If a client relies on information technology (IT) controls and the auditor plans to assess control risk as low for payroll assertions, the auditor will usually do all of the following, EXCEPT _______. --test the effectiveness of manual controls --use computer-assisted audit techniques (CAATs) to evaluate the effectiveness of IT application controls --test the effectiveness of manual procedures to follow up on exceptions --All of the answer choices are correct.
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- Assume that management is gathering evidence as part of its process for assessing the effectiveness of internal control over financial reporting. The company is a manufacturer of high-dollar specialized Control Tested machines used in the medical profession. The following table identifies important controls that management is testing regarding accounts related to revenue recognition, accounts receivable, and other sales related activities. The first column describes the control, and the second column describes the test results. Based on the test results, determine the conclusion that management should likely make about the deficiency. (Is it a control deficiency, a significant deficiency, or a material weakness?)If a client uses ADP, a service center, for processing payroll, None of these. auditing standards require the auditor to test ADP’s controls since the service center application involves processing significant financial data. the auditor can assume that the controls are adequate because it is an independent enterprise. and the user auditor decides to rely on ADP’s auditor's report, the user auditor must make reference to the report of the service auditor in the opinion on the user organization's financial statements.Based on an assessment of audit risk, the auditors are concerned with the following two risks: The risk that that the client might be making duplicate payments to vendors. The risk that the client’s accounting clerk might be making unauthorized payments to himself. Required: a. Assuming that the client has a manual accounting system, describe how the auditors can design a test to identify the duplicate payments and unauthorized payments. b. Assuming that the client has an IT accounting system, describe how the auditors might use data analytic software to design a test to identify the duplicate payments and the unauthorized payments. c. Describe the advantages of using data analytics software to identify unusual transactions or entries.
- ased on an assessment of audit risk, the auditors are concerned with the following two risks: The risk that that the client might be making duplicate payments to vendors. The risk that the client’s accounting clerk might be making unauthorized payments to himself. Required: a. Assuming that the client has a manual accounting system, describe how the auditors can design a test to identify the duplicate payments and unauthorized payments. b. Assuming that the client has an IT accounting system, describe how the auditors might use data analytic software to design a test to identify the duplicate payments and the unauthorized payments. b. Assuming that the client has an IT accounting system, describe how the auditors might use data analytic software to design a test to identify the duplicate payments and the unauthorized payments.In the event of payroll fraud, discuss the suggestion that the human elements of control systems are frequently more important than the software elements in ensuring that records are correct.Items 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…
- 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.When an auditor tests the internal controls of a computerized accounting system, which of the following is true of the test data approach? A. Test data are coded to a dummy subsidiary so they can be extracted from the system under actual operating conditions. B. Test data programs need NOT be tailor-made by the auditor for each client's computer applications. C. Test data programs usually consist of all possible valid and invalid conditions reguarding compliance with internal controls. D. Test data are processed with the client's computer and the results are compared with the auditor's predetermined results.What 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?
- Ed 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.Assume that your audit partner has asked you to design detailed substantive testingprograms for the accounts receivable and sales; inventory; purchases and accountspayable; and payroll systems of Square Pharma. Your partner also asked you toincorporate all or some of the following types of tests: Specific analytical procedures,tests of detail (i.e. direct tests on balances and tests of transactions of a balance).While designing the testing programs, assume that the Tests of Control identifythe weaknesses as described in each of the following situations, but no other. Insummary:(a)Consider the control weaknesses for each subsystem as set out below; (b)Design and develop a substantive audit tests program using information fromlast three year annual reports and explain and justify your audit program in termsof audit objectives (also called 'audit assertions' )Note: The risk situations below are created for purposes of teaching and bear norelationship to events in Briscoe Group Ltd or any…The IT auditor can MOST (select one) effectively help a company deal with increasing IT-related risk by: a) Alerting management and the Audit Committee of the risks related to IT, and making audit recommendations that are focused on the root cause. b) Performing a weekly review of system-based audit logs to determine if the company has been breached. c) Ensuring that the company has a log-in banner that warns unauthorized users that they may be subject to criminal prosecution and penalties. d) Conducting an audit of the company's network security and pointing out weak firewall configuration settings in the audit report.