Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Chapter 20, Problem 18.2MCQ
To determine
Identify thereason for which an auditor will introduce test data into a computerized payroll system to test internal controls.
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Students have asked these similar questions
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.
Control risk is the risk that a material misstatement in an account will not be prevented or detected on a timely basis by the client’s internal controls. The best controlto prevent or detect fictitious payroll transactions is to(1) use and account for prenumbered payroll checks.(2) obtain authorization from human resources for hiring, pay rate, job status andtermination.(3) verify internally authorized pay rates, computations, and agreement with thepayroll register.(4) conduct periodic independent bank reconciliations of the payroll bank account.
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?
Chapter 20 Solutions
Auditing And Assurance Services
Ch. 20 - Prob. 1RQCh. 20 - Prob. 2RQCh. 20 - Distinguish among a payroll master file, a W-2...Ch. 20 - Prob. 4RQCh. 20 - Prob. 5RQCh. 20 - Prob. 6RQCh. 20 - Prob. 7RQCh. 20 - Prob. 8RQCh. 20 - Prob. 9RQCh. 20 - Prob. 10RQ
Ch. 20 - Prob. 11RQCh. 20 - Prob. 12RQCh. 20 - Prob. 13RQCh. 20 - Prob. 14RQCh. 20 - Prob. 15RQCh. 20 - Prob. 16.1MCQCh. 20 - Prob. 16.2MCQCh. 20 - Prob. 16.3MCQCh. 20 - Prob. 17.1MCQCh. 20 - Prob. 17.2MCQCh. 20 - Prob. 17.3MCQCh. 20 - Prob. 18.1MCQCh. 20 - Prob. 18.2MCQCh. 20 - Prob. 18.3MCQCh. 20 - Prob. 19DQPCh. 20 - Prob. 20DQPCh. 20 - Prob. 21DQPCh. 20 - Prob. 22DQPCh. 20 - Prob. 23DQPCh. 20 - Prob. 24DQPCh. 20 - Prob. 25DQPCh. 20 - Prob. 26DQPCh. 20 - Prob. 27DQPCh. 20 - Prob. 28C
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- An 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_forward6. 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_forwardnternal Control Questionnaire Items: Assertions, Tests of Controls, and PossibleErrors or Frauds. Following is a selection of items from the payroll processing internalcontrol questionnaire in Exhibit 5.15.1. Are names of terminated employees reported in writing to the payroll department?2. Are authorizations for deductions signed by the employee on file?3. Is there a timekeeping department (function) independent of the payroll department?4. Are timekeeping and cost accounting records (such as hours, dollars) reconciled withpayroll department calculations of hours and wages?Required:For each of the four preceding questions:a. Identify the assertion to which the question applies.b. Specify one test of controls an auditor could use to determine whether the control wasoperating effectively.c. Provide an example of an error or fraud that could occur if the control were absent orineffective.d. Identify a substantive auditing procedure that could detect errors or frauds that couldresult from…arrow_forward
- List the supporting documents and records the auditorwill examine in a typical payroll audit in which the primary objective is to detect fraudarrow_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_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
- 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.arrow_forwardIn 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.arrow_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_forward
- Employee Embezzlement via Cash Receipts and Payment of Personal Expenses.Assume you have received a message from an informant regarding the following case. Your assignment is to write the “audit approach” portion of the case.a. Write a brief explanation of desirable controls, missing controls, and especially the kinds of “deviations” that might arise from the situation described in the case.b. Develop some procedures for obtaining evidence about existing controls, especially procedures that could discover deviations from controls. If there are no controls to test, then there are no procedures to perform. Then just move on to part (c). An audit “procedure” should instruct someone about the source(s) of evidence to obtain and the work to perform.c. Write some procedures for gathering evidence in this case.d. Write a short statement about the discovery you expect to accomplish with your procedures.The Extra Bank AccountThe Ourtown Independent School District, like all others, had formal,…arrow_forwardIn an automated payroll processing environment, a department manager substituted the time card for a terminated employee with a time card for a fictitious employee. The fictitious employee had the same pay rate and hours worked as the terminated employee. The best control technique to detect this action using employee identification numbers would be aa. batch total.b. record count.c. hash total.d. subsequent check.e. financial total.arrow_forwardThe 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.arrow_forward
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