Ch 12 - Quiz Flashcards
In testing controls over cash disbursements, an auditor would be most likely to determine that the person who signs checks also
A.) Is denied access to the supporting documents.
B.) Returns the checks to accounts payable.
C.) Is responsible for mailing the checks.
D.) Reviews the monthly bank reconciliation.
C.) Is responsible for mailing the checks.
To provide for adequate segregation of duties, the person who signs checks should also be responsible for mailing the checks. Having the signer mail the checks eliminates the opportunity for the check preparer or others with conflicting duties to modify and/or divert the checks before mailing.
When the shipping department returns nonconforming goods to a vendor, the purchasing department should send to the accounting department the
A.) Vendor invoice.
B.) Debit memo.
C.) Unpaid voucher.
D.) Credit memo.
B.) Debit memo.
A debit memo advises accounting that the vendor invoice should not be paid in full due to returned goods. When the shipping department returns nonconforming goods to a vendor, purchasing should send accounting a debit memo. An unpaid voucher represents unpaid payables; it would not be used to advise accounting of returned goods.
Jackson, the purchasing agent of Judd Hardware Wholesalers, has a relative who owns a retail hardware store. Jackson arranged for hardware to be delivered by manufacturers to the retail store on a COD basis thereby enabling his relative to buy at Judd’s wholesale prices. Jackson was probably able to accomplish this because of Judd’s poor internal control over
A.) Purchase requisitions.
B.) Purchase orders.
C.) Cash receipts.
D.) Perpetual inventory records.
B.) Purchase orders.
This answer is correct because proper control over purchases would require that ordered goods only be shipped to authorized locations; proper control would also determine that all ordered goods had been received by the firm. If purchase orders are issued by Judd and the purchases are never received, there is an internal control condition over the purchase orders. All purchase orders should be accounted for (prenumbered) and followed up to assure receipt of orders that are issued.
Which of the following payroll control activities would most effectively ensure that payment is made only for work performed?
A.) Have a payroll clerk recalculate all time cards.
B.) Require all employees to sign their time cards.
C.) Require employees to have their direct supervisors approve their time cards.
D.) Require all employees to record arrival and departure by using the time clock.
C.) Require employees to have their direct supervisors approve their time cards.
The approval of time cards by supervisors helps to ensure that payment is made only for work performed. The supervisor’s approval indicates that the employee has indeed worked the hours indicated on the time card. The approved hours per the time card will then be paid. Thus, payment is made only for work performed.
An auditor most likely would assess control risk at a high level if the payroll department supervisor is responsible for
A.) Examining authorization forms for new employees.
B.) Authorizing payroll rate changes for all employees.
C.) Hiring all subordinate payroll department employees.
D.) Comparing payroll registers with original batch transmittal data.
B.) Authorizing payroll rate changes for all employees.
The payroll department, which is essentially a recordkeeping function, should not also authorize payroll rate changes. Under strong internal control recordkeeping, authorization, and custody over assets should be segregated.
While the actual hiring of employees is normally done in the personnel department, allowing the payroll department supervisor to hire subordinates, with proper approval, is not as inconsistent with payroll’s recordkeeping function as is authorizing rate changes for all employees.
In determining the effectiveness of an entity’s controls relating to the existence or occurrence assertion for payroll transactions, an auditor most likely would inquire about and
A.) Recompute the payroll deductions for employee fringe benefits.
B.) Inspect evidence of accounting for prenumbered payroll checks.
C.) Verify the preparation of the monthly payroll account bank reconciliation.
D.) Observe the segregation of duties concerning personnel responsibilities and payroll disbursement.
D.) Observe the segregation of duties concerning personnel responsibilities and payroll disbursement.
Proper segregation of duties between personnel and payroll disbursement eliminates many frauds in which “phantom” employees are being paid.
An auditor vouched data for a sample of employees in a payroll register to approved clock card data to provide assurance that
A.) Controls relating to unclaimed payroll checks are operating effectively.
B.) Segregation of duties exists between the preparation and distribution of the payroll.
C.) Employees work the number of hours for which they are paid.
D.) Payments to employees are computed at authorized rates.
C.) Employees work the number of hours for which they are paid.
The clock card data provides the auditor with evidence on whether employees worked the number of hours for which the payroll register indicates they were paid.
Which of the following procedures represents a weakness in internal control for payroll?
A.) The payroll clerk distributes signed payroll checks. Undistributed checks are returned to the payroll department.
B.) The accounting department wires transfer funds to the payroll bank account. The transfer is based on totals from the payroll department summary.
C.) The payroll department prepares checks. The chief financial officer signs the payroll checks.
D.) The payroll department prepares checks using a signature plate. The treasurer supervises the process before payroll checks are distributed.
A.) The payroll clerk distributes signed payroll checks. Undistributed checks are returned to the payroll department.
This answer is correct because it is a weakness to have the payroll clerk distribute signed payroll checks and for the payroll department to maintain undistributed checks. Payroll checks should be distributed by a paymaster, and undistributed checks should be deposited in a bank account.
When auditing the payroll process, the auditor will normally want to understand:
A.) the extent to which a company is capital-intensive or labor-intensive.
B.) the predictability of the relationship between payroll expense and capital expenditures for the year.
C.) the relationship between net payroll and the company’s tax liability.
D.) the relationship between payroll and significant customers.
A.) the extent to which a company is capital-intensive or labor-intensive.
The purchasing process normally includes all of the following transactions:
A.) purchases on account, purchase returns, and cash receipts.
B.) purchases on account, purchase returns, and cash disbursements.
C.) purchases, inventory transactions, and cash receipts.
D.) purchases of inventory, plant and equipment, and depreciation.
B.) purchases on account, purchase returns, and cash disbursements.
Which of the following industries would have the greatest concerns about purchases cutoff at month-end, unrecorded liabilities, and accounting for advertising allowances provided by vendors?
A.) Manufacturer of construction equipment.
B.) Local school district.
C.) Hotel.
D.) Retail grocer.
D.) Retail grocer.
The internal document commonly used to record a credit purchase in the purchases journal is a:
A.) purchase order.
B.) vendor’s invoice.
C.) purchase requisition.
D.) voucher.
D.) voucher.
Which of the following controls would most likely prevent a vendor’s invoice from being paid twice?
A.) The software application compares information on the check with information on the receiving report.
B.) The software application compares the daily total in the cash disbursements journal with the total vouchers submitted for payment.
C.) The software application has a field that identifies a vendor’s invoice has been paid and the voucher number cannot be reused.
D.) An independent bank reconciliation is prepared.
C.) The software application has a field that identifies a vendor’s invoice has been paid and the voucher number cannot be reused.
Which of the following procedures is best for identifying unrecorded trade accounts payable?
A.) Reconciling vendors’ statements to the file of receiving reports to identify items received just prior to the balance sheet date.
B.) Examining unusual relationships between monthly accounts payable balances and recorded cash payments.
C.) Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period.
D.) Investigating payables recorded just prior to and just subsequent to the balance sheet date to determine whether they are supported by receiving reports.
C.) Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period.
If a company receives goods but waits to record the transaction until a vendor’s invoice is received, _______.
A.) purchases and accounts payable will be overstated
B.) purchases will be overstated and accounts payable will be understated
C.) purchases and accounts payable will be understated
D.) purchases will be understated and accounts payable will be overstated
C.) purchases and accounts payable will be understated
