Loose-leaf For Auditing & Assurance Services: A Systematic Approach
11th Edition
ISBN: 9781260687637
Author: William F Messier Jr, Steven M Glover Associate Professor, Douglas F Prawitt Associate Professor
Publisher: McGraw-Hill Education
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Question
Chapter 12, Problem 12.23MCQ
To determine
Concept Introduction:
Substantive test of details on payroll transactions means the details checking of records of employees, attendance, rate of wages and compare the wage records daily. Substantive test of details on payroll transactions is required when internal control is weak.
To choose: The situation when auditor is likely to apply a substantive test of details on payroll transactions.
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Students have asked these similar questions
In assessing control risk over the cash disbursement function, the auditor notes a delay in recording disbursements. This delay is most likely to affect
a. Planned detection risk for accounts receivable.
b. Cutoff planning for year-end work for revenues.
c. Year-end cutoff planning for disbursements.
d. The assessed level of control risk over payroll.
The following are typical questions that might appear on an internal control questionnaire for payroll activities:
1. Is there adequate separation of duties between employees who maintain human resources records and employees who approve payroll disbursements?
2. Is there adequate separation of duties between personnel who maintain timekeeping or attendance records for employees and employees who distribute payroll checks?
Assuming that the operating effectiveness of each of the above controls is found to be inadequate, describe how the auditors might alter their substantive procedures to compensate for the increased level of control risk.
The following are typical questions that might appear on an internal control questionnaire for accounts payable.
1. Are monthly statements from vendors reconciled with the accounts payable listing?
2. Are vendors’ invoices matched with receiving reports before they are approved for payment?
Assuming that the operating effectiveness of each of the above procedures is found to be inadequate, describe how the auditors might alter their substantive procedures to compensate for the increased level of the risk of material misstatement.
Chapter 12 Solutions
Loose-leaf For Auditing & Assurance Services: A Systematic Approach
Ch. 12 - Prob. 12.1RQCh. 12 - Prob. 12.2RQCh. 12 - Prob. 12.3RQCh. 12 - Prob. 12.4RQCh. 12 - Prob. 12.5RQCh. 12 - Prob. 12.6RQCh. 12 - Prob. 12.7RQCh. 12 - Prob. 12.8RQCh. 12 - Prob. 12.9RQCh. 12 - Prob. 12.10RQ
Ch. 12 - Prob. 12.11RQCh. 12 - Prob. 12.12RQCh. 12 - Prob. 12.13RQCh. 12 - Prob. 12.14MCQCh. 12 - Prob. 12.15MCQCh. 12 - Prob. 12.16MCQCh. 12 - Prob. 12.17MCQCh. 12 - Prob. 12.18MCQCh. 12 - Prob. 12.19MCQCh. 12 - Prob. 12.20MCQCh. 12 - Prob. 12.21MCQCh. 12 - Prob. 12.22MCQCh. 12 - Prob. 12.23MCQCh. 12 - Prob. 12.24PCh. 12 - Prob. 12.26PCh. 12 - Prob. 12.27P
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- When accounts receivable are confirmed at an interim date, auditors need not be concerned witha. Obtaining a summary of receivables transactions from the interim date to the year-end date.b. Obtaining a year-end trial balance of receivables, comparing it to the interim trial balance, and obtaining evidence and explanations for large variations. c. Sending negative confirmations to all customers as of the year-end date.d. Considering the necessity for some additional confirmations as of the balance sheet date if balances have increased materiallyarrow_forwardWhat is NOT an example of internal control procedures that help prevent payroll fraud? a.Outsource Payroll Administration b.Require mandatory vacations c.Make sure only one person handles payroll functions d.Conduct periodic unannounced auditsarrow_forwardAn auditor is likely to perform each of the below procedures to obtain evidence regarding the potential understatement of accounts payable at year-end (i.e., the Completeness assertion) except… Question options: Inspect purchase orders and receiving reports for accounts payable recorded at year-end. Inspect the open invoice file for invoices to be paid after year-end. All options describe procedures that can be used to identify a potential understatement of accounts payable. Analyze cash disbursements made during the first few weeks of the subsequent year and inspect supporting documentation for each disbursement.arrow_forward
- Which of the following audit findings would be considered a deficiency in internal controls in the revenue cycle? A. No evidence that price and quantity on an invoice was compared with supporting documentation. B. Quantity shipped differed from quantity billed. C. Recording sales several days before the shipment date. D. All of the above. E. None of the above.arrow_forwardOA Company recently hired a payroll service provider to process its payroll—that service provider has essentially taken over the payroll function, and payroll represents OA’s largest expense. Comment on the following statement: OA’s auditors should make certain that the payroll service provider’s most recent financial statements are audited, and that the related audit report includes no indication of a weakness in internal control related to processing its own payroll.arrow_forwardWhat are the most common errors and frauds in the personnel and payroll cycle? Which control characteristics are auditors looking for to prevent or detect these errors and frauds?arrow_forward
- In determining the effectiveness of an entity’s policies and procedures relating to the occurrence assertion for payroll transactions, auditors most likely would inquire about anda. Observe the separation of duties concerning personnel responsibilities and payrolldisbursement.b. Inspect evidence of accounting for prenumbered payroll checks.c. Recompute the payroll deductions for employee benefits.d. Verify the preparation of the monthly payroll account bank reconciliationarrow_forwardEd Caluag, CPA was engaged to audit the financial statement of KMJS, Company, a continuing audit client. Ed is about to audit KMJS’s payroll transactions. KMJS uses an in-house payroll department to compute payroll data and prepare and distribute checks. During the planning process, Ed determined that the inherent risks of overstatement of payroll expense is high. In addition, Ed obtained an understanding of internal control and assessed control risk at the maximum level for payroll related assertions. Required: Describe the audit procedures Ed Caluag should consider performing in an audit of KMJS’s payroll transactions to address the risk of overstatement.arrow_forwardItems 1 through 6 are questions typically found in a standardinternal control questionnaire used by auditors to obtain an understanding of internalcontrol for notes payable. In using the questionnaire for a client, a “yes” response indicatesa possible internal control, whereas a “no” indicates a potential deficiency.1. Are liabilities for notes payable incurred only after written authorization by a propercompany official?2. Are paid notes cancelled and retained in the company files?3. Is a notes payable master file maintained?4. Is a periodic reconciliation made of the notes payable master file with the actualnotes outstanding by an individual who does not maintain the master file?5. Is the individual who maintains the notes payable master file someone other thanthe person who approves the issue of new notes or handles cash?6. Are interest expense and accrued interest recomputed periodically by an individualwho does not record interest transactions?a. For each of the preceding…arrow_forward
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