Deck 13: Payroll and Production Processes

Question 1

An auditor traces an employee's name,job category,and employee number from the payroll journal to authorized personnel records.This provides evidence of

A)Ownership.
B)Completeness.
C)Presentation.
D)Existence/Occurrence

Answer 1

D

Question 2

Which of the following is most likely to approve changes in pay rates and deductions from employee salaries?

A)Personnel department.
B)Treasurer.
C)Controller.
D)Payroll department.

Answer 2

A

Question 3

Which of the following would raise a red flag in the audit of payroll?

A)One person in the company is authorized to sign all payroll cheques.
B)The endorsement on a cancelled payroll cheque included the words "for deposit only" above the payee's signature.
C)The endorsement on a cancelled payroll cheque included the signature of a supervisor below the signature of the payee.
D)A supervisor signed the time card of an employee.

Answer 3

C

Question 4

The sampling unit in a test of controls relating to the validity of payroll transactions is ordinarily a(n)________.

A)clock card or time ticket
B)employee T-4 form
C)employee personnel record
D)payroll register entry

Question 5

The purpose of segregating the duties of hiring personnel and distributing payroll cheques is to separate the ________.

A)human resources function from the controllership function
B)administrative controls from the internal accounting controls
C)authorization of transactions from the custody of related assets
D)operational responsibility from the record-keeping responsibility

Question 6

To best ensure that employees are paid authorized rates,the auditor should trace wage rates from the ________.

A)master files to payroll journal
B)payroll journal to master files
C)personnel files to master files
D)cheque register to payroll journal

Question 7

What is the major control risk for the payroll payment process?

A)Potential overpayment of wages due to employee fraud.
B)Potential theft of cash.
B)Potential underpayment due to employee fraud.
C)Potential overpayment of employee deductions.

Question 8

An auditor is most likely to assess control risk at maximum if the payroll department supervisor is responsible for ________.

A)examining authorization forms for new employees
B)authorizing payroll rate changes for all employees
C)comparing payroll registers with original batch transmittal data
D)hiring all subordinate payroll department employees

Question 9

Tracing selected items from the payroll register to approved,employee time cards provides evidence that ________.

A)internal controls relating to payroll disbursements were operating effectively
B)payroll cheques were signed by an appropriate officer independent of the payroll preparation process
C)only bona fide employees worked and their pay was properly computed
D)employees worked the number of hours for which their pay was computed

Question 10

Which of the following accounts is not considered in the production cycle?

A)Inventory.
B)Cost of goods sold.
C)Amortization expense.
D)Sales.

Question 11

Selecting a sample of time clock cards and examining them for evidence of approval by a supervisor then tracing the hours recorded to the payroll registers is a procedure designed to obtain evidence about the control objective(s)of ________.

A)validity only
B)authorization only
C)completeness only
D)authorization and completeness.

Question 12

Production accounting generates important information for management decisions but also is a source of audit risk because ________.

A)production accountants may not be competent
B)production processes affect a lot of cost allocations
C)goods produced may not be marketable
D)goods claimed as produced may not exist

Question 13

Selecting a sample of payroll summaries and vouching the details to time records is a procedure designed to test the control objective of ________.

A)environment
B)validity
C)completeness
D)classification

Question 14

A bill of materials is associated with which duty?

A)Authorization.
B)Custody.
C)Record keeping.
D)Periodic reconciliation.

Question 15

Which of the following is NOT a major risk in the payroll cycle?

A)Paying fictitious employees.
B)Paying employees more than a market wage.
C)Overpayment for time or production.
D)Incorrect accounting for costs and expenses.

Question 16

Which of the following documents is NOT included in the payroll cycle?

A)payroll cheques
B)timekeeping records
C)termination notices
D)supplier invoices

Question 17

Small Corporation uses a Wages Clearing Account for its payroll disbursements.At the end of February,a reasonably large debit balance remained in this account.What is the most likely reason?

A)More labour cost had been assigned to the expense accounts than had been paid.
B)Some labour cost had not been properly classified in the expense accounts.
C)Some employees had not yet cashed their cheques.
D)Not enough cash had been transferred to the bank account.

Question 18

The procedure "examine paid and endorsed payroll cheques/payroll bank account debit entry details of selected employees and trace to data in the payroll journal" tests for the assertion _____.

A)existence
B)ownership
C)presentation
D)completeness

Question 19

Which of the following procedures carried out by the personnel department best reduces the risk of payroll fraud and represents an appropriate responsibility for the department?

A)Distributing paycheques.
B)Authorizing overtime hours.
C)Authorizing the addition or removal of employees from the payroll system.
D)Collecting and retaining unclaimed paycheques.

Question 20

In the area of payroll,which of the following procedures represents proper control over the custody of assets?

A)The supervisor receives a copy of the payroll register for a chance to approve the payroll after it is completed.
B)Individual paycheques are prepared.
C)Unclaimed payroll cheques are held in the office of the chief financial officer.
D)Signatures from employees are obtained for calculation of deductions.

Question 21

If auditors compare the gross profit margin by product and compare it with prior periods,this is an example of a(n)

A)Analytical procedure.
B)Inspection technique.
C)Presentation procedure.
D)Scanning technique.

Question 22

It is permissible for accounting personnel to authorize production orders since they do not have custody of the assets.

Question 23

A payroll "clearing account" is a temporary account that holds payroll transactions until final accounting entries are prepared.

Question 24

Only supervisors have physical custody of materials,equipment,and labour while the production work is performed.

Question 25

Reconciling the open production cost reports to the work-in-process inventory control account is a procedure designed to test the control objective of ________.

A)environment
B)validity
C)accuracy
D)authorization

Question 26

Overall production authorization starts with production planning,which usually is based on a sales forecast.

Question 27

A materials requisition is the document that authorizes the inventory custodian to release raw materials and supplies to production personnel.

Question 28

One procedure in an audit program for tests of controls reads: "Select a sample of payroll register entries and vouch employee identification numbers,pay rates,and authorized deductions to the personnel files." This procedure is designed to test the validity of payroll information for employees.

Question 29

Proper segregation of duties for the production process,says those with custody of inventories should not

A)Request new materials or complete production reports.
B)Punch time cards or fill out quality control reports
C)Authorize production,perform cost accounting recordkeeping,or prepare cost analyses.
D)Produce finished units or transfer raw materials into production

Question 30

Selecting a sample of production cost reports and vouching material costs to issue slips and materials-used reports,is a procedure designed to test the control objective of _________.

A)authorization
B)Validity
C)Completeness
D)Accuracy

Question 31

Cost accounting can be performed by those who also ________.

A)authorize production
B)allocate overhead charges
C)have custody of assets
D)reconcile labour reports

Question 32

A test of the completeness objective is selecting a sample of payroll register entries and vouching them to employee data in the personnel files such as employee identification,rate of pay,and authorized deductions.

Question 33

A distinguishing characteristic of the payroll process is the high risk of ownership assertion misstatements.

Question 34

Most of the transactions in the production cycle are cost accounting allocations,unit cost determinations,and standard cost calculations.

Question 35

If controls over production accounting are found to be strong,an auditor can plan to do less testing over ________.

A)the existence assertion of inventory
B)the valuation assertion of inventory
C)the completeness assertion of inventory
D)the rights assertion over inventory

Question 36

The payroll cycle starts with keeping track of attendance and ends with payment to the employee.

Question 37

Finished goods inventory is low in inherent risk since production is so well understood.

Question 38

Select significant items from the raw materials inventory list and agree costs to suppliers' invoice,shipping charges,and customs broker's charges,is substantive test for which assertions?

A)Valuation and presentation
B)Existence and presentation
C)Completeness and ownership
D)Valuation and ownership

Question 39

An advantage to outsourcing payroll processing is improved segregation of duties.

Question 40

The payroll register is the primary original record for payroll accounting.

Question 41

The accounting department at Blue Manufacturing Limited receives production information at the end of each week.The production floor supervisor reports time and production data and the payroll department reports labour cost data.How will the accounting department use this information? Why?

Question 42

In the audit of payroll,auditors often examine the endorsements on a sample of cancelled payroll cheques.What is the purpose of this procedure?

Question 43

Recalculating all costs entered on a sample of open and closed job cost reports is a test of the accuracy objective.

Question 44

Describe the major risk areas associated with the payroll cycle.

Question 45

What is a clearing account? What are the risks associated with this type of account?

Question 46

Why is control over custody of work-in-process (WIP)inventory is more difficult than control over finished goods or raw materials? How can proper control over custody of WIP be achieved?

Question 47

The five functional responsibilities for the payroll cycle are (1)personnel management (HR), (2)supervision, (3)timekeeping and cost accounting, (4)payroll accounting,and (5)payroll distribution.For each responsibility,identify the type of duty or duties (authorization,custody,record-keeping,periodic reconciliation)associated with the function and briefly describe the activity involved.

Question 48

A test of the validity objective is to examine a sample of production cost reports and recalculate all costs entered.