Audit Exam 3 Part 2

The purpose of segregating the duties of hiring personnel and distributing payroll checks is to segregate 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

C. Authorization of transactions from the custody of related assets

Which of the following is an operating control over the staffing function?

A. Making background checks on all new hires

B. Maintaining records of the department's accomplishments

C. Encouraging new hires to participate in professional organizations

D. Requiring personnel to participate in firm-sponsored external activities

A. Making background checks on all new hires

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

A. Human resources

B. CFO

C. Controller

D. Payroll

A. Human resources

Organizational independence in the processing of payroll is achieved by functional segregations that are built into the system. Which one of the following functional segregations is not required for internal control purposes?

A. Segregation of timekeeping from payroll preparation

B. Segregation of human resources function from payroll preparation

C. Segregation of payroll preparation and paycheck distribution

D. Segregation of payroll preparation and maintenance of year-to-date records

D. Segregation of payroll preparation and maintenance of year-to-date records

An auditor will ordinarily ascertain whether payroll checks are properly endorsed during the audit of

A. The payroll register

B. The cost accounting system

C. Cash in bank

D. Accrued payroll

A. The payroll register

In the audit of which of the following types of profit-oriented enterprises is the auditor most likely to place special emphasis on testing the controls over proper classification of payroll transactions?

A. A manufacturing organization

B. A retailing organization

C. A wholesaling organization

D. A service organization

A. A manufacturing organization

Which of the following situations represents an internal control weakness in the payroll department?

A. Payroll department personnel are rotated in their duties

B. Paychecks are distributed by the employees' immediate supervisors

C. Payroll records are reconciled with quarterly tax reports

D. The time keeping function is independent of the payroll department

B. Paychecks are distributed by the employees' immediate supervisors

Which of the following human resources department procedures reduces the risk of payroll fraud and represents an appropriate responsibility for the department?

A. Distributing paychecks

B. Authorizing overtime hours

C. Authorizing the addition or deletion of employees from the payroll

D. Collection and retention of unclaimed paychecks

C. Authorizing the addition or deletion of employees from the payroll

Which of the following activities performed by a department supervisor most likely would help in the prevention or detection of a payroll fraud?

A. Distributing paychecks directly to department employees

B. Setting the pay rate for departmental employees

C. Hiring employees and authorizing them to be added to payroll

D. Approving a summary of hours each employee worked during the pay period

D. Approving a summary of hours each employee worked during the pay period

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. Assure that employees who were absent on a payroll distribution day are not paid for that day

B. To insure that the checks are voided immediately

C. Prevent a bona fide employee's check from being claimed by another employee

D. Detect any fictitious employee who may have been placed on the payroll

D. Detect any fictitious employee who may have been placed on the payroll

Effective internal control activities over the payroll function may include

A. Reconciliation of totals on job time tickets with job reports by employees responsible for those specific jobs

B. Verification of agreement of job time tickets with employee time clock card hours by a timekeeping department employee

C. Preparation of payroll transaction journal entries by an employee who reports to the supervisor of the human resources department

D. Custody of rate authorization records by the supervisor of the payroll department

B. Verification of agreement of job time tickets with employee time clock card hours by a timekeeping department employee

In manufacturing environments, employees are often required to use time cards and job time tickets. Which is the false statement related to the use of these documents?

A. Job time tickets are completed by employees for each job worked on, and an employee may have one or many job time tickets in a day

B. Only one time card should exist for each employee

C. Time reported on job time tickets should be reconciled to time cards

D. Payroll should be prepared from job time tickets

D. Payroll should be prepared from job time tickets

Which of the following internal control activities most likely would prevent direct labor hours from being charged to manufacturing overhead?

A. Periodic independent counts of work in process for comparison to recorded amounts

B. Comparison of daily journal entries with approved production orders

C. Use of time tickets to record actual labor worked on production orders

D. Reconciliation of work-in-process inventory with periodic cost budgets

C. Use of time tickets to record actual labor worked on production orders

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 pay envelopes should be retained by the paymaster

C. Each employee should be asked to sign a receipt

D. A separate checking account for payroll should be maintained

C. Each employee should be asked to sign a receipt

What information would the auditor expect to find in the data dictionary that would assist in a payroll application audit?

A. Programs that access the data

B. Type of operating system

C. Online user information

D. System network architecture and flowcharts

A. Programs that access the data

Which of the following activities most likely would detect whether payroll data were altered during processing?

A. Monitoring authorized distribution of data control sheets

B. Using test data to verify the performance of edit routines

C. Examining source documents for approval by supervisors

D. Segregating duties between approval of hardware and software specifications

B. Using test data to verify the performance of edit routines

Property, plant, and equipment (PPE) is typically judged to be one of the accounts least susceptible to fraud because

A. The amounts recorded on the balance sheet for most companies are immaterial

B. The inherent risk is usually low

C. The depreciated values are always smaller than cost

D. Internal control is inherently effective regarding this account

B. The inherent risk is usually low

Which is the best audit procedure to obtain evidence to support the legal ownership of real property?

A. Examination of corporate minutes and board resolutions with regard to approvals to acquire real property

B. Examination of closing documents, deeds, and ownership documents registered and on file at the county courthouse

C. Discussion with corporate legal counsel concerning the acquisition of a specific piece of property

D. Confirmation with the title company that handled the escrow account and disbursement of proceeds for the closing of the property

B. Examination of closing documents, deeds, and ownership documents registered and on file at the county courthouse

In the audit of property, plant, and equipment, the auditor tries to do all of the following except to

A. Obtain an understanding of the relevant internal controls

B. Determine the extent of property abandoned during the year

C. Assess the adequacy of replacement funds

D. Judge the reasonableness of the depreciation

C. Assess the adequacy of replacement funds

If an auditor tours a production facility, which of the misstatements or questionable practices is most likely to be detected?

A. Depreciation expense on fully depreciated machinery has been recognized

B. Overhead has been overapplied

C. Necessary facility maintenance has not been performed

D. Insurance coverage on the facility has lapsed

C. Necessary facility maintenance has not been performed

Treetop Corporation acquired a building and arranged mortgage financing during the year. Verification of the related mortgage acquisition costs would be least likely to include an examination of the related

A. Deed

B. Canceled checks

C. Closing statement

D. Interest expense

A. Deed

Determining that proper amounts of depreciation are expensed provides assurance about management's assertions of valuation and allocation and

A. Classification and understandability

B. Completeness

C. Rights and obligations

D. Occurrence

A. Classification and understandability

Which of the following costs should not be capitalized?

A. Major reconditioning of a delivery truck

B. Machine operator's wages during a period of testing and adjusting new machinery

C. Fencing the plant parking lot

D. Maintenance of an unused standby plant

D. Maintenance of an unused standby plant

The most appropriate reason for a decrease in accumulated depreciation is that

A. Depreciation for prior periods was understated

B. Major repairs have lengthened the life of an asset

C. A depreciable asset has been recorded at current cost

D. Retained earnings have been appropriated for a possible loss on retirement

B. Major repairs have lengthened the life of an asset

In violation of a company policy, Lowell Company erroneously capitalized the cost of painting its warehouse. The auditor examining Lowell's financial statements would most likely detect this error when

A. Discussing capitalization policies with Lowell's controller

B. Examining maintenance expense accounts

C. Observing, during the physical inventory observation, that the warehouse had been painted

D. Examining the construction work orders supporting items capitalized during the year

D. Examining the construction work orders supporting items capitalized during the year