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Worksheetskiem 1 NTHoa 1
Total questions: 70
Worksheet time: 35mins
Which of the following departments is most likely responsible for pay rate changes and changes in deductible amounts for employees?
general accounting department
human resources department
treasurer
controller
The payroll and personnel cycle ends with which of the following events?
interviewing job candidates
hiring a new employee
existing employees submitting requests for payment for work performed
issuance of paychecks
Which of the following includes all payroll transactions processed by the accounting system for a given period of time?
payroll journal
payroll transaction file
time report
payroll summary
Records that include data about employees such as employment date, performance ratings and pay rates are the
human resource records
employee screening forms.
summary payroll reports
employee folders.
Which of the following is not one of the business functions for the payroll and personnel cycle?
payment of payroll
timekeeping and payroll preparation
reconciliation of payroll account
human resources and employment
Actual interest expense is significantly higher than the auditor's estimate. This would most likely lead the auditor to conclude that the client has not
recorded all long-term interest bearing debt in the accounting records.
recorded all interest expense paid or accrued.
properly accounted for the discount of bonds payable account.
properly recorded interest income.
The total of the individual employee earnings in the payroll master file should equal the total
balance of gross payroll in general ledger accounts.
of the checks drawn to employees for payroll.
gross payroll plus the total contributed by the employer for payroll taxes.
gross pay for the current week's payroll.
Which department should be authorized to add and delete employees from the payroll or change pay rates and deductions?
the supervising department
the accounting department
the human resources department
the treasurer's department
Which of the following would have the least amount of importance regarding controls over the processing of payroll?
The person authorized to sign paychecks should not be otherwise involved in the preparation of the payroll.
A check-signing machine should not be used to replace a manual signature.
Distribution of pay checks should be performed by someone who is not involved in the other payroll functions.
Unclaimed paychecks should be immediately returned for redeposit.
An auditor is vouching a sample of hourly employees from the payroll master file to approved time clock or time sheet data in order to provide evidence that
employees work the number of hours for which they are paid.
payments are made at the contractual rate.
product cost information is accurate.
segregation of duties is present between the payroll function and the payment function for cash disbursements.
The primary concern in determining whether retained earnings is correctly disclosed on the balance sheet is
correct calculation of the net income or loss for the year.
whether prior-period adjustments have been made correctly
correct calculation of dividend payments for the year.
whether there are any restrictions on the payment of dividends.
When verifying if capital stock is accurately recorded,
the ending balance in the account does not need to verified.
the number of shares outstanding at the balance sheet date is verified by examining the corporate minutes.
the recorded par value can be determined by multiplying the number of shares by the market price of the stock.
a confirmation from the transfer agent is the simplest way to verify the number of shares outstanding at the balance sheet date.
Which of the following statements is correct regarding the audit of dividends?
The emphasis is on the ending balance in the dividends account.
When auditors verify that the dividends are paid to stockholders that exist, they are concerned with the completeness objective.
If the client uses a transfer agent to disburse dividends, the total can be traced to a cash disbursement entry to the agent and also confirmed.
All of the above are correct statements.
When conducting the audit of stockholders' equity, it is normal practice to verify all capital stock transactions
only when the client is small
that are in excess of a material amount.
if there aren't very many during the year.
regardless of the controls in existence, because of their materiality and permanence in the records.
If a company employs a capital stock registrar and/or transfer agent, the registrar or agent, or both, should be requested to confirm directly to the auditor the number of shares of each class of stock
surrendered and canceled during the year
authorized at the balance sheet date.
sold at a price above par during the year.
issued and outstanding at the balance sheet date.
An imprest petty cash fund would least likely be used to pay for which of the following items?
minor office supplies
monthly interest expense
stamps for small mailings
small contributions to a local charity
An imprest petty cash fund
is a bank account.
is used for large, unusual purchases.
is usually reimbursed at least once a week for good internal control.
is being replaced by pre-approved purchase cards in many companies.
Which of the following misstatements is most likely to be uncovered during an audit of a client's bank reconciliation?
duplicate payment of a vendor's invoice
billing a customer at a lower price than indicated by company policy
failure to record a collection of a note receivable by the bank on the client's behalf
payment to an employee for more than the hours actually worked
Which of the following is likely to be detected as part of the audit of the bank reconciliation?
failure to bill a customer
duplicate payment of a vendor invoice
cash received by the client after year-end, but included in cash receipts in the current year
an embezzlement of cash by intercepting cash receipts from customers before they are recorded
Which of the following would normally be discovered as part of the audit of the bank reconciliation?
failure to bill a customer
failure to include a deposit in transit on the bank reconciliation
duplicate payment of a vendor's invoice
payment to an employee for more hours than she worked
The general cash account is considered a significant account in almost all audits
where the ending balance is material.
even when the ending balance is immaterial.
except those of not-for-profit organizations.
where either the beginning or ending balance is material.
Which of the following is an accurate statement regarding cash?
The amount of cash flowing into and out of the cash account is often larger than that for any other account in the financial statements.
The susceptibility of cash to embezzlement is greater than that for other types of assets.
Auditors must verify whether recorded cash in the general ledger correctly reflects all cash transactions that took place during the year.
All of the above are accurate statements.
Which of the following cycles does not affect cash in bank?
capital acquisitions cycle
inventory and warehousing
payroll and personnel cycle
acquisitions and disbursements
The test of details of balances procedure that requires the auditor to trace the book balance on the reconciliation to the general ledger is an attempt to satisfy the audit objective of
detail tie-in.
existence
completeness
accuracy
Which of the following statements is correct?
Auditors must obtain bank confirmations for audits of nonpublic entities.
Auditors are required to obtain bank confirmations under international auditing standards.
Auditing standards do not address specific requirements regarding bank confirmations.
Auditing standards do not require bank confirmations.
A partial-period bank statement and the related copies of or digital access to cancelled checks, duplicate deposit slips, and other documents included in bank statements, mailed by the bank directly to the CPA firm's office, is called
a four-column proof of cash.
a year-end bank statement.
a cutoff bank statement.
a short-period bank statement
In addition to confirming bank balances of your audit client, a bank confirmation would normally contain
the client's bank loans with due date, interest rate, and collateral requested.
the client's credit history as regards to paying back loans.
the client's managements bank account information.
the client's business prospects
Which of the following balance-related audit objectives typically is assessed as having high inherent risk for cash?
existence
cutoff
detail tie-in
presentation and disclosure
Because cash is the most desirable asset for people to steal, it has a higher
control risk
inherent risk
detection risk
liquidity risk
The starting point for the verification of the balance in the general bank account is to obtain
a bank reconciliation from the client.
the client's cash account from the general ledger.
a cutoff bank statement directly from the bank.
the client's year-end bank statement.
Discussions with management regarding potential financial difficulties -
Evaluation of management's plans to avoid bankruptcy
Yes - Yes
Yes - No
No - Yes
No - No
There are three classes of transactions within the payroll cycle — salaried employees, hourly employees, and commissioned employees.
No No Yes
Yes No Yes
No Yes Yes
No Yes No
Which of the following departments is most likely responsible for pay rate changes and changes in deductible amounts for employees?
general accounting department
human resources department
treasurer
controller
The payroll and personnel cycle ends with which of the following events?
interviewing job candidates
hiring a new employee
existing employees submitting requests for payment for work performed
issuance of paychecks
Which of the following includes all payroll transactions processed by the accounting system for a given period of time?
payroll journal
payroll transaction file
time report
payroll summary
An imprest payroll account that has a significant balance may indicate the presence of
employees have not yet cashed their payroll checks.
fraudulent transfer of funds by the company.
lack of controls over payroll distribution.
the company is overpaying its employees.
Records that include data about employees such as employment date, performance ratings and pay rates are the
human resource records.
employee screening forms
summary payroll reports.
employee folders.
The computer file used for recording payroll transactions for each employee and maintaining total wages paid for the year to date is the
payroll transaction file
payroll master file.
payroll bank account reconciliation.
payroll tax returns
Which of the following is not one of the business functions for the payroll and personnel cycle?
payment of payroll
timekeeping and payroll preparation
reconciliation of payroll account
human resources and employment
The total of the individual employee earnings in the payroll master file should equal the total
balance of gross payroll in general ledger accounts.
of the checks drawn to employees for payroll.
gross payroll plus the total contributed by the employer for payroll taxes.
gross pay for the current week's payroll.
Which department should be authorized to add and delete employees from the payroll or change pay rates and deductions?
the supervising department
the accounting department
the human resources department
the treasurer's department
Employees will likely complain if underpaid. -- Payroll transactions are typically uniform and uncomplicated. -- Payroll transactions are subject to audit by federal and state governments.
Yes - Yes - Yes
No - Yes - No
No - No - Yes
Yes - No - No
Perform alternative procedures -- Send a second
Request -- Ask the client to communicate with the bank to ask them to complete and return the confirmation
No - Yes - yes
no no yes
yes no yes
yes yes no
All recorded cash disbursements were paid by the bank. -- All amounts that were paid by the bank were recorded.
yes yes
no no
yes no
no yes
Tests of details of balances -- Substantive tests of transactions -- Tests of controls
no yes yes
yes no yes
no yes no
yes no no
Perform alternative procedures -- Send a second
request -- Ask the client to communicate with the bank to ask them to complete and return the confirmation
no yes yes
no no yes
yes no yes
yes yes no
Rights -- Classification -- Realizable value
Yes no yes
no yes no
yes yes yes
no no no
Subsequent events that have a direct effect on the financial statements and require adjustment -- Subsequent events that do not have a direct effect on the financial statements but for which disclosure may be required
yes yes
no no
yes no
no yes
The date of the original last day of fieldwork only. -- The date of the subsequent event only. -- The date on which the last day of fieldwork occurred along with the date of the subsequent event.
yes yes no
no yes yes
no yes no
no no yes
When should auditors generally assess a client's ability to continue as a going concern?
upon completion of the audit
during the planning stages of the audit
throughout the entire audit process
during testing and completion phases of the audit
Auditing standards require that the auditor evaluate whether there is a substantial doubt about a client's ability to continue as a going concern for at least
one quarter beyond the balance sheet date.
one quarter beyond the date of the auditor's report
one year beyond the balance sheet date.
one year beyond the date of the auditor's report
Auditing standards require auditors to evaluate whether there is substantial doubt about a client's ability to continue as a going concern. One of the most important audit procedures to perform to assess the going concern question is
analytical procedures.
confirmations from creditors.
statistical sampling procedures
tests of internal controls
Which of the following statements regarding the letter of representation is not correct?
It is prepared on the client's letterhead.
It is addressed to the CPA firm.
It is signed by high-level corporate officials, usually the president and chief financial officer.
It is optional, not required, that the auditor obtain such a letter from management.
Refusal by a client to prepare and sign the representation letter would require the auditor to issue a(n)
qualified opinion or a disclaimer of opinion.
adverse opinion or a disclaimer of opinion.
qualified or an adverse opinion.
unqualified opinion with an explanatory paragraph.
A management representation letter is
prepared on the CPA's letterhead
addressed to the client.
signed by high-level corporate officials.
dated as of the balance sheet date.
Which of the following is correct regarding supplementary information?
The auditor must express an opinion on the supplementary information.
When reporting on supplementary information, the auditor uses a different materiality threshold from that used in forming an opinion on the basic financial statements.
If the auditor's report on the audited financial statements contains an adverse opinion, the auditor can still issue an unqualified opinion on the supplementary information.
The auditor can issue a separate report on the supplementary information; it does not need to be part of the report on the financial statements.
Which of the following is not one of the categories of items included in the letter of representation?
subsequent events
completeness of information
recognition, measurement, and disclosure
materiality
Which of the following audit procedures would most likely assist an auditor in identifying conditions and events that may indicate there could be substantial doubt about an entity's ability to continue as a going concern?
review compliance with the terms of debt agreements
confirmation of accounts receivable from principal customers
reconciliation of interest expense with debt outstanding
confirmation of bank balances
Which of the following statements is correct?
A letter of representation is documentation of management's acceptance of responsibility for the financial statements and is deemed to be reliable evidence.
A letter of representation is not deemed to be reliable evidence because of the potential incompetence of management
A letter of representation is documentation of the CPA's acceptance of responsibility for the audit of the financial statement and is deemed to be reliable.
A letter of representation is not deemed to be reliable evidence because it is a written statement from a non independent source.
Which of the following best describes the systems of internal control for payroll for large companies?
loosely structured but well controlled
loosely structured and loosely controlled
highly structured and well controlled
highly structured but loosely controlled
When testing for fraudulent hours or fraudulent expense reports
it is easy for the auditor to discover fraudulent hours because of the abundance of available evidence.
it is difficult to prevent fraud in these two areas with adequate internal controls.
management falsification of expense reports can be an indicator of disregard for internal controls and the potential for fraud in other areas
examining payroll records for approval is an important substantive tests of transactions to uncover fraudulent hours
The ________ has the responsibility for approving the number of hours worked for each employee.
employee's supervisor
human resources department
chief financial officer
budgeting supervisor
Which of the following audit procedures would be the most effective in testing for nonexistent employees?
Trace transactions recorded in the payroll journal to the human resources department to determine employment status
Examine cancelled checks for proper endorsement.
Recalculate net pay
Reconcile the disbursements in the payroll journal with the disbursements on the payroll bank statement.
The careful and timely preparation of all payroll tax returns is necessary to avoid penalties and criminal charges. The most important control in the timely preparation of these returns is
computerized preparation of tax returns
a well-defined set of policies that indicate when each form must be filed.
independent verification of computer output by a competent individual.
the use of an outside payroll service.
If an auditor wishes to test the completeness transaction-related audit objective in the payroll and personnel cycle, which of the following would be a reasonable test of control?
Account for a sequence of payroll checks.
Examine the procedures manual and observe the recording of transactions.
Examine the payroll records for indication of pay rate approval
Reconcile the payroll bank account.
Verifying that an adequate chart of accounts is used is a key internal control for the transaction-related objective of
classification
accuracy
existence
occurrence
Which of the following errors gives the auditor concern in auditing payroll transactions?
an error that indicates possible fraud
computational errors in formulas when a computerized system is used
classification errors in charging labor to inventory and job cost accounts
Each of the above gives the auditor significant concern.
The auditor's independent estimate of interest expense from notes payable uses average interest rates and
average notes payable outstanding.
year-end notes payable outstanding
only notes payable above the level of materiality.
only notes payable to major lenders.
The tests of details of balances procedure which requires the auditor to trace the totals of the notes payable list to the general ledger satisfies the audit objective of
accuracy
existence
detail tie-in.
completeness
The audit objective to determine that notes payable in the schedule actually exist is verified by the test of details of balances procedure to
foot the notes payable list.
confirm notes payable.
recalculate interest expense.
examine the balance sheet for proper disclosure of noncurrent portions.
