Question 1

You have been working on the audit of Big Insurance Company for several years now.There are about 5000 employees working at the company in various positions.
Your audit partner has indicated that this year,the firm will be implementing computer-assisted audit techniques (CAATs),using generalized audit software.The information systems audit specialist will be assisting the audit team with the implementation of these tests.She wants you to provide a draft list of CAATs that could assist with the coming year's audit of payroll.
The company uses mainframe computing systems.Assume that the typical payroll information is available on computer files (i.e. ,employee number,employee name,social insurance number,department code,payment type code (salaried or hourly),time worked,wage rate,gross pay,deductions (by type),net pay,and cheque number).
Required:
Prepare a list of potential computer-assisted audit techniques that could be prepared for the payroll audit.Identify the audit objective to which they relate and indicate if any manual procedures are required to supplement the suggested CAAT.

Accepted Answer

The answer of You have been working on the audit...

Question 2

When manufacturing labour affects inventory valuation,a knowledgeable manager should approve wage rate allocations to make sure that labour is distributed to the proper accounts.Which of the following controls helps to prevent error in the resulting job costing?

Accepted Answer

Independent comparison of the approved amounts to the data entered is the best control in this scenario as it ensures that the approved wage rate allocations have been accurately entered and prevents errors from going unnoticed. Comparison of wage rates to the authorized payroll master file, continuity check of payroll cheque numbers issued, and reconciliation of gross pay on the payroll register with gross pay according to the payroll master file are all important controls, but they do not directly address the issue of preventing errors in job costing resulting from inaccurate wage rate allocations.

Question 3

The auditor should review the preparation of at least one of each type of payroll tax form the client is responsible for filing,as a part of the auditor's responsibility for

Accepted Answer

Reviewing the preparation of payroll tax forms helps the auditor understand the client's internal controls related to payroll processing and tax compliance.

Question 4

The file for recording each payroll transaction for each employee and maintaining total employee wages paid for the year to date is the

Accepted Answer

The payroll master file is the correct answer because it is the comprehensive record that contains all payroll-related information for each employee, including personal information, pay rate, deductions, and year-to-date wages. This file is updated each pay period to reflect the most current payroll transactions.

Question 5

When labour is a material factor in inventory valuation,the auditor should place special emphasis on testing the internal controls concerning

Accepted Answer

The answer of When labour is a material factor in...

Question 6

The internal auditor is running a computer-assisted audit test that compares names and wage rates in the personnel files (stored on optical disk)with the wage rates in the payroll master file and the whole year's payroll transaction files.What is the purpose of these tests?

Accepted Answer

This test aims to identify discrepancies between personnel files and payroll records, particularly to catch instances where terminated employees might still be receiving payments, which would indicate a flaw in the payroll system or potential fraud.

Question 7

A weak internal control system allows a foreman to clock in daily for a fictitious employee and to approve the time card at the end of the payroll period.This fraud would be detected if other controls were in place,such as having an independent party

Accepted Answer

Distributing paychecks by an independent party would likely reveal the fraud because there would be an unclaimed paycheck, indicating a discrepancy that could lead to further investigation and uncover the fictitious employee. Other options focus on financial reconciliations and computations that might not directly expose the existence of a non-existent employee.

Question 8

A)There are several internal controls in the human resources and personnel function that are important from an audit perspective.For example,there should be an adequate investigation of the competence and trustworthiness of new employees.Discuss other internal controls in the personnel and employment function that are important from an audit perspective.B)There are several key internal controls over the timekeeping and payroll preparation function that should be present.For example,adequate control over the time on employees' time records includes the use of a time clock or other method of making certain that employees are paid for the number of hours they worked.Discuss other key internal controls over the timekeeping and payroll preparation function.C)There are several key internal controls over the payment of payroll function that should be present.For example,the payroll should be distributed by someone who is not involved in the other payroll functions.Discuss other key internal controls over the payment of payroll function.

Accepted Answer

The answer of A)There are several internal controls in the...

Question 9

Which of the following controls could help to prevent unauthorized overtime?

Accepted Answer

Reviewing a report that lists all employees working more than the required hours per week would help to identify unauthorized overtime. This control can help to ensure that all overtime is approved and authorized, preventing any unauthorized or unapproved overtime. The other choices are not directly related to preventing unauthorized overtime.

Question 10

Access rights management is important because it is the organization's method of

Accepted Answer

Access rights management is important because it helps in enforcing segregation of duties by ensuring that employees have access only to the data and systems necessary to perform their job functions. This helps in preventing fraud and errors by limiting access to sensitive data to only authorized personnel. The other options - establishing data tables usage, identifying master file data, and identifying transaction file data - are important aspects of data management, but they are not directly related to access rights management.

Question 11

Ricky recently changed jobs from payroll analyst to assistant regional manager of production.An employee at the production facility came to see Ricky and complained that he was not paid on the last payroll cheque for the overtime he had done.Ricky apologized for this mistake and logged into the payroll system to modify the next paycheque for the employee to ensure that he would be paid for the additional hours.Which of the following statements correctly applies to this scenario?

Accepted Answer

The company did not properly allocate access rights because Ricky, now an assistant regional manager of production, should not have access to modify payroll information, indicating a lapse in updating or restricting access based on his new role.

Question 12

Which of the following controls best prevents employees from checking in for more than one employee?

Accepted Answer

A personalized swipe card ensures that each employee has their own unique identification, making it difficult for someone to check in for someone else. The other options may deter fraudulent behavior but do not provide the same level of assurance as a personalized swipe card.

Question 13

Which of the following controls prevents error and helps to ensure that only authorized wages are paid by the payroll service provider?

Accepted Answer

Independent approval of the payroll journal prior to payroll payment release ensures that only authorized wages are paid by the payroll service provider. This control involves someone independent of the payroll process reviewing and approving the payroll journal before payments are released, thereby reducing the risk of errors or fraudulent payments. The other options are controls that may be used in the payroll process, but do not specifically address the prevention of errors or the authorization of wages.

Question 14

A wage rate form that also documents a change in job responsibility for one of the warehouse employees should be approved by

Accepted Answer

The warehouse supervisor should be involved in approving any changes in job responsibilities for warehouse employees, while human resources should be involved in approving any changes in wage rates or employment contracts. Therefore, the combination of the warehouse supervisor and human resources would be the best choice to approve a wage rate form that also documents a change in job responsibility for one of the warehouse employees.

Question 15

You have been working on the audit of Ballistic Defence Company for several years now.There are about 15 000 employees working at the company in various positions.
Recently,the company contracted for a new customized payroll system,which is to be implemented next month.You have been asked to assess the acceptance testing plan that is being prepared by accounting staff.In particular,they want you to help assess controls that will improve the accuracy of information entered into the new computer system.
The company uses mainframe computing systems.Assume that the typical payroll information is available on computer files (i.e. ,employee number,employee name,social insurance number,department code,payment type code (salaried or hourly),time worked,wage rate,gross pay,deductions (by type),net pay,and cheque number).
Required:
Identify the tests that should be conducted by the company's accounting staff with respect to accuracy before accepting the software.

Accepted Answer

The answer of You have been working on the audit...

Question 16

To minimize the opportunity for fraud,unclaimed salary cheques should be

Accepted Answer

Unclaimed salary cheques should be immediately returned for redeposit to minimize the opportunity for fraud. Keeping them in the payroll department, leaving them with the employee's supervisor or holding them for the employee in the personnel department can all present potential risks for fraudulent activity.

Question 17

The WhirlyGig Factory Ltd.manufactures whirly gigs of many different sizes and types.The company employs 55 employees,all paid on an hourly basis.Employees fill in time sheets and hand them in every Monday to the payroll clerk,Pamela.For factory employees,the time sheet shows the hours worked by product job number,and indicates if the job has been completed.The payroll clerk tracks the hours worked by job.When a job is complete,she compares the totals to the estimate made by the owner,Faruq.A bonus is paid for actual hours paid less than the estimated amount.
Every Wednesday,Pamela prepares the cheques and gives them to Faruq for signing.Pamela then staples the cheques to the payroll stubs.Pamela hands out the office cheques and gives the other cheques to the factory supervisor for distribution.
Required:A)Identify control weaknesses and their impact,and provide recommendations for improvement.B)What is the impact of the control weaknesses upon your audit approach?

Accepted Answer

The answer of The WhirlyGig Factory Ltd.manufactures whirly gigs of...

Question 18

Joan has been the payroll supervisor at York Distribution Company (YDC)for ten years.She has never missed a payroll and Farah,the owner of the company,is delighted with her conscientiousness and knowledge.This is particularly important,as Farah spends a lot of time on the road drumming up new business,and needs competent personnel back at the office.
There are two accounting personnel at the office,a receptionist,five shipping and receiving personnel,and thirty sales people employed by YDC.Office and shipping/receiving personnel are paid a salary,while the sales people are paid a monthly base salary plus a percentage of their sales,calculated quarterly.The base salary is low,at $20 000,with a 2% commission,calculated based on sales less any bad debts written off related to their customers.
Joan prints off the sales by customer every month and uses this information to calculate commissions.She then prepares the payroll cheques and gives them to Farah,who signs them and gives them to the sales staff at the monthly sales meeting.The cheques are written against a payroll imprest bank account,kept at a balance of $1000.This account is not reconciled,as the staff are very overworked with the increasing volume of business handled by the company.
Required:A)Identify control weaknesses and their impact,and provide recommendations for improvement.B)What is the impact of the control weaknesses upon your audit approach?

Accepted Answer

The answer of Joan has been the payroll supervisor at...

Question 19

The careful and timely preparation of all payroll withholdings and employer's portion of withholdings is necessary to avoid heavy fines.The most important control in the timely preparation of these returns is

Accepted Answer

A well-defined set of policies that indicate when each form must be filed is the most important control in ensuring timely preparation of payroll returns. Having clear guidelines and deadlines helps to ensure that the necessary steps are taken in a timely manner, reducing the risk of fines or penalties. Computerized preparation and independent verification can also be helpful tools, but they are not as crucial as having a clear policy in place. A Gantt chart may be useful for visualizing the timeline of tasks, but it is not necessary for timely preparation of payroll returns.

Question 20

To test whether the client has fulfilled its legal obligation in submitting payments for all payroll withholdings,the auditor must first

Accepted Answer

The answer of To test whether the client has fulfilled...

Quiz 15: Audit of the Human Resources and Payroll Cycle