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TitleChapter 20
TagsAudit Cheque Employment Payroll Payroll Tax
File Size156.0 KB
Total Pages32
Document Text Contents
Page 17

26) Which of the following is not a procedure that can be performed on canceled checks in an
effort to detect defalcations?
A) Compare the endorsements on checks with authorized signatures.
B) Scan endorsements for unusual or recurring second endorsements.
C) Examine voided checks to be sure they haven't been used.
D) Examine the payroll records in subsequent periods to determine that terminated
employees are no longer being paid.
Answer: D
Terms: Not a procedure performed on canceled checks in effort to detect defalcations
Diff: Moderate
Objective: LO 20-3
AACSB: Reflective thinking skills

27) What potential problems may arise when an auditor considers the relationship between
payroll and inventory valuation?
A)

Improper
account

classification.

Improper
allocation to jobs

or processes.

Non-manufacturing payroll
expenses charged to

inventory.
Yes Yes Yes

B)
Improper
account

classification.

Improper
allocation to jobs

or processes.

Non-manufacturing payroll
expenses charged to

inventory.
No Yes No

C)
Improper
account

classification.

Improper
allocation to jobs

or processes.

Non-manufacturing payroll
expenses charged to

inventory.
No No Yes

D)
Improper
account

classification.

Improper
allocation to jobs

or processes.

Non-manufacturing payroll
expenses charged to

inventory.
Yes Yes No

Answer: D
Terms: Potential problems considering relationship between payroll and inventory valuation
Diff: Moderate
Objective: LO 20-3
AACSB: Reflective thinking skills

17
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Page 32

8) Once the auditor has determined the company's policy for accruing wages and knows it is
consistent with that of previous years, the appropriate audit procedure to test for cutoff and
accuracy is to:
A) recalculate the client's accruals.
B) compare the ledger balance with the journal and the tax form.
C) confirm the amount with employees.
D) compare the recorded accrued wages with the amount approved in the minutes of the
Board.
Answer: A
Terms: Audit procedure to test for cutoff and accuracy for accruing wages
Diff: Challenging
Objective: LO 20-5
AACSB: Reflective thinking skills

9) Mathews and Company has $112,000 in an accrued payroll account. The company's weekly
payroll is $186,700 and the accrual represents 3 days out o 5 working days. If the auditor has
determined that controls are effective over payroll, what additional work should the auditor
perform for this account?
Answer: 186,700 *0.60 (3/5) = 112,020 which is very close to the actual accrual of 112,000.
Auditor would accept the client balance with no further work.
Terms: Test of accruals
Diff: Moderate
Objective: LO 20-5
AACSB: Analytic skills

10) How do auditors commonly verify sales commission expense?
Answer: If all employees receive the same commission rate, then verifying the expense is
done by multiplying the commission rate by the amount of the sales. If there are different
commission rates, then the auditor will likely select a sample of employees to examine
separately on a monthly or annual basis.
Terms: Auditors verify sales commission expense
Diff: Moderate
Objective: LO 20-5
AACSB: Reflective thinking skills

11) The two major balance-related audit objectives in testing payroll liabilities are accuracy
and cutoff.
A) True
B) False
Answer: A
Terms: Balance-related audit objectives in testing payroll liabilities; Accuracy and cutoff
Diff: Moderate
Objective: LO 20-5
AACSB: Reflective thinking skills

12) In most audits, payroll tax expense is not tested because the audit risk does not justify the
time required to perform the tests.
A) True
B) False
Answer: A
Terms: Audit of payroll tax expense
Diff: Challenging
Objective: LO 20-5
AACSB: Reflective thinking skills

32
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

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