Question 1

The auditor's transaction-related audit objective for acquisitions, to determine that recorded acquisitions are for goods and services received, relates to which accounting concept?
A) existence
B) completeness
C) accuracy
D) authorisation

Accepted Answer

The auditor's objective to ensure that recorded acquisitions are for goods and services actually received relates to the existence concept. This concept involves verifying that assets or transactions exist at a given date. In this context, it means ensuring that the acquisitions recorded in the financial statements truly exist in the form of received goods or services.

Question 2

Which function should the purchasing department NOT be responsible for?
A) finding the lowest cost vendor
B) reviewing vendors' catalogue descriptions and prices for standardised items
C) authorising the acquisition of goods
D) designing the purchase order form

Accepted Answer

The answer of Which function should the purchasing department NOT...

Question 3

From an audit point of view, which one of the following would NOT be an important internal control in the personnel cycle?
A) physical control over assets and records
B) reconciliation of total payroll expense in the general ledger with the payroll tax returns and the group certificates
C) adequate separation of duties
D) proper authorisation of changes in pay rates

Accepted Answer

Reconciliation of total payroll expense in the general ledger with the payroll tax returns and the group certificates is more related to the accounting and financial reporting cycle than to the internal controls specifically within the personnel or payroll cycle. Internal controls in the personnel cycle typically focus on safeguarding assets, ensuring accuracy of payroll transactions, and compliance with policies and regulations, rather than the reconciliation process with tax returns and certificates.

Question 4

It usually takes more time to audit the acquisition and payment cycle than any other cycle because:
A) there is a greater likelihood of lawsuits against the auditor relating to these accounts.
B) internal controls in this area are usually weaker.
C) there is a greater possibility of fraud in these transactions.
D) of the large number of time-consuming accounts affected.

Accepted Answer

The acquisition and payment cycle involves a large number of accounts including purchases, accounts payable, cash disbursements, and expenses. Auditing these accounts requires significant time and effort as there may be a large volume of transactions to review and test. Additionally, the audit team may need to perform extensive procedures to determine the completeness, accuracy, and validity of the transactions. While fraud is a concern in this cycle, it is not the main reason for the extended audit time. Internal controls may also be weaker in this area, but again, this is not the primary reason for the longer audit duration.

Question 5

Which one of the following is a test of controls?
A) Examine time records for indication of supervisor approval.
B) Prove the bank reconciliation.
C) Reconcile payments in the payroll journal with payments on the bank statement.
D) Review the payroll journal, general ledger, and payroll earnings records for large or unusual amounts.

Accepted Answer

Examining time records for indication of supervisor approval is a test of controls as it checks whether the internal control system of obtaining supervisor approval is working effectively.

Question 6

When labour is a material factor in inventory valuation, the auditor should place special emphasis on testing the internal controls concerning:
A) authorisation of wage rates.
B) completeness of recorded transactions.
C) fictitious employees.
D) proper classification of transactions.

Accepted Answer

The answer of When labour is a material factor in...

Question 7

The internal control which requires that 'cheques are prenumbered and accounted for' satisfies which transaction-related audit objective for cash payments?
A) posting and summarisation
B) accuracy
C) existence
D) completeness

Accepted Answer

The internal control of prenumbering cheques and accounting for them primarily addresses the audit objective of completeness. This ensures that all cheques issued are recorded and accounted for, preventing any omission in the recording of cash payments.

Question 8

The file for recording each payroll transaction for each employee and maintaining total employee wages paid for the year to date is the:
A) payroll journal.
B) summary payroll report.
C) payroll master file.
D) job time ticket.

Accepted Answer

The payroll master file is the correct answer because it is a comprehensive database that records each payroll transaction for every employee, including detailed information such as personal details, pay rates, deductions, and the total wages paid for the year to date. This file is essential for maintaining accurate and up-to-date payroll records for all employees.

Question 9

'Recorded payroll payments are for work actually performed by non-fictitious employees' is which transaction-related audit objective for payroll?
A) completeness
B) authorisation
C) existence
D) accuracy

Accepted Answer

The transaction-related audit objective for payroll that focuses on ensuring that recorded payroll payments are for work actually performed by non-fictitious employees is existence. This means that the auditor is verifying that the payroll expenses actually exist and are valid, and that the employees listed on the payroll are real and have actually performed the work for which they are being paid.

Question 10

'Recorded payroll transactions are for the amount of time actually worked and at the proper pay rate; withholdings are properly calculated' relates to which transaction-related audit objective for payroll?
A) existence
B) authorisation
C) accuracy
D) completeness

Accepted Answer

The audit objective of accuracy requires that recorded transactions are for the correct amount and at the correct rates. This includes ensuring that payroll calculations are correct and that withholdings are properly calculated.

Question 11

The total of the individual employee earnings in the payroll master file equals the total:
A) gross pay for the current week's payroll.
B) of the cheques drawn to employees for payroll.
C) gross payroll plus the total contributed by the employer for superannuation.
D) balance of gross payroll in general ledger accounts.

Accepted Answer

The answer of The total of the individual employee earnings...

Question 12

After the payroll total has been agreed upon, often a separate bank account is set up to pay the amount.This account is referred to as:
A) a completed transaction account.
B) avoided cheque account.
C) a cashiered account.
D) an imprest payroll account.

Accepted Answer

An imprest payroll account is a separate bank account set up specifically for payroll that allows for easy tracking and management of payroll expenses. This account is funded periodically with the exact amount needed for payroll, making it an imprest account. Therefore, option D is the correct choice. The other options are not related to payroll accounts.

Question 13

The most common type of fraud by employees in the payroll area is:
A) nonexistent employees.
B) fraudulent hours.
C) unauthorized bonuses.
D) A and B

Accepted Answer

Nonexistent employees and fraudulent hours are the two most common types of payroll fraud committed by employees. Nonexistent employees are created in the payroll system, and fraudulent hours are entered to claim pay for hours not worked. Unauthorized bonuses may also be a type of fraud but are not as common as nonexistent employees and fraudulent hours.

Question 14

What is the auditor's main concern when examining payroll transactions?
A) posting of gross payroll amounts to incorrect salary expense accounts
B) excess withholding of amounts required to be withheld
C) misfootings of employee time records
D) overpayments and unauthorised payments

Accepted Answer

The auditor's main concern when examining payroll transactions is overpayments and unauthorised payments. It is important to ensure that employees are being paid in accordance with their employment agreements and that payroll records are accurate and free from errors. Overpayments and unauthorised payments can result in significant financial loss for the company and can also be a sign of fraud or other wrongdoing. Therefore, it is important for the auditor to focus on identifying and addressing any such issues in the payroll records.

Question 15

Which one of the following circumstances would NOT cause an auditor to extend payroll procedures considerably?
A) Payroll significantly affects inventory valuation.
B) There is a possibility of material fraudulent payroll transactions.
C) There is a lack of independent third-party evidence, such as confirmations.
D) There is a deficient internal control structure.

Accepted Answer

The answer of Which one of the following circumstances would...

Question 16

No individual with authority to sign payroll cheques or approve direct bank transfers should be permitted access to:
A) timekeeping.
B) the computer.
C) the preparation of payroll.
D) both A and B

Accepted Answer

It is important to have proper segregation of duties to prevent fraud and errors. Allowing an individual with the authority to sign payroll cheques or approve direct bank transfers access to timekeeping or the computer systems used for payroll preparation increases the risk of inappropriate actions or errors. Therefore, options A and B should be restricted from these individuals.

Question 17

Which one of the following statements is NOT correct?
A) Internal controls vary from company to company; therefore, the auditor must identify the controls and deficiencies for each organisation.
B) The substantive tests of transactions will vary depending on the assessed control risk.
C) The tests of controls and substantive tests of transactions are combined where appropriate.
D) The auditor must perform tests of controls on all of the client's internal controls.

Accepted Answer

The statement that the auditor must perform tests of controls on all of the client's internal controls is incorrect. The auditor should only perform tests of controls on those internal controls that are identified as significant risks to the audit. It would be impractical and unnecessary to test all internal controls.

Question 18

The accounts payable department usually has responsibility for verifying the propriety of acquisitions by comparing the details on the:
A) vendor's invoice and the purchase requisition.
B) purchase requisition, purchase order, and receiving report.
C) vendor's invoice and the receiving report.
D) purchase order, receiving report, and vendor's invoice.

Accepted Answer

The most accurate way to verify the propriety of acquisitions is to compare the details on the purchase order, receiving report, and vendor's invoice. This allows for a three-way matching process to ensure that the goods or services were received, the invoice matches the purchase order, and that the price and terms are correct.

Question 19

Which one of the following would NOT justify an auditor's decision to spend very little time performing tests of transactions in the payroll and personnel cycle?
A) The new payroll bookkeeper has a much better educational background than the former one.
B) Payroll transactions are uniform and uncomplicated.
C) Employees will detect any underpayments.
D) Payroll transactions are extensively audited by government agencies.

Accepted Answer

The educational background of the payroll bookkeeper does not directly impact the inherent risk or control risk associated with payroll transactions, which are the primary considerations for determining the extent of testing required. The other options (B, C, D) provide reasons that could justify reduced testing due to lower risk or external verification.

Question 20

When processing and recording cash payments, it is important to have a method of cancelling the supporting documents to prevent their reuse as support for another cheque at a later time.A common method is to:
A) move the documents to a permanent off-site facility such as a warehouse.
B) transfer possession of the document to a bank vault such as a safety deposit box.
C) write the cheque number on the supporting documents.
D) shred the documents so they can't be reused.

Accepted Answer

Writing the cheque number on the supporting document is the best choice as it allows for easy reference and tracking of the cheque and helps to prevent the supporting document from being reused for another transaction. The other options either provide insufficient control or destroy the supporting document, which may be needed for future reference or audits.

Quiz 15: Audit of transaction cycles and financial statement balances I

The auditor's transaction-related audit objective for acquisitions, to determine that recorded acquisitions are for goods and services received, relates to which accounting concept?

Which function should the purchasing department NOT be responsible for?

From an audit point of view, which one of the following would NOT be an important internal control in the personnel cycle?

It usually takes more time to audit the acquisition and payment cycle than any other cycle because:

Which one of the following is a test of controls?

When labour is a material factor in inventory valuation, the auditor should place special emphasis on testing the internal controls concerning:

The internal control which requires that 'cheques are prenumbered and accounted for' satisfies which transaction-related audit objective for cash payments?

The file for recording each payroll transaction for each employee and maintaining total employee wages paid for the year to date is the:

'Recorded payroll payments are for work actually performed by non-fictitious employees' is which transaction-related audit objective for payroll?

'Recorded payroll transactions are for the amount of time actually worked and at the proper pay rate; withholdings are properly calculated' relates to which transaction-related audit objective for payroll?

The total of the individual employee earnings in the payroll master file equals the total:

After the payroll total has been agreed upon, often a separate bank account is set up to pay the amount.This account is referred to as:

The most common type of fraud by employees in the payroll area is:

What is the auditor's main concern when examining payroll transactions?

Which one of the following circumstances would NOT cause an auditor to extend payroll procedures considerably?

No individual with authority to sign payroll cheques or approve direct bank transfers should be permitted access to:

Which one of the following statements is NOT correct?

The accounts payable department usually has responsibility for verifying the propriety of acquisitions by comparing the details on the:

Which one of the following would NOT justify an auditor's decision to spend very little time performing tests of transactions in the payroll and personnel cycle?

When processing and recording cash payments, it is important to have a method of cancelling the supporting documents to prevent their reuse as support for another cheque at a later time.A common method is to: