objective for fixed assets acquired in prior years.

Question 24

The payroll cycle consists of how many classes of transactions?

A) one
B) two
C) three
D) four

Question 25

Which of the following statements about the payroll and personnel cycle is correct?

Question 26

Most systems of internal control for payroll are:

A) loosely structured but well controlled.
B) highly structured and well controlled.
C) highly structured but loosely controlled.
D) loosely structured and loosely controlled.

Question 27

Any retirement savings deductions and other deductions are found on what form?

A) Rate authorization form.
B) Time cards.
C) Deduction authorization form.
D) Job time ticket.

Question 28

An imprest payroll account ordinarily carries a balance that is:

A) larger than the amount of the periodic payroll disbursement.
B) larger than the other company bank accounts.
C) below zero.
D) small.

Question 29

Records that include data such as employment date, performance ratings and pay rates are the:

A) employee screening forms.
B) summary payroll reports.
C) employee folders.
D) personnel records.

Question 30

Which of the following type of employee typically does not complete time cards?

A) Salaried employees.
B) All employees must complete time cards.
C) Hourly employees.
D) Time cards are typically completed by salaried employees, but may also be completed by hourly employees.

Question 31

Which of the following is not an advantage of using an imprest payroll account?

A) It allows the delegation of payroll check- signing duties.
B) It limits the company's exposure to payroll fraud.
C) Companies have fewer banking transactions.
D) It facilitates cash management.

Question 32

Most companies use an imprest account to pay the payroll. Which of the following is not an advantage of such an account?

A) It allows the delegation of payroll check- signing duties.
B) It limits the company's exposure to payroll fraud.
C) It eliminates the requirement of keeping a minimum balance in a checking account.
D) It facilitates cash management.

Question 33

Tests of payroll are usually not extensive because:

Question 34

What potential problems may arise when an auditor considers the relationship between payroll andinventory valuation?

Question 35

Paychecks should be distributed by someone:

Question 36

Auditors may extend their tests of payroll in which of the following circumstances?

Question 37

Inherent risk is typically ________ for balance- related audit objectives as they relate to payroll.

A) high
B) moderate
C) low
D) not considered

Question 38

What are two possible reasons that internal controls over payroll are effective for most companies?

Question 39

Discuss the advantages of using an imprest payroll account.

Question 40

Match each of the descriptions with the following terms

-A file used for recording payroll transactions for each employee and maintaining total employee wages paid for the year to date.

A) Personnel records
B) Deduction authorization form
C) Rate authorization form
D) Time card
E) Job time ticket
F) Payroll transaction file
G) Payroll check
H) Payroll tax returns
I) Payroll journal
J) Payroll master file

Question 41

Match each of the descriptions with the following terms

-A document indicating the time the hourly employee stated and stopped working.

A) Personnel records
B) Deduction authorization form
C) Rate authorization form
D) Time card
E) Job time ticket
F) Payroll transaction file
G) Payroll check
H) Payroll tax returns
I) Payroll journal
J) Payroll master file

Question 42

Match each of the descriptions with the following terms

-A document written in exchange for services received from an employee.

A) Personnel records
B) Deduction authorization form
C) Rate authorization form
D) Time card
E) Job time ticket
F) Payroll transaction file
G) Payroll check
H) Payroll tax returns
I) Payroll journal
J) Payroll master file

Question 43

Match each of the descriptions with the following terms

-Forms submitted to tax authorities for the payment of withheld taxes and the employer's tax.

A) Personnel records
B) Deduction authorization form
C) Rate authorization form
D) Time card
E) Job time ticket
F) Payroll transaction file
G) Payroll check
H) Payroll tax returns
I) Payroll journal
J) Payroll master file

Question 44

Match each of the descriptions with the following terms

-A form authorizing payroll deductions.

A) Personnel records
B) Deduction authorization form
C) Rate authorization form
D) Time card
E) Job time ticket
F) Payroll transaction file
G) Payroll check
H) Payroll tax returns
I) Payroll journal
J) Payroll master file

Question 45

Match each of the descriptions with the following terms

-A form used to authorize the amount of pay.

A) Personnel records
B) Deduction authorization form
C) Rate authorization form
D) Time card
E) Job time ticket
F) Payroll transaction file
G) Payroll check
H) Payroll tax returns
I) Payroll journal
J) Payroll master file

Question 46

Match each of the descriptions with the following terms

-Records including date of employment, personnel investigations, rates of pay, etc.

A) Personnel records
B) Deduction authorization form
C) Rate authorization form
D) Time card
E) Job time ticket
F) Payroll transaction file
G) Payroll check
H) Payroll tax returns
I) Payroll journal
J) Payroll master file

Question 47

Auditors seldom expect to find misstatements when testing payroll transactions.

Question 48

The audit of _ ________ _ is often the most difficult and complex part of an audit.

A) property, plant and equipment
B) cash
C) inventory
D) prepaid insurance

Question 49

For retail and wholesale businesses, the most important inventory is:

A) merchandise available for sale.
B) raw materials.
C) work- in- process.
D) inventory held on consignment.

Question 50

Which of the following would be an appropriate initiation of a purchase requisition?

Question 51

When may auditors observe the physical inventory count?

Question 52

Which of the following is not an aspect of concern when auditing the cost accounting system?

A) Unit cost records.
B) Physical controls over inventory.
C) Safeguarding the raw materials from point of receipt to the storeroom.
D) Documents and records for transferring inventory.

Question 53

When auditing the inventory and warehousing cycle, the use of analytical procedures is:

A) not important for this cycle.
B) more important than for any other cycle.
C) as important as their use in any other cycle.
D) less important than for any other cycle.

Question 54

Which of the following statements is correct regarding the auditor's responsibility with respect to the year- end inventory procedures of an audit client?

Question 55

Auditor tests of physical controls over raw materials, work- in- process, and finished goods are performed by:

Question 56

The physical counting of inventory may be performed at which of the following times?

Question 57

Which of the following is not a generally recognized of inventory valuation method?

A) FIFO.
B) LOFO.
C) LIFO.
D) Weighted average.

Question 58

Qatar Tooling Company mass produces eight different products. The controller who is interested in strengthening internal controls over the accounting for materials used in production would be most likely to implement a(n):

A) economic order quantity system.
B) job order cost accounting system.
C) perpetual inventory system.
D) separation of duties among production personnel.

Question 59

The basis for the auditor's verification of inventory pricing and compilation is the client's inventory listing. Describe the information that should be included in this listing.

Question 60

What must auditors do to meet their obligations under professional auditing standards related to the observation of inventory?

Question 61

What types of tests are available to an auditor who wishes to test the physical control over inventory?