Question 1

Which of the following internal control activities is not usually performed in the accounts payable department?

Accepted Answer

Accounting for unused pre-numbered purchase orders and receiving reports is typically a function of the purchasing department or receiving department, not the accounts payable department. The accounts payable department is more directly involved in processing payments and managing invoices, not tracking unused documents.

Question 2

Which of the following is the most effective test of control to detect vouchers prepared for the payment of goods that were not received?

Accepted Answer

Matching of purchase order, receiving report, and supplier invoice provides evidence that the goods were received and the invoice is legitimate. This test ensures that the goods were received before payment is made. Counting goods upon receipt in the storeroom, comparison of goods received with goods requisitioned in the receiving department, and verification of vouchers for accuracy and approval in the internal audit department do not provide evidence of whether the goods were received or not.

Question 3

Which of the following procedures would be most likely to be considered a weakness in an entity's internal controls over payroll?

Accepted Answer

Allowing an employee who distributes payroll cheques to also be responsible for distributing unclaimed cheques creates a potential for fraud or misuse of the unclaimed cheques. This violates the principle of segregation of duties, which requires that no single individual should have control over two or more phases of a transaction or operation. The other options demonstrate appropriate controls, such as proper notification of employee terminations (A), appropriate authorization and segregation of duties for cheque signing (C), and proper documentation and approval for payroll expenses (D).

Question 4

An auditor who is testing IT controls in a payroll system would most likely use test data that contain conditions such as:

Accepted Answer

The auditor is testing IT controls in the payroll system, and invalid job numbers on time cards can directly relate to the IT controls in place for verifying employee hours and ensuring they are accurately recorded in the system. The other conditions listed are more related to manual controls outside of the IT system.

Question 5

To check the accuracy of the accounting records with regards to the recorded hours worked, an auditor would ordinarily compare time sheets with:

Accepted Answer

The auditor would compare time sheets with the time recorded in the payroll register to confirm the accuracy of the accounting records with regards to the recorded hours worked. This comparison would ensure that the correct amount of wages and salaries were paid and recorded in the books. Comparing time sheets with shop job time tickets, personnel records, or labour variance reports may not provide the same level of verification for the accuracy of recorded hours worked.

Question 6

Selected employee time cards that have been approved by supervisory personnel during the year are compared to the payroll register to ensure that they have been recorded.Which of the following assertions for payroll expense does this test?

Accepted Answer

The test described is a test of completeness, as it ensures that all approved time cards have been properly recorded in the payroll register.

Question 7

An approach to testing real-time processing of a computer-based information system is known as the integrated test facility (ITF) technique.This approach involves:

Accepted Answer

The integrated test facility (ITF) technique involves setting up a small set of records for a fictitious entity in the master files and then processing dummy transactions against the fictitious entity. This allows for testing of the real-time processing of the computer-based information system without risking any actual data or transactions. Therefore, the best choice is D.

Question 8

An auditor will use test data to gain certain assurances with respect to the:

Accepted Answer

Test data is used by auditors to evaluate the effectiveness of controls within a program, ensuring that the program processes data correctly and safeguards against errors and fraud.

Question 9

In a properly-designed purchasing process, the same employee most likely would match suppliers' invoices with receiving reports and also:

Accepted Answer

Matching suppliers' invoices with receiving reports and recomputing the calculations on suppliers' invoices are both part of the verification process to ensure that the amounts billed by suppliers are accurate and correspond to what was received. This helps in maintaining accurate financial records and preventing overpayments.

Question 10

Selected items from the payroll register are compared to employee time-cards that have been approved by supervisory personnel.Which of the following assertions for payroll expense does this test?

Accepted Answer

Comparing selected items from the payroll register to employee time-cards that have been approved by supervisory personnel tests whether the payroll expenses actually occurred (i.e. that employees actually worked and were paid for that work). Therefore, this test relates to the occurrence assertion.

Question 11

Which of the following is not among the errors that an auditor might include in the test data when auditing a client's IT system?

Accepted Answer

Differences in description of units of measure are not typically considered errors that an auditor would deliberately include in test data. The other options listed could be intentionally included by the auditor to test the IT system's controls and identify potential errors or weaknesses.

Question 12

Possible misstatements related to the occurrence assertion for payroll transactions include all of the following except:

Accepted Answer

The occurrence assertion for payroll transactions ensures that all payments made to employees are valid and genuine. Option A, B, and C provide examples of misstatements that violate the occurrence assertion. However, option D is related to the accuracy assertion because it involves payments being made at a rate higher than the authorized amount, which does not necessarily imply that the payment was not made to a valid employee.

Question 13

When reviewing the audit working papers of Coffee Ltd you find the following audit populations were used as the basis from which to select a random sample in response to an account balance, assertion at risk and an appropriate audit procedure.Which of these populations would be of most concern to you as being an inappropriate audit population, given the assertion at risk and the audit procedure selected?

Accepted Answer

Using the payroll file as the population for testing completeness of payroll is not appropriate, as it may not include all payroll transactions (e.g. cash payments or off-the-books payments). In addition, the procedure of matching hours worked with employee time sheets only tests the accuracy of the payroll, not completeness. A better population for testing completeness of payroll would be the general ledger accounting entries for payroll expenses.

Question 14

Auditing by testing the input and output of an IT system instead of the computer program itself will:

Accepted Answer

Auditing by testing the input and output of an IT system may not detect program errors that do not show up in the output sampled. This is because the errors may affect other parts of the program or may not be triggered by the input and output being tested. Therefore, relying only on input and output testing may not provide a complete picture of the program's functionality and potential errors.

Question 15

Tests designed to detect payroll payments made after the end of the year that have been incurred in the current year provide assurance about management's assertion of:

Accepted Answer

The test described is designed to detect payments that have been booked in the current year but were actually incurred in the following year. Therefore, the test provides assurance about the accuracy of cut-off, which refers to whether transactions have been recorded in the appropriate accounting period.

Question 16

In a daily computer run to update cheque account balances and to print out basic details on any customer account that was overdrawn, the overdrawn account of the computer programmer was never printed.Which of the following control procedures would have been most effective in detecting this irregularity?

Accepted Answer

Recompiling programs from approved source code and comparing them with those in use would detect unauthorized changes, such as those that might exclude a specific account from being printed.

Question 17

Tests of controls for the occurrence assertion for purchases include all of the following except:

Accepted Answer

Tracing a sample of vouchers to the purchases journal would be a test of completeness, not occurrence. The other answer choices are all tests of controls for the occurrence assertion for purchases.

Question 18

Jones Ltd has numerous customers. Each customer file contains name, address, credit limit and account balance. The auditor wishes to undertake a test of the automated control that does not allow account balance to exceed credit limit. The best procedure for the auditor to follow would be to: A. develop a program to compare credit limits with account balances and print out the details of any account with a balance exceeding its credit limit.

Accepted Answer

The best procedure for the auditor would be to develop a program to compare credit limits with account balances and print out the details of any account with a balance exceeding its credit limit. This would automate the process and ensure that all accounts are checked accurately and efficiently. Developing test data or requesting printouts of account balances would be time-consuming and less effective methods. Checking all account balances manually would be too time-consuming and may not be practical.

Question 19

Which of the following is a significant difference between the test data (test deck) approach and an integrated test facility (ITF)?

Accepted Answer

ITFs are processed on a live run basis, allowing for continuous testing within the actual system environment, whereas test data (test deck) is typically processed in a separate test environment.

Question 20

When testing a computerised accounting system, which of the following is not true of the test data approach?

Accepted Answer

The test data approach does not require testing all possible valid and invalid conditions, only those that are relevant to the auditor's objectives.

Quiz 8: Tests of Controls