Auditing: A Risk Based-Approach to Conducting a Quality Audit
10th Edition
ISBN: 9781305080577
Author: Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher: South-Western College Pub
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Question
Chapter 3, Problem 60RSCQ
To determine
Introduction: The top management segregates the duties among employees to ensure better internal control in an organization and to avoid the fraud or misrepresentation of financial data.
To define: The segregation of duties, presence of any misstatement in financial statement and suitable control action that might mitigate the risk of potential misstatement.
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The purpose of separating the duties of hiring personnel and distributing payroll checks is toseparate thea. Authorization of transactions from the custody of related assets.b. Operational responsibility from the record-keeping responsibility.c. Human resources function from the controllership function.d. Administrative controls from the internal accounting controls.
Which of the following is a preventive control?a. Reconciliation of a bank account.b. Recalculation of a sample of payroll entries by internal auditors.c. Separation of duties between the payroll and personnel departments.d. Detailed fluctuation analysis completed by the CFO for revenue.
Which of the following activities most likely would be considered a weakness in an entity’s internal control over payroll?a. A voucher for the amount of the payroll is prepared in the general accounting department based on the payroll department’s payroll summary.
b. Payroll checks are prepared by the accounts payable department and signed by the treasurer.
c. The employee who distributes payroll check returns unclaimed payroll checks to the payroll department.
d. The personnel department sends employees’ termination notices to the payroll department.
Chapter 3 Solutions
Auditing: A Risk Based-Approach to Conducting a Quality Audit
Ch. 3 - Prob. 1TFQCh. 3 - Prob. 2TFQCh. 3 - Prob. 3TFQCh. 3 - Prob. 4TFQCh. 3 - Prob. 5TFQCh. 3 - The control environment is seen as the foundation...Ch. 3 - Prob. 7TFQCh. 3 - Prob. 8TFQCh. 3 - Prob. 9TFQCh. 3 - Prob. 10TFQ
Ch. 3 - Prob. 11TFQCh. 3 - Prob. 12TFQCh. 3 - Prob. 13TFQCh. 3 - Prob. 14TFQCh. 3 - Prob. 15TFQCh. 3 - Prob. 16TFQCh. 3 - Prob. 17TFQCh. 3 - Prob. 18TFQCh. 3 - Prob. 19TFQCh. 3 - Prob. 20TFQCh. 3 - Prob. 21MCQCh. 3 - Prob. 22MCQCh. 3 - What are the components of internal control per...Ch. 3 - Prob. 24MCQCh. 3 - Prob. 25MCQCh. 3 - Which one of the following components of internal...Ch. 3 - Prob. 27MCQCh. 3 - Prob. 28MCQCh. 3 - Prob. 29MCQCh. 3 - Prob. 30MCQCh. 3 - Prob. 31MCQCh. 3 - Prob. 32MCQCh. 3 - Prob. 33MCQCh. 3 - Prob. 34MCQCh. 3 - Prob. 35MCQCh. 3 - Prob. 36MCQCh. 3 - Prob. 37MCQCh. 3 - Prob. 38MCQCh. 3 - Prob. 39MCQCh. 3 - Prob. 40MCQCh. 3 - Prob. 41RSCQCh. 3 - Prob. 42RSCQCh. 3 - Prob. 43RSCQCh. 3 - Prob. 44RSCQCh. 3 - Distinguish between entity-wide and transaction...Ch. 3 - Refer to Exhibit 3.2. List the principles...Ch. 3 - Prob. 47RSCQCh. 3 - Prob. 48RSCQCh. 3 - Prob. 49RSCQCh. 3 - Prob. 50RSCQCh. 3 - Refer to Exhibit 3.3. For each risk assessment...Ch. 3 - Prob. 52RSCQCh. 3 - Prob. 53RSCQCh. 3 - Prob. 54RSCQCh. 3 - Prob. 55RSCQCh. 3 - Prob. 56RSCQCh. 3 - Prob. 57RSCQCh. 3 - Prob. 58RSCQCh. 3 - Authorization of transactions is a key control in...Ch. 3 - Prob. 60RSCQCh. 3 - Prob. 61RSCQCh. 3 - Prob. 62RSCQCh. 3 - Prob. 63RSCQCh. 3 - Prob. 64RSCQCh. 3 - Prob. 65RSCQCh. 3 - Prob. 66RSCQCh. 3 - Prob. 67RSCQCh. 3 - Prob. 68RSCQCh. 3 - Refer to Exhibit 3.9. What are the important...Ch. 3 - Refer to Exhibit 3.10 and Exhibit 3.11. Describe...Ch. 3 - Prob. 71RSCQCh. 3 - Prob. 72RSCQCh. 3 - Prob. 73RSCQCh. 3 - Prob. 74RSCQCh. 3 - Assume that management is gathering evidence as...Ch. 3 - Prob. 76RSCQCh. 3 - Prob. 77RSCQCh. 3 - Prob. 78RSCQCh. 3 - Prob. 79FFCh. 3 - Diamond Foods, Inc. (LO 8, 9) In February 2012,...
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Similar questions
- 4. SEGREGATION OF DUTIES Explain why each of the following combinations of tasks should or should not be separated to achieve adequate internal control. a. Approval of bad debt write-offs and the reconcil- iation of the AR subsidiary ledger and the GL control account b. Distribution of payroll checks to employees and approval of employee time cards. c. Posting of amounts from both the cash receipts and the cash disbursements journals to the gen- eral ledger. d. Writing checks to vendors and posting to the cash account. e. Recording cash receipts in the journal and pre- paring the bank reconciliation.arrow_forwardAn audit team most likely would assess control risk at the maximum if the payroll department supervisor is responsible fora. Examining authorization forms for new employees.b. Comparing payroll registers with original batch transmittal data.c. Authorizing payroll rate changes for all employees.d. Hiring all subordinate payroll department employees.arrow_forwardWhat is the purpose of the following control procedures (i.e., what threats is it designed to mitigate)? e. Cross-footing the payroll registerarrow_forward
- 1. Segregation of Duties. Explain why each of the following combinations of tasks should, or should not, be separated to achieve adequate internal control. a. Approval of bad debt write-offs and the reconciliation of the accounts receivable subsidiary ledger and the general ledger control account. b. Distribution of payroll checks to employees and approval of employee time cards. c. Posting of amounts from both the cash receipts and the cash disbursements journals to the general ledger. d. Writing checks to vendors and posting to the cash account. e. Recording cash receipts in the journal and preparing the bank reconciliation.arrow_forwardWhich of the following activities performed by a department supervisor most likely would help to prevent or detect 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.arrow_forwardThe 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.arrow_forward
- 6. In which of the following situations does the internal auditor potentially lack objectivity? a. A payroll accounting employee assists an internal auditor in verifying the physical inventory of small motors. b. An internal auditor discusses a significant issue with the vice president to whom the auditee reports prior to drafting the audit report. c. An internal auditor recommends standards of control and performance measures for a contract with a service organization for the processing of payroll and employee benefits. d. A former purchasing assistant performs a review of internal controls over purchasing four months after being transferred to the internal audit department.arrow_forwardItems 1 through 8 are selected questions typically found ininternal control questionnaires used by auditors to obtain an understanding of internalcontrol in the payroll and personnel cycle. In using the questionnaire for a client, a “yes”response to a question indicates a possible internal control, whereas a “no” indicates apotential deficiency.1. Does an appropriate official authorize initial rates of pay and any subsequent changesin rates?2. Are formal records such as time cards used for keeping time?3. Is approval by a department head or foreman required for all time cards before theyare submitted for payment?4. Does an adequate means exist for identifying jobs or products, such as work orders,job numbers, or some similar identification provided to employees to ensure propercoding of time records?5. Is the issuance of payments to employees independent of timekeeping?6. Are employees required to show identification to receive paychecks?7. Are written notices required documenting…arrow_forwardExplain why each of the following combinations of tasks should or should no be separated to achieve adequate internal control. a. Approval of bad debt write-offs and the reconciliation of the AR subsidiary ledger and the GL Control Account. b. Distribution of payroll checks to employees and approval of employee time cards. c. Posting of amounts from both the cash receipts and the cash disbursement journals to the general ledger. d. Writing checks to vendors and posting to the cash account. e. Recording cash receipts in the journal and preparing the bank reconciliation. Please provide a clear explanation. *No plagiarism please*arrow_forward
- Describe a walkthrough of the payroll transaction flow from hiring authorization to payroll checkdisbursement. (a) What document copies would be collected? (b) What controls should be noted?arrow_forwardThe 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? Describe the manner in which each of the above controls might be tested.arrow_forwardWhat is the purpose of the following control procedures (i.e., what threats is it designed to mitigate)? a. Compare a listing of current and former employees to the payroll register.arrow_forward
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