7.4 Flashcards
Matthews Corp. has changed from a system of recording time worked on time clock cards to a computerized payroll system in which employees record time in and out with magnetic cards. The computer system automatically updates all payroll records. Because of this change
Part of the audit trail is altered.
In a manual payroll system, a paper trail of documents would be created to provide audit evidence that controls over each step in processing were operating effectively. One element of a computer system that differentiates it from a manual system is that a transaction trail useful for auditing purposes might exist only for a brief time or only in computer-readable form.
A receiving department receives copies of purchase orders for use in identifying and recording inventory receipts. The purchase orders list the name of the vendor and the quantities of the materials ordered. A possible error that this system could allow is
Overpayment for partial deliveries.
To ensure a fair count, the copy of the purchase order sent to the receiving clerk should not include quantities. The receiving clerk should count the items in the shipment and prepare a receiving report. Copies are sent to inventory control and accounts payable.
In a properly designed internal control system, the same employee most likely would match vendors’ invoices with receiving reports and also
Recompute the calculations on vendors’ invoices.
The vouchers payable clerk (1) matches purchase orders, vendors’ invoices, and receiving reports; (2) tests the calculations and terms on the vendors’ invoices; and (3) prepares a disbursement voucher.
The purpose of segregating the duties of hiring personnel and distributing payroll checks is to segregate the
Authorization of transactions from the custody of related assets.
In principle, the payroll function should be divided into its authorization, recording, and custody functions. Authorization of hiring, wage rates, and deductions is provided by human resources. Authorization of hours worked (executed by employees) is provided by production. Based upon these authorizations, accounting calculates and records the payroll. Based on the calculated amounts, the CFO prepares and distributes payroll checks.
The sampling unit in a test of controls pertaining to the occurrence of payroll transactions ordinarily is a(n)
Payroll register entry.
Determining whether payroll transactions occurred is an internal control objective of the human resources and payroll cycle. The payroll register records each payroll transaction for each employee. Thus, an entry in the payroll register is reconciled to time cards to test whether the recorded transaction actually occurred.
Which of the following procedures in the cash disbursements cycle should not be performed by the accounts payable department?
Cancelling the supporting documentation after payment.
Checks for disbursements should be signed by a responsible person in the cash disbursements department after necessary supporting evidence has been examined. This individual therefore should be responsible for canceling the supporting documentation after payment.
A purchasing agent places an order for inventory whenever a requisition is received from the warehouse. The warehouse clerk issues requisitions based on periodic physical counts because no perpetual records are maintained. Numerous duplicate orders have been placed for goods previously ordered but not received. To prevent this excess ordering, the firm should
Keep an adequate record of open purchase orders and review it before ordering.
A well-kept open purchase order file will provide information on outstanding orders and, if reviewed prior to ordering, will prevent duplicate orders.
In determining the effectiveness of an entity’s policies and procedures relating to the existence or occurrence assertion for payroll transactions, an auditor most likely would inquire about and
Observe the segregation of duties concerning human resources responsibilities and payroll disbursement.
In considering whether transactions actually occurred, the auditor is most concerned about the proper segregation of duties between the human resources department (authorization) and the payroll disbursement (custody function).
When the shipping department returns nonconforming goods to a vendor, the purchasing department should send to the accounting department the
debit memo.
A debit memo indicates a reduction in the amount owed to a vendor because goods have been returned. The debit memo authorizes the accounting department to debit the appropriate payable.
What is a possible consequence of an employee’s being able to visit the safe-deposit box unaccompanied?
The employee could pledge corporate investments as security for a short-term personal bank loan.
The bank should maintain a record, which can be inspected by company personnel, of all safe-deposit box visits. Access should be limited to authorized officers. Firms typically require the presence of two authorized persons for access to the box. This precaution provides supervisory control over, for example, the temporary removal of the securities to serve as a pledge for a loan (hypothecation of securities).
In a well-designed internal control system, employees in the same department most likely would approve purchase orders, and also
Negotiate terms with vendors.
In a well-designed internal control system, employees in the same department most likely would approve purchase orders, and also
Which of the following questions is inappropriate on an internal control questionnaire concerning purchase transactions?
Are intact cash receipts deposited daily in the bank?
The question about the daily deposit of intact cash receipts is related to the cash receipts cycle, not the purchases-payables-cash disbursements cycle.
Which of the following questions would an auditor most likely include on an internal control questionnaire for notes payable?
Are direct borrowings on notes payable authorized by the board of directors?
Control is enhanced when different persons or departments authorize, record, and maintain custody of assets for a class of transactions. Authorization of notes payable transactions is best done by the board of directors.
The client has equity securities classified as available for sale. The auditor is most concerned about controls related to
The determination of the fair value measurements of the securities.
The auditor should obtain an understanding of (1) the client’s process for the determination of fair value measurements and disclosures and (2) the relevant controls. Available-for-sale and trading securities are required to be reported at fair value by U.S. GAAP.
If a payroll system continues to pay employees who have been terminated, control weaknesses most likely exist because
There were inadequate manual controls maintained outside the computer system.
The authorization to pay employees comes from outside the computer department. Thus, ineffective controls external to the computer processing department are most likely the cause of allowing the payments to terminated employees to continue without detection.
