M6-Other Transaction Cycles Flashcards
An auditor reviews the reconciliation of payroll tax forms that a client is responsible for filing in order to identify potential liabilities for unpaid payroll taxes. (true or false)
true
The occurrence assertion as it relates to payroll transactions would correspond to an audit objective to determine that payroll transactions actually occurred (i.e., that all payroll checks were issued to valid employees for hours actually worked). Segregation of duties between personnel and payroll departments is an important control to ensure that only valid employees receive paychecks. (true or false)
true
If the control risk is assessed as low, less substantive testing is necessary. In such an instance, substantive testing would normally be limited to analytical procedures and recalculating year-end accruals. (true or false)
true
In auditing the granting of stock options, the auditor would normally trace the transactions to approval by the board of directors. (true or false)
true
If a client uses a stock transfer agent, confirmations should be used to provide evidence of shares authorized, issued, and outstanding, as well as to provide evidence of the individual transactions. (true or false)
true
The auditor reviews repair and maintenance expense accounts to test for completeness of asset additions (i.e., the auditor is looking for items recorded as repairs or maintenance that would more properly have been capitalized as betterment of an asset). (true or false)
true
The analytical procedure comparing payroll to standards or budgets is the substantive procedure most likely used for payroll. (true or false)
true
Analysis of repairs and maintenance expense provides assurance with regard to management’s assertion that expenditures for property and equipment have been capitalized and have not been charged to expense. (true or false)
true
An auditor’s purpose in reviewing the renewal of a note payable shortly after the balance sheet date most likely is to obtain evidence concerning management’s assertion about understandability and classification (i.e., classification of the note as current or concurrent.) (true or false)
true
To test controls pertaining to the existence of payroll transactions, entries in the payroll register would be the population from which the sample is selected. (To test existence, the auditor needs to start with the accounting records and vouch backward to the source documents.) (true or false)
true
If the employee who distributes payroll checks returns unclaimed checks to the payroll department, an unscrupulous payroll department employee might be able to set up a fictitious employee and convert the checks once they are returned to the payroll department. Unclaimed checks should be turned over to the cashier in the treasurer’s department. (true or false)
true
The purpose of segregating the duties of hiring personnel (personnel department/human resources) and distributing payroll checks (treasurer’s department) is to separate the authorization of transactions (hiring, pay rates, etc. are authorized by the personnel department/human resources) from the custody of related assets (cash or checks are held in the treasurer’s department). (true or false)
true
Investigations of variances in a formal budget might show maintenance costs over budget or acquisition costs under budget, either of which would trigger an investigation. (true or false)
true
If an auditor discovers that the original insurance policy on plant equipment is not available for inspection, this most likely indicates that there is a lien on the plant equipment, since the original policy would likely be in the possession of the lien holder. (true or false)
true
An internal control questionnaire for notes payable would likely ask if direct borrowings on notes payable are authorized by the board of directors. (true or false)
true
