D.4.

Personnel and Payroll

114. An auditor vouched data for a sample of employees in a payroll register to
approved clock card data to provide assurance that
a. Payments to employees are computed at authorized rates.
b. Employees work the number of hours for which they are paid.
c. Segregation of duties exist between the preparation and distribution of the
payroll.
d. Controls relating to unclaimed payroll checks are operating effectively.
115. Which of the following is a control that most likely could help prevent
employee payroll fraud?
a. The personnel department promptly sends employee termination notices to the
payroll supervisor.
b. Employees who distribute payroll checks forward unclaimed payroll checks to the
absent employees supervisors.
c. Salary rates resulting from new hires are approved by the payroll supervisor.
d. Total hours used for determination of gross pay are calculated by the payroll
supervisor.
116. In determining the effectiveness of an entitys controls relating to the
existence or occurrence assertion for payroll transactions, an auditor most likely
would inquire about and
a. Observe the segregation of duties concerning personnel responsibilities and
payroll disbursement.
b. Inspect evidence of accounting for prenumbered payroll checks.
c. Recompute the payroll deductions for employee fringe benefits.
d. Verify the preparation of the monthly payroll account bank reconciliation.
117. An auditor most likely would assess control risk at a high level if the payroll
department supervisor is responsible for
a. 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.
118. Which of the following controls 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.
119. In meeting the control objective of safeguarding of assets, which department
should be responsible for Distribution of paychecks Custody of unclaimed paychecks
a. Treasurer Treasurer
b. Payroll Treasurer
c. Treasurer Payroll
d. Payroll Payroll
120. Proper internal 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 be maintained.
121. The purpose of segregating the duties of hiring personnel and distributing
payroll checks is to separate the
a. Authorization of transactions from the custody of related assets.
b. Operational responsibility from the recordkeeping responsibility.
c. Human resources function from the controllership function.
d. Administrative controls from the internal accounting controls.
122. To minimize the opportunities for fraud, unclaimed cash payroll should be
a. Deposited in a safe-deposit box.
b. Held by the payroll custodian.
c. Deposited in a special bank account.
d. Held by the controller.
123. The auditor may observe the distribution of paychecks to ascertain whether
a. Pay rate authorization is properly separated from the operating function.
b. Deductions from gross pay are calculated correctly and are properly authorized.
c. Employees of record actually exist and are employed by the client.
d. Paychecks agree with the payroll register and the time cards.
124. Which of the following departments most likely would approve changes in pay
rates and deductions from employee salaries?
a. Personnel.
b. Treasurer.
c. Controller.
d. Payroll.
D.5. Financing
125. Which of the following questions would an auditor most likely include on an
internal control questionnaire for notes payable?
a. Are assets that collateralize notes payable critically needed for the entitys
continued existence?
b. Are two or more authorized signatures required on checks that repay notes
payable?
c. Are the proceeds from notes payable used for the purchase of noncurrent assets?
d. Are direct borrowings on notes payable authorized by the board of directors?
126. The primary responsibility of a bank acting as registrar of capital stock is to
a. Ascertain that dividends declared do not exceed the statutory amount allowable
in the state of incorporation.
b. Account for stock certificates by comparing the total shares outstanding to the
total in the shareholders subsidiary ledger.
c. Act as an independent third party between the board of directors and outside
investors concerning mergers, acquisitions, and the sale of treasury stock.
d. Verify that stock is issued in accordance with the authorization of the board of
directors and the articles of incorporation.
127. Where no independent stock transfer agents are employed and the corporation
issues its own stocks and maintains stock records, canceled stock certificates
should
a. Be defaced to prevent reissuance and attached to their corresponding stubs.
b. Not be defaced but segregated from other stock certificates and retained in a
canceled certificates file.
c. Be destroyed to prevent fraudulent reissuance.
d. Be defaced and sent to the secretary of state.
109. When control risk is assessed as low for assertions related to payroll,
substantive tests of payroll balances most likely would be limited to applying
analytical procedures and
a. Observing the distribution of paychecks.
b. Footing and crossfooting the payroll register.
c. Inspecting payroll tax returns.
d. Recalculating payroll accruals.
110. Which of the following circumstances most likely would cause an auditor to
suspect an employee payroll fraud scheme?
a. There are significant unexplained variances between standard and actual labor
cost.
b. Payroll checks are disbursed by the same employee each payday.
c. Employee time cards are approved by individual departmental supervisors.
d. A separate payroll bank account is maintained on an imprest basis.
111. In auditing payroll, an auditor most likely would
a. Verify that checks representing unclaimed wages are mailed.
b. Trace individual employee deductions to entity journal entries.
c. Observe entity employees during a payroll distribution.
d. Compare payroll costs with entity standards or budgets.
C.17. Subsequent Events
153. Which of the following procedures would an auditor most likely perform in
obtaining evidence about subsequent events?
a. Determine that changes in employee pay rates after year-end were properly
authorized.
b. Recompute depreciation charges for plant assets sold after year-end.
c. Inquire about payroll checks that were recorded before year-end but cashed after
year-end.
d. Investigate changes in long-term debt occurring after year-end.
154. Which of the following events occurring after the issuance of an auditors
report most likely would cause the auditor to make further inquiries about the
previously issued financial statements?
a. An uninsured natural disaster occurs that may affect the entitys ability to
continue as a going concern.
b. A contingency is resolved that had been disclosed in the audited financial
statements.
c. New information is discovered concerning undisclosed lease transactions of the
audited period.
d. A subsidiary is sold that accounts for 25% of the entitys consolidated net income.
155. Zero Corp. suffered a loss that would have a material effect on its financial
statements on an uncollectible trade account receivable due to a customers
bankruptcy. This occurred suddenly due to a natural disaster ten days after Zeros
balance sheet date, but one month before the issuance of the financial statements
and the auditors report. Under these circumstances,
156. After an audit report containing an unqualified opinion on a nonissuer
(nonpublic) clients financial statements was issued, the client decided to sell the
shares of a subsidiary that accounts for 30% of its revenue and 25% of its net
income. The auditor should
a. Determine whether the information is reliable and, if determined to be reliable,
request that revised financial statements be issued.
b. Notify the entity that the auditors report may no longer be associated with the
financial statements.
c. Describe the effects of this subsequently discovered information in a
communication with persons known to be relying on the financial statements.
d. Take no action because the auditor has no obligation to make any further
inquiries.
157. A client acquired 25% of its outstanding capital stock after year-end and prior
to completion of the auditors fieldwork. The auditor should
a. Advise management to adjust the balance sheet to reflect the acquisition.
b. Issue pro forma financial statements giving effect to the acquisition as if it had
occurred at year-end.
c. Advise management to disclose the acquisition in the notes to the financial
statements.
d. Disclose the acquisition in the opinion paragraph of the auditors report.
158. Which of the following procedures would an auditor most likely perform to
obtain evidence about the occurrence of subsequent events?
a. Confirming a sample of material accounts receivable established after year-end.
b. Comparing the financial statements being reported on with those of the prior
period.
c. Investigating personnel changes in the accounting department occurring after
year-end.
d. Inquiring as to whether any unusual adjustments were made after year-end.
159. Which of the following procedures should an auditor generally perform
regarding subsequent events?
a. Compare the latest available interim financial statements with the financial
statements being audited.
b. Send second requests to the clients customers who failed to respond to initial
accounts receivable confirmation requests.
c. Communicate material weaknesses in internal control to the clients audit
committee.