Question 1

The five functional responsibilities for the payroll cycle are (1) personnel and labour relations, (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.

Accepted Answer

The answer of The five functional responsibilities for the payroll...

Question 2

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

Accepted Answer

A payroll clearing account is a temporary account used to hold payroll transactions until they are ready to be transferred to permanent payroll accounts in the general ledger.

Question 3

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

Accepted Answer

The payroll register is a document that lists all employees' earnings and deductions for a specific pay period. It serves as the primary original record for payroll accounting, as it includes important information that is used to prepare payroll tax returns and financial statements.

Question 4

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

Accepted Answer

While well-understood production processes can lower the inherent risk in finished goods inventory, there are still potential risks such as changes in consumer demand, supply chain disruptions, and manufacturing defects that can impact the inventory levels and value. Additionally, the valuation of the inventory on the balance sheet can also be subject to estimation and management judgement, increasing the potential for misstatement.

Question 5

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

Accepted Answer

Recalculating costs is a measure taken to verify the accuracy of job cost reports.

Question 6

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

Accepted Answer

The answer of What is a clearing account? What are...

Question 7

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

Accepted Answer

Physical custody of materials, equipment, and labor can be managed by various personnel involved in the production process, not just supervisors. This includes workers, team leaders, and other specialized staff depending on the organizational structure and the nature of the work being performed.

Question 8

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

Accepted Answer

The answer of One procedure in an audit program for...

Question 9

Federal Form T4 Summary is the employer's annual federal employee remittance return.

Accepted Answer

The Federal Form T4 Summary is indeed the employer's annual federal employee remittance return.

Question 10

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

Accepted Answer

The production cycle involves various transactions such as material purchases, labor costs, overhead expenses, and inventory movements. These transactions are recorded in the cost accounting system and allocated to the products based on their usage. The unit cost of a product is determined by dividing the total cost by the number of units produced. Standard costs are estimated costs that are used for planning and control purposes. Therefore, most of the transactions in the production cycle are cost accounting allocations, unit cost determinations, and standard cost calculations.

Question 11

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.

Accepted Answer

The described procedure tests for the occurrence objective, ensuring that recorded payroll transactions actually occurred and relate to real employees, rather than testing for the completeness objective, which would involve ensuring all payroll transactions that should have been recorded were actually recorded.

Question 12

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

Accepted Answer

It is not appropriate for accounting personnel to authorize production orders as they may have the ability to manipulate the accounting records, leading to fraudulent activities. It is important to have segregation of duties and different individuals should be responsible for different aspects of the business process to maintain internal controls.

Question 13

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

Accepted Answer

The answer of The payroll cycle starts with keeping track...

Question 14

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

Accepted Answer

When controls over production accounting are strong, it provides reasonable assurance about the valuation assertion of inventory. Therefore, the auditor can plan to do less testing over the valuation assertion of inventory. However, it does not necessarily affect the testing required for existence, completeness, or rights assertions over inventory.

Question 15

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.

Accepted Answer

Comparing the gross profit margin by product and comparing it with prior periods is an example of an analytical procedure, which is a type of audit procedure that involves the evaluation of financial information by analyzing relationships among its elements.

Question 16

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?

Accepted Answer

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Question 17

Selecting a sample of job orders from the job cost summary and matching them to bills of material and the schedule of production labour requirements is a procedure designed to test the control objective of ________.
A) accounting
B) accuracy
C) completeness
D) validity

Accepted Answer

This procedure is designed to test the validity of the job orders by ensuring that they correspond to actual production requirements and materials used, confirming that the recorded job orders are legitimate and authorized.

Question 18

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

Accepted Answer

The test of the validity objective typically involves verifying that recorded transactions actually occurred or that an asset exists, not recalculating costs entered on production cost reports, which would be more related to testing for accuracy.

Question 19

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

Accepted Answer

Production planning is indeed often based on a sales forecast in order to determine the quantity and timing of production needed to meet demand.

Question 20

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

Accepted Answer

A materials requisition serves as a formal request for materials to be taken out of inventory and given to production personnel. It typically includes information such as the quantity and type of materials needed and the job or project it will be used for. Upon receiving a materials requisition, the inventory custodian will gather the necessary materials and release them to the authorized personnel.

Quiz 13: Payroll and Production Processes