Test Bank for Auditing An International Approach 7 edition

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Test Bank for Auditing An International Approach 7 edition

 

c3

Student: ___________________________________________________________________________

1. Which of the following philosophical principles in ethics places emphasis on the importance of following rules rather than on weighing the consequences of actions?

A. Kantian principle.

 

B. Utilitarian principle.

 

C. Consequentialism principle.

 

D. Moral principle.

 

2. Which of the following philosophical principles of ethics places emphasis on the consequences of action, rather than on following the rules?

A. Imperative principle.

 

B. Utilitarianism principle.

 

C. Generalization principle.

 

D. Moral principle.

 

3. What is a key characteristic of critical thinking?

A. It is a means of eliminating alternatives to arrive at one right answer.

 

B. It requires making the right assumptions to support an argument.

 

C. It requires a questioning mind.

 

D. It is a means of picking out things wrong with another person’s argument.

 

4. The goal of the critical-thinking framework reflects ________.

A. independence

 

B. ideal audit virtues

 

C. skepticism

 

D. ethics

 

5. What is the meaning of the rule of professional conduct that requires an auditor to be objective?

A. The auditor may have a material, indirect financial interest in a client’s business as long as it does not affect his or her judgment.

 

B. The auditor has an obligation to CPA Canada to not use his or her training for personal advantage.

 

C. The auditor has an obligation to serve the needs of the audit client.

 

D. The auditor must have an attitude of professional skepticism toward an auditee’s management.

 

6. The CPA Ontario Rules of Professional Conduct contain both general ethical principles that are idealistic in character and also a ________.

A. list of violations that would cause the automatic suspension of a member’s license

 

B. set of specific, mandatory rules describing minimum levels of conduct required of members

 

C. description of the procedures to be followed by a member who must respond to an inquiry from the disciplinary committee

 

D. list of specific acts discreditable to the profession

 

7. Which of the following items is the most important principle in the “fundamental statements of accepted conduct”?

A. Maintain the reputation of the profession.

 

B. Act with due care.

 

C. Maintain independence.

 

D. Act with professional courtesy.

 

8. A complaint has been made against a member for an audit failure. If this complaint is found to have merit, under which CPA Ontario Rule of Professional Conduct is the member likely to be charged?

A. 202 Integrity and due care.

 

B. 204 Independence.

 

C. 210 Conflict of interest.

 

D. 215 Contingent fees.

 

9. A succinct, but comprehensive definition of independence is that an auditor ________.

A. must be independent in fact and in appearance in order to maintain credibility

 

B. must not have a direct financial interest in a client

 

C. must have a license to practice as a public accountant

 

D. must not take on as an audit client a company owned by a member of his or her immediate family

 

10. The familiarity threat refers to ________.

A. becoming too sympathetic to a client’s interests

 

B. providing assurance on one’s own work

 

C. promoting a client’s position or opinion

 

D. benefiting from a financial interest in a client

 

11. In the course of performing an audit, an auditor begins dating the CFO of the auditee. What kind of threat to independence might arise?

A. Self-review threat.

 

B. Self-interest threat.

 

C. Familiarity threat.

 

D. Intimidation threat.

 

12. A client’s management claims that they have to restrict an auditor’s access to a research laboratory to protect the safety of the auditor. This could be an example of a lack of ________.

A. programming independence

 

B. investigative independence

 

C. control independence

 

D. reporting independence

 

13. According to the profession’s rules of conduct, an auditor would be considered independent in which of the following instances?

A. The auditor is the officially appointed stock transfer agent of a client.

 

B. The auditor has a personal chequing account in a branch of a client bank.

 

C. The client has not paid its audit fees for the past three years.

 

D. The client is the only tenant in a commercial building owned by the auditor.

 

14. How can competence and due care best be described?

A. Competence and due care both refer to the PA doing their best for their clients.

 

B. Competence refers to technical ability; due care refers to strictly following official pronouncements of accounting principles.

 

C. Competence is knowing what do; due care is doing it to the best of one’s abilities.

 

D. Competence and due care both refer to ongoing technical training.

 

15. Regarding honorary positions in non-profit organizations, which of the following statements is FALSE?

A. Professional accountants can be honorary directors of charity hospitals, fund drives, symphony orchestra societies, and other non-profit organizations, as long as the position is purely honorary.

 

B. The professional accountant cannot be identified as an honorary director on letterheads and other literature.

 

C. The only form of participation is the use of the professional accountant’s name.

 

D. The professional accountant does not vote with the board or participate in management functions.

 

16. Which of the following statements regarding independence with respect to accounting and other services is FALSE?

A. If a professional accountant (PA) performs the bookkeeping and makes accounting decisions for a company and the management does not know enough about the financial statements to take primary responsibility for them, the PA cannot be considered independent for assurance services.

 

B. If a PA performs the bookkeeping and makes accounting decisions for a company and the management does not know enough about the financial statements to take primary responsibility for them, it might be perceived that the PA has both prepared the financial statements or other data and given an audit report or other assurance on his or her own work.

 

C. The PA cannot perform the bookkeeping for a company and also provide assurance services.

 

D. The PA can counsel the client management about the accounting principle choices, but in the final analysis the management must be able to say, “These are our financial statements (or other data); we made the choices of accounting principles; we take primary responsibility for them.”

 

17. In a study of law cases of accountants’ and auditors’ legal troubles, the greatest percentage arose from ________.

A. faulty implementation of audit procedures

 

B. client fraud

 

C. misinterpretation of accounting principles

 

D. fraud by the auditor

 

18. A private or civil wrong or injury is known as a ________.

A. breach

 

B. tort

 

C. misconduct

 

D. deceit

 

19. In common law actions, the burden of proof lies with the ________.

A. bailiff

 

B. defendant

 

C. plaintiff

 

D. jury

 

20. The failure to perform a duty with the requisite standard of care is known as _______.

A. lack of independence

 

B. negligence

 

C. lack of objectivity

 

D. misconduct

 

21. That a legal duty arises when there is a contractual agreement with the client is called ________.

A. standard of care

 

B. privity of contract

 

C. professionalism

 

D. independence

 

22. In addition to liabilities imposed by common law, auditors need also be concerned about what other type of liability?

A. Statutory law.

 

B. Tort law.

 

C. Professional liability.

 

D. Negligence.

 

23. If a party is found to be partially liable and thus only responsible for paying part of the damages relative to their share of the blame, this is known as ________.

A. due care

 

B. breaking even

 

C. proportionate liability

 

D. a tort

 

24. A letter where accountants sign that they have been notified that a particular recipient of the financial statements and audit report intends to rely upon them for particular purposes is known as a(n) ________.

A. management letter

 

B. compliance letter

 

C. reliance letter

 

D. engagement letter

 

25. Historically, auditors’ liability in Canada has been based on common law liability.

True    False

 

26. An ethical dilemma is one in which the choice of alternative actions affects the well-being of other persons.

True    False

 

27. “Let your conscience be your guide” is an ethical principle that fits all situations.

True    False

 

28. Consequentialism says that the right choice is the one that results in the greatest good for the greatest number of people.

True    False

 

29. Rules of professional conduct provide some direct solutions to specific, profession-related problems that may not be easily derived from general theories of ethics.

True    False

 

30. The “Rules of Professional Conduct, ” state the set of very specific rules that flow from the general principles and are considered to be minimum standards.

True    False

 

31. The “Rules of Professional Conduct” for professional accountants apply to services performed by members in both public and private practice.

True    False

 

32. The fundamental principles of accepted conduct are only general guidelines; therefore, they are not as important as the specific rules.

True    False

 

33. If a professional accountant is convicted of a criminal offence or fraud, he or she is usually thrown out of the profession.

True    False

 

34. The codified “Rules of Professional Conduct” derives its authority from the CPA Canada Handbook.

True    False

 

35. If a public accountant (PA) performs the bookkeeping and makes accounting decisions for a company and the management does not know enough about the financial statements to take primary responsibility for them, the PA cannot be considered independent for assurance services.

True    False

 

36. Once public accountants (PAs) retire from a firm, they are no longer required to maintain independence from former clients.

True    False

 

37. Many users of audit reports expect auditors to detect fraud, theft, and illegal acts, and to report them publicly.

True    False

 

38. Legal liabilities of professional accountants arise only from lawsuits brought on the basis of the law of contracts.

True    False

 

39. The auditor has a duty of care to a company that hires the auditor and has a contract with him or her under privity of contract.

True    False

 

40. Auditors need not be concerned about statutory law liability.

True    False

 

41. Ethical theories can be divided into two types: monistic and pluralistic. Explain each.

 

 

 

 

42. What is professional skepticism?

 

 

 

 

43. It is sometimes said that there is a strong link between codes of conduct and GAAS. Explain.

 

 

 

 

44. Explain how CPA Ontario enforces the “fundamental statements of accepted conduct” and the “Rules of Professional Conduct.”

 

 

 

 

45. Summarize the professional competence and due care rules of the various codes of conduct.

 

 

 

 

46. Explain the difference among integrity, independence, and objectivity.

 

 

 

 

47. Identify five threats to the independence of a professional accountant.

 

 

 

 

48. Discuss how a public accountant (PA) can preserve independence while accepting an honorary position in non-profit organizations.

 

 

 

 

49. Discuss the rules relating to the provision of accounting and other services by a public accountant (PA).

 

 

 

 

50. When a professional accountant is sued, what is the lawsuit typically based on?

 

 

 

 

51. What is meant by “privity?”

 

 

 

 

52. What must a plaintiff prove regarding an action brought under common law against a PA?

 

 

 

 

53. What is joint and several liability?

 

 

 

 

 

 

c3 Key

1. Which of the following philosophical principles in ethics places emphasis on the importance of following rules rather than on weighing the consequences of actions?

A. Kantian principle.

 

B. Utilitarian principle.

 

C. Consequentialism principle.

 

D. Moral principle.

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Moderate
Learning Objective: 03-02 Explain the importance of the study of ethics in helping define auditor responsibilities.
Smieliauskas – Chapter 03 #1
Topic: 03-06 Philosophical Principles in Ethics
 

 

2. Which of the following philosophical principles of ethics places emphasis on the consequences of action, rather than on following the rules?

A. Imperative principle.

 

B. Utilitarianism principle.

 

C. Generalization principle.

 

D. Moral principle.

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 03-02 Explain the importance of the study of ethics in helping define auditor responsibilities.
Smieliauskas – Chapter 03 #2
Topic: 03-06 Philosophical Principles in Ethics
 

 

3. What is a key characteristic of critical thinking?

A. It is a means of eliminating alternatives to arrive at one right answer.

 

B. It requires making the right assumptions to support an argument.

 

C. It requires a questioning mind.

 

D. It is a means of picking out things wrong with another person’s argument.

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Moderate
Learning Objective: 03-03 Outline the characteristics of critical thinking.
Smieliauskas – Chapter 03 #3
Topic: 03-07 More on Critical Thinking
 

 

4. The goal of the critical-thinking framework reflects ________.

A. independence

 

B. ideal audit virtues

 

C. skepticism

 

D. ethics

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Moderate
Learning Objective: 03-03 Outline the characteristics of critical thinking.
Smieliauskas – Chapter 03 #4
Topic: 03-07 More on Critical Thinking
 

 

5. What is the meaning of the rule of professional conduct that requires an auditor to be objective?

A. The auditor may have a material, indirect financial interest in a client’s business as long as it does not affect his or her judgment.

 

B. The auditor has an obligation to CPA Canada to not use his or her training for personal advantage.

 

C. The auditor has an obligation to serve the needs of the audit client.

 

D. The auditor must have an attitude of professional skepticism toward an auditee’s management.

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Moderate
Learning Objective: 03-03 Outline the characteristics of critical thinking.
Smieliauskas – Chapter 03 #5
Topic: 03-07 More on Critical Thinking
 

 

6. The CPA Ontario Rules of Professional Conduct contain both general ethical principles that are idealistic in character and also a ________.

A. list of violations that would cause the automatic suspension of a member’s license

 

B. set of specific, mandatory rules describing minimum levels of conduct required of members

 

C. description of the procedures to be followed by a member who must respond to an inquiry from the disciplinary committee

 

D. list of specific acts discreditable to the profession

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 03-04 Describe the purpose and contents of the codes of professional ethics established by the various professional accounting associations.
Smieliauskas – Chapter 03 #6
Topic: 03-08 Codes of Professional Ethics
 

 

7. Which of the following items is the most important principle in the “fundamental statements of accepted conduct”?

A. Maintain the reputation of the profession.

 

B. Act with due care.

 

C. Maintain independence.

 

D. Act with professional courtesy.

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Moderate
Learning Objective: 03-04 Describe the purpose and contents of the codes of professional ethics established by the various professional accounting associations.
Smieliauskas – Chapter 03 #7
Topic: 03-10 Serving the Public Interest
 

 

8. A complaint has been made against a member for an audit failure. If this complaint is found to have merit, under which CPA Ontario Rule of Professional Conduct is the member likely to be charged?

A. 202 Integrity and due care.

 

B. 204 Independence.

 

C. 210 Conflict of interest.

 

D. 215 Contingent fees.

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Moderate
Learning Objective: 03-04 Describe the purpose and contents of the codes of professional ethics established by the various professional accounting associations.
Smieliauskas – Chapter 03 #8
Topic: 03-08 Codes of Professional Ethics
 

 

9. A succinct, but comprehensive definition of independence is that an auditor ________.

A. must be independent in fact and in appearance in order to maintain credibility

 

B. must not have a direct financial interest in a client

 

C. must have a license to practice as a public accountant

 

D. must not take on as an audit client a company owned by a member of his or her immediate family

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Easy
Learning Objective: 03-05 Explain the importance of an independence framework for auditors.
Smieliauskas – Chapter 03 #9
Topic: 03-12 Independence and Objectivity
 

 

10. The familiarity threat refers to ________.

A. becoming too sympathetic to a client’s interests

 

B. providing assurance on one’s own work

 

C. promoting a client’s position or opinion

 

D. benefiting from a financial interest in a client

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 03-05 Explain the importance of an independence framework for auditors.
Smieliauskas – Chapter 03 #10
Topic: 03-12 Independence and Objectivity
 

 

11. In the course of performing an audit, an auditor begins dating the CFO of the auditee. What kind of threat to independence might arise?

A. Self-review threat.

 

B. Self-interest threat.

 

C. Familiarity threat.

 

D. Intimidation threat.

 

Accessibility: Keyboard Navigation
Blooms: Application
Difficulty: Easy
Learning Objective: 03-05 Explain the importance of an independence framework for auditors.
Smieliauskas – Chapter 03 #11
Topic: 03-12 Independence and Objectivity
 

 

12. A client’s management claims that they have to restrict an auditor’s access to a research laboratory to protect the safety of the auditor. This could be an example of a lack of ________.

A. programming independence

 

B. investigative independence

 

C. control independence

 

D. reporting independence

 

Accessibility: Keyboard Navigation
Blooms: Application
Difficulty: Moderate
Learning Objective: 03-05 Explain the importance of an independence framework for auditors.
Smieliauskas – Chapter 03 #12
Topic: 03-12 Independence and Objectivity
 

 

13. According to the profession’s rules of conduct, an auditor would be considered independent in which of the following instances?

A. The auditor is the officially appointed stock transfer agent of a client.

 

B. The auditor has a personal chequing account in a branch of a client bank.

 

C. The client has not paid its audit fees for the past three years.

 

D. The client is the only tenant in a commercial building owned by the auditor.

 

Accessibility: Keyboard Navigation
Blooms: Application
Difficulty: Moderate
Learning Objective: 03-05 Explain the importance of an independence framework for auditors.
Smieliauskas – Chapter 03 #13
Topic: 03-13 Detailed Independence Rules
Topic: 03-14 Permitted Loans
 

 

14. How can competence and due care best be described?

A. Competence and due care both refer to the PA doing their best for their clients.

 

B. Competence refers to technical ability; due care refers to strictly following official pronouncements of accounting principles.

 

C. Competence is knowing what do; due care is doing it to the best of one’s abilities.

 

D. Competence and due care both refer to ongoing technical training.

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Easy
Learning Objective: 03-05 Explain the importance of an independence framework for auditors.
Smieliauskas – Chapter 03 #14
Topic: 03-16 Professional Competence and Due Care
 

 

15. Regarding honorary positions in non-profit organizations, which of the following statements is FALSE?

A. Professional accountants can be honorary directors of charity hospitals, fund drives, symphony orchestra societies, and other non-profit organizations, as long as the position is purely honorary.

 

B. The professional accountant cannot be identified as an honorary director on letterheads and other literature.

 

C. The only form of participation is the use of the professional accountant’s name.

 

D. The professional accountant does not vote with the board or participate in management functions.

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Moderate
Learning Objective: 03-05 Explain the importance of an independence framework for auditors.
Smieliauskas – Chapter 03 #15
Topic: 03-15 Other Issues Related to the Independence Principle
 

 

16. Which of the following statements regarding independence with respect to accounting and other services is FALSE?

A. If a professional accountant (PA) performs the bookkeeping and makes accounting decisions for a company and the management does not know enough about the financial statements to take primary responsibility for them, the PA cannot be considered independent for assurance services.

 

B. If a PA performs the bookkeeping and makes accounting decisions for a company and the management does not know enough about the financial statements to take primary responsibility for them, it might be perceived that the PA has both prepared the financial statements or other data and given an audit report or other assurance on his or her own work.

 

C. The PA cannot perform the bookkeeping for a company and also provide assurance services.

 

D. The PA can counsel the client management about the accounting principle choices, but in the final analysis the management must be able to say, “These are our financial statements (or other data); we made the choices of accounting principles; we take primary responsibility for them.”

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Moderate
Learning Objective: 03-05 Explain the importance of an independence framework for auditors.
Smieliauskas – Chapter 03 #16
Topic: 03-15 Other Issues Related to the Independence Principle
 

 

17. In a study of law cases of accountants’ and auditors’ legal troubles, the greatest percentage arose from ________.

A. faulty implementation of audit procedures

 

B. client fraud

 

C. misinterpretation of accounting principles

 

D. fraud by the auditor

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 03-06 Outline auditor legal responsibilities.
Smieliauskas – Chapter 03 #17
Topic: 03-20 Lawsuit Causes and Frequency
 

 

18. A private or civil wrong or injury is known as a ________.

A. breach

 

B. tort

 

C. misconduct

 

D. deceit

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 03-06 Outline auditor legal responsibilities.
Smieliauskas – Chapter 03 #18
Topic: 03-19 The Legal Environment and Auditor Legal Responsibilities
 

 

19. In common law actions, the burden of proof lies with the ________.

A. bailiff

 

B. defendant

 

C. plaintiff

 

D. jury

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 03-07 Outline the various types of common law liability for public accountants; citing specific case precedents.
Smieliauskas – Chapter 03 #19
Topic: 03-23 Characteristics of Common Law Actions
 

 

20. The failure to perform a duty with the requisite standard of care is known as _______.

A. lack of independence

 

B. negligence

 

C. lack of objectivity

 

D. misconduct

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 03-07 Outline the various types of common law liability for public accountants; citing specific case precedents.
Smieliauskas – Chapter 03 #20
Topic: 03-24 Four Elements of Negligence
 

 

21. That a legal duty arises when there is a contractual agreement with the client is called ________.

A. standard of care

 

B. privity of contract

 

C. professionalism

 

D. independence

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Moderate
Learning Objective: 03-07 Outline the various types of common law liability for public accountants; citing specific case precedents.
Smieliauskas – Chapter 03 #21
Topic: 03-24 Four Elements of Negligence
 

 

22. In addition to liabilities imposed by common law, auditors need also be concerned about what other type of liability?

A. Statutory law.

 

B. Tort law.

 

C. Professional liability.

 

D. Negligence.

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 03-07 Outline the various types of common law liability for public accountants; citing specific case precedents.
Smieliauskas – Chapter 03 #22
Topic: 03-25 Limited Liability Partnerships
 

 

23. If a party is found to be partially liable and thus only responsible for paying part of the damages relative to their share of the blame, this is known as ________.

A. due care

 

B. breaking even

 

C. proportionate liability

 

D. a tort

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Moderate
Learning Objective: 03-07 Outline the various types of common law liability for public accountants; citing specific case precedents.
Smieliauskas – Chapter 03 #23
Topic: 03-25 Limited Liability Partnerships
 

 

24. A letter where accountants sign that they have been notified that a particular recipient of the financial statements and audit report intends to rely upon them for particular purposes is known as a(n) ________.

A. management letter

 

B. compliance letter

 

C. reliance letter

 

D. engagement letter

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 03-07 Outline the various types of common law liability for public accountants; citing specific case precedents.
Smieliauskas – Chapter 03 #24
Topic: 03-24 Four Elements of Negligence
 

 

25. Historically, auditors’ liability in Canada has been based on common law liability.

TRUE

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 03-01 Outline the concept of auditor responsibilities.
Smieliauskas – Chapter 03 #25
Topic: 03-01 Introduction
 

 

26. An ethical dilemma is one in which the choice of alternative actions affects the well-being of other persons.

TRUE

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 03-02 Explain the importance of the study of ethics in helping define auditor responsibilities.
Smieliauskas – Chapter 03 #26
Topic: 03-03 Overview
Topic: 03-06 Philosophical Principles in Ethics
 

 

27. “Let your conscience be your guide” is an ethical principle that fits all situations.

FALSE

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 03-02 Explain the importance of the study of ethics in helping define auditor responsibilities.
Smieliauskas – Chapter 03 #27
Topic: 03-06 Philosophical Principles in Ethics
 

 

28. Consequentialism says that the right choice is the one that results in the greatest good for the greatest number of people.

FALSE

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 03-02 Explain the importance of the study of ethics in helping define auditor responsibilities.
Smieliauskas – Chapter 03 #28
Topic: 03-06 Philosophical Principles in Ethics
 

 

29. Rules of professional conduct provide some direct solutions to specific, profession-related problems that may not be easily derived from general theories of ethics.

TRUE

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Easy
Learning Objective: 03-04 Describe the purpose and contents of the codes of professional ethics established by the various professional accounting associations.
Smieliauskas – Chapter 03 #29
Topic: 03-08 Codes of Professional Ethics
 

 

30. The “Rules of Professional Conduct, ” state the set of very specific rules that flow from the general principles and are considered to be minimum standards.

TRUE

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 03-04 Describe the purpose and contents of the codes of professional ethics established by the various professional accounting associations.
Smieliauskas – Chapter 03 #30
Topic: 03-09 Rules of Professional Conduct
 

 

31. The “Rules of Professional Conduct” for professional accountants apply to services performed by members in both public and private practice.

FALSE

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 03-04 Describe the purpose and contents of the codes of professional ethics established by the various professional accounting associations.
Smieliauskas – Chapter 03 #31
Topic: 03-09 Rules of Professional Conduct
 

 

32. The fundamental principles of accepted conduct are only general guidelines; therefore, they are not as important as the specific rules.

FALSE

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 03-04 Describe the purpose and contents of the codes of professional ethics established by the various professional accounting associations.
Smieliauskas – Chapter 03 #32
Topic: 03-08 Codes of Professional Ethics
 

 

33. If a professional accountant is convicted of a criminal offence or fraud, he or she is usually thrown out of the profession.

TRUE

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Easy
Learning Objective: 03-04 Describe the purpose and contents of the codes of professional ethics established by the various professional accounting associations.
Smieliauskas – Chapter 03 #33
Topic: 03-10 Serving the Public Interest
 

 

34. The codified “Rules of Professional Conduct” derives its authority from the CPA Canada Handbook.

FALSE

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Easy
Learning Objective: 03-04 Describe the purpose and contents of the codes of professional ethics established by the various professional accounting associations.
Smieliauskas – Chapter 03 #34
Topic: 03-08 Codes of Professional Ethics
 

 

35. If a public accountant (PA) performs the bookkeeping and makes accounting decisions for a company and the management does not know enough about the financial statements to take primary responsibility for them, the PA cannot be considered independent for assurance services.

TRUE

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Moderate
Learning Objective: 03-05 Explain the importance of an independence framework for auditors.
Smieliauskas – Chapter 03 #35
Topic: 03-15 Other Issues Related to the Independence Principle
 

 

36. Once public accountants (PAs) retire from a firm, they are no longer required to maintain independence from former clients.

FALSE

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 03-05 Explain the importance of an independence framework for auditors.
Smieliauskas – Chapter 03 #36
Topic: 03-15 Other Issues Related to the Independence Principle
 

 

37. Many users of audit reports expect auditors to detect fraud, theft, and illegal acts, and to report them publicly.

TRUE

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 03-06 Outline auditor legal responsibilities.
Smieliauskas – Chapter 03 #37
Topic: 03-21 Audit Responsibilities
 

 

38. Legal liabilities of professional accountants arise only from lawsuits brought on the basis of the law of contracts.

FALSE

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 03-07 Outline the various types of common law liability for public accountants; citing specific case precedents.
Smieliauskas – Chapter 03 #38
Topic: 03-22 Liability Under Common Law
 

 

39. The auditor has a duty of care to a company that hires the auditor and has a contract with him or her under privity of contract.

TRUE

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Moderate
Learning Objective: 03-07 Outline the various types of common law liability for public accountants; citing specific case precedents.
Smieliauskas – Chapter 03 #39
Topic: 03-24 Four Elements of Negligence
 

 

40. Auditors need not be concerned about statutory law liability.

FALSE

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 03-07 Outline the various types of common law liability for public accountants; citing specific case precedents.
Smieliauskas – Chapter 03 #40
Topic: 03-25 Limited Liability Partnerships
 

 

41. Ethical theories can be divided into two types: monistic and pluralistic. Explain each.

Monistic theories assume that universal principles apply regardless of the specific facts. Pluralistic theories assume that there are no universal principles and that the best approach is to use the principles that are most relevant to a specific case.

 

Blooms: Knowledge
Difficulty: Moderate
Learning Objective: 03-02 Explain the importance of the study of ethics in helping define auditor responsibilities.
Smieliauskas – Chapter 03 #41
Topic: 03-06 Philosophical Principles in Ethics
 

 

42. What is professional skepticism?

The auditor’s tendency not to believe management assertions, but instead to find sufficient support for the assertions through appropriate audit evidence. It recognizes that circumstances causing the financial statements to be materially misstated may exist.

 

Blooms: Knowledge
Difficulty: Moderate
Learning Objective: 03-03 Outline the characteristics of critical thinking.
Smieliauskas – Chapter 03 #42
Topic: 03-07 More on Critical Thinking
 

 

43. It is sometimes said that there is a strong link between codes of conduct and GAAS. Explain.

Codes of conduct can be viewed as a means of fulfilling auditor responsibilities for GAAS and assurance standards.

 

Blooms: Application
Difficulty: Moderate
Learning Objective: 03-03 Outline the characteristics of critical thinking.
Smieliauskas – Chapter 03 #43
Topic: 03-07 More on Critical Thinking
 

 

44. Explain how CPA Ontario enforces the “fundamental statements of accepted conduct” and the “Rules of Professional Conduct.”

The fundamental statements of accepted conduct are positive principles that represent the image of ideal conduct. As a result, they are not enforceable. Rules of professional conduct are specific rules that delineate minimum acceptable behaviour. The rules are administered and enforced by the provincial institutes through professional conduct committees and disciplinary committees.

 

Blooms: Comprehension
Difficulty: Difficult
Learning Objective: 03-04 Describe the purpose and contents of the codes of professional ethics established by the various professional accounting associations.
Smieliauskas – Chapter 03 #44
Topic: 03-08 Codes of Professional Ethics
Topic: 03-09 Rules of Professional Conduct
 

 

45. Summarize the professional competence and due care rules of the various codes of conduct.

Professional competence: Undertake only those professional services that the member or the member’s firm can reasonably expect to be completed with professional competence.
Due professional care: Exercise due professional care in the performance of professional services.
Planning and supervision: Adequately plan and supervise the performance of professional services.
Sufficient relevant data: Obtain sufficient relevant data to afford a reasonable basis for conclusions or recommendations in relation to any professional services performed.

 

Blooms: Knowledge
Difficulty: Moderate
Learning Objective: 03-05 Explain the importance of an independence framework for auditors.
Smieliauskas – Chapter 03 #45
Topic: 03-16 Professional Competence and Due Care
 

 

46. Explain the difference among integrity, independence, and objectivity.

Integrity: Integrity is the duty to be honest and conscientious in performing professional services.

Independence: Independence is synonymous with objectivity. The term independence implies that that the person exhibiting the quality is free from bias or conflict of interest.

Objectivity: Objectivity is defined by CPA Ontario as being “free of any influence, interest, or relationship which, in respect of the engagement, impairs member’s professional judgement or objectivity or which, in the view of a reasonable observer” would do so. Like independence, the term objectivity implies freedom from bias or conflict of interest.

The important distinction when discussing independence, or objectivity, is the difference between fact and appearance. A person may be truly unbiased and free of conflict of interest-that is, objective in fact. This quality, however, is a mental attitude that is incapable of measurement or observation. As a result, public accountants must also be independent, or objective, in appearance; that is, any knowledgeable person observing the accountant’s actions should be able to conclude that the accountant is unbiased. Integrity is an overriding principle.

 

Blooms: Comprehension
Difficulty: Difficult
Learning Objective: 03-05 Explain the importance of an independence framework for auditors.
Smieliauskas – Chapter 03 #46
Topic: 03-12 Independence and Objectivity
 

 

47. Identify five threats to the independence of a professional accountant.

1. Self-review-providing assurance on his or her own work.
2. Self-interest-for example, benefiting from a financial interest in a client.
3. Advocacy-promoting a client’s position or opinion.
4. Familiarity-becoming too sympathetic to a client’s interests.
5. Intimidation-being deterred from acting objectively by actual or perceived threats from a client.

 

Blooms: Knowledge
Difficulty: Moderate
Learning Objective: 03-05 Explain the importance of an independence framework for auditors.
Smieliauskas – Chapter 03 #47
Topic: 03-12 Independence and Objectivity
 

 

48. Discuss how a public accountant (PA) can preserve independence while accepting an honorary position in non-profit organizations.

Ordinarily, independence is impaired if a PA serves on an organization’s board of directors. However, members can be honorary directors of charity hospitals, fund drives, symphony orchestra societies, and other non-profit organizations as long as (1) the position is purely honorary, (2) the PA is identified as an honorary director on letterheads and other literature, (3) the only form of participation is the use of the PA’s name, and (4) the PA does not vote with the board or participate in management functions. When all these criteria are satisfied, the PA/board member can perform assurance services because the appearances of independence will have been preserved.

 

Blooms: Comprehension
Difficulty: Moderate
Learning Objective: 03-05 Explain the importance of an independence framework for auditors.
Smieliauskas – Chapter 03 #48
Topic: 03-15 Other Issues Related to the Independence Principle
 

 

49. Discuss the rules relating to the provision of accounting and other services by a public accountant (PA).

If a PA performs the bookkeeping and makes accounting decisions for a company and the management does not know enough about the financial statements to take primary responsibility for them, the PA cannot be considered independent for assurance services. It might be perceived that the PA has both prepared the financial statements or other data and given an audit report or other assurance on his own work. The PA can perform the bookkeeping and counsel the client management about the accounting principle choices, but in the final analysis the management must be able to say, “These are our financial statements (or other data); we made the choices of accounting principles; we take primary responsibility for them.”

 

Blooms: Comprehension
Difficulty: Moderate
Learning Objective: 03-05 Explain the importance of an independence framework for auditors.
Smieliauskas – Chapter 03 #49
Topic: 03-15 Other Issues Related to the Independence Principle
 

 

50. When a professional accountant is sued, what is the lawsuit typically based on?

Legal liabilities of PAs arise from lawsuits brought on the basis of the law of contracts or as tort actions for negligence. Most lawsuits stem from a breach of contract claim that the accounting or auditing services were not performed as agreed.

 

Blooms: Knowledge
Difficulty: Easy
Learning Objective: 03-07 Outline the various types of common law liability for public accountants; citing specific case precedents.
Smieliauskas – Chapter 03 #50
Topic: 03-22 Liability Under Common Law
 

 

51. What is meant by “privity?”

The relationship of direct involvement between parties to a contract is known as privity. When privity exists, a plaintiff usually needs only to show that the defendant accountant was negligent, and showed a lack of reasonable care in the performance of professional accounting tasks.

 

Blooms: Knowledge
Difficulty: Moderate
Learning Objective: 03-07 Outline the various types of common law liability for public accountants; citing specific case precedents.
Smieliauskas – Chapter 03 #51
Topic: 03-24 Four Elements of Negligence
 

 

52. What must a plaintiff prove regarding an action brought under common law against a PA?

1) He or she was damaged or suffered a loss.
2) There was a beneficiary relationship with the defendant.
3) The financial statements were materially misleading or the accountant’s advice was faulty.
4) He or she relied on the statements or advice.
5) They were the direct cause of the loss.
6) The accountant was negligent, grossly negligent, deceitful, or otherwise responsible for the damage.

 

Blooms: Knowledge
Difficulty: Moderate
Learning Objective: 03-07 Outline the various types of common law liability for public accountants; citing specific case precedents.
Smieliauskas – Chapter 03 #52
Topic: 03-23 Characteristics of Common Law Actions
 

 

53. What is joint and several liability?

This is a doctrine that allows a successful plaintiff to recover the full amount of damage award from the defendants who have money or insurance. In other words, any of several defendants who have caused part of the damages are liable to the plaintiffs for the entire amount of damages. The accounting profession would like to replace this doctrine such that defendants pay damages only to the extent that they are at fault.

 

Blooms: Knowledge
Difficulty: Easy
Learning Objective: 03-07 Outline the various types of common law liability for public accountants; citing specific case precedents.
Smieliauskas – Chapter 03 #53
Topic: 03-24 Four Elements of Negligence
 

 

 

c3 Summary

Category # of Questions
Accessibility: Keyboard Navigation 40
Blooms: Application 4
Blooms: Comprehension 17
Blooms: Knowledge 32
Difficulty: Difficult 2
Difficulty: Easy 28
Difficulty: Moderate 23
Learning Objective: 03-01 Outline the concept of auditor responsibilities. 1
Learning Objective: 03-02 Explain the importance of the study of ethics in helping define auditor responsibilities. 6
Learning Objective: 03-03 Outline the characteristics of critical thinking. 5
Learning Objective: 03-04 Describe the purpose and contents of the codes of professional ethics established by the various professional accounting associations. 10
Learning Objective: 03-05 Explain the importance of an independence framework for auditors. 15
Learning Objective: 03-06 Outline auditor legal responsibilities. 3
Learning Objective: 03-07 Outline the various types of common law liability for public accountants; citing specific case precedents. 13
Smieliauskas – Chapter 03 53
Topic: 03-01 Introduction 1
Topic: 03-03 Overview 1
Topic: 03-06 Philosophical Principles in Ethics 6
Topic: 03-07 More on Critical Thinking 5
Topic: 03-08 Codes of Professional Ethics 6
Topic: 03-09 Rules of Professional Conduct 3
Topic: 03-10 Serving the Public Interest 2
Topic: 03-12 Independence and Objectivity 6
Topic: 03-13 Detailed Independence Rules 1
Topic: 03-14 Permitted Loans 1
Topic: 03-15 Other Issues Related to the Independence Principle 6
Topic: 03-16 Professional Competence and Due Care 2
Topic: 03-19 The Legal Environment and Auditor Legal Responsibilities 1
Topic: 03-20 Lawsuit Causes and Frequency 1
Topic: 03-21 Audit Responsibilities 1
Topic: 03-22 Liability Under Common Law 2
Topic: 03-23 Characteristics of Common Law Actions 2
Topic: 03-24 Four Elements of Negligence 6
Topic: 03-25 Limited Liability Partnerships 3

c13

Student: ___________________________________________________________________________

1. Production accounting generates important information for management decisions but also is a source of audit risk because ________.

A. production accountants may not be competent

 

B. production processes require a lot of allocations

 

C. goods produced may not be marketable

 

D. goods claimed as produced may not exist

 

2. Which of the following documents is NOT included in the payroll cycle?

A. payroll cheques

 

B. timekeeping records

 

C. termination notices

 

D. supplier invoices

 

3. Which of the following procedures carried out by the personnel department best reduces the risk of payroll fraud and represents an appropriate responsibility for the department?

A. Distributing paycheques.

 

B. Authorizing overtime hours.

 

C. Authorizing the addition or removal of employees from the payroll.

 

D. Collecting and retaining unclaimed paycheques.

 

4. The purpose of segregating the duties of hiring personnel and distributing payroll cheques is to separate the ________.

A. human resources function from the controllership function

 

B. administrative controls from the internal accounting controls

 

C. authorization of transactions from the custody of related assets

 

D. operational responsibility from the record-keeping responsibility

 

5. In the area of payroll, which of the following procedures represents proper control over the custody of assets?

A. The supervisor receives a copy of the payroll register for a chance to approve the payroll after it is completed.

 

B. Individual paycheques are prepared.

 

C. Unclaimed payroll cheques are held in the office of the chief financial officer.

 

D. Signatures from employees are obtained for calculation of deductions.

 

6. Small Corporation uses a Wages Clearing Account for its payroll disbursements. At the end of February, a reasonably large debit balance remained in this account. What is the most likely reason?

A. More labour cost had been assigned to the expense accounts than had been paid.

 

B. Some labour cost had not been properly classified in the expense accounts.

 

C. Some employees had not yet cashed their cheques.

 

D. Not enough cash had been transferred to the bank account.

 

7. An auditor is most likely to assess control risk at maximum if the payroll department supervisor is responsible for ________.

A. examining authorization forms for new employees

 

B. authorizing payroll rate changes for all employees

 

C. comparing payroll registers with original batch transmittal data

 

D. hiring all subordinate payroll department employees

 

8. Which of the following is most likely to approve changes in pay rates and deductions from employee salaries?

A. Personnel department.

 

B. Treasurer.

 

C. Controller.

 

D. Payroll department.

 

9. Which of the following is NOT a major risk in the payroll cycle?

A. Paying fictitious employees.

 

B. Paying employees more than a market wage.

 

C. Overpayment for time or production.

 

D. Incorrect accounting for costs and expenses.

 

10. Selecting a sample of time clock cards and examining them for evidence of approval by a supervisor then tracing the hours recorded to the payroll registers is a procedure designed to obtain evidence about the control objective(s) of ________.

A. validity only

 

B. authorization only

 

C. completeness only

 

D. authorization and completeness.

 

11. The sampling unit in a test of controls relating to the validity of payroll transactions is ordinarily a(n) ________.

A. clock card or time ticket

 

B. employee T-4 form

 

C. employee personnel record

 

D. payroll register entry

 

12. Tracing selected items from the payroll register to approved, employee time cards provides evidence that ________.

A. internal controls relating to payroll disbursements were operating effectively

 

B. payroll cheques were signed by an appropriate officer independent of the payroll preparation process

 

C. only bona fide employees worked and their pay was properly computed

 

D. employees worked the number of hours for which their pay was computed

 

13. To best ensure that employees are paid authorized rates, the auditor should trace wage rates from the ________.

A. master files to payroll journal

 

B. payroll journal to master files

 

C. personnel files to master files

 

D. cheque register to payroll journal

 

14. Selecting a sample of payroll summaries and vouching the details to time records is a procedure designed to test the control objective of ________.

A. environment

 

B. validity

 

C. completeness

 

D. classification

 

15. Which of the following would raise a red flag in the audit of payroll?

A. One person in the company is authorized to sign all payroll cheques.

 

B. The endorsement on a cancelled payroll cheque included the words “for deposit only” above the payee’s signature.

 

C. The endorsement on a cancelled payroll cheque included the signature of a supervisor below the signature of the payee.

 

D. A supervisor initialled the time card of an employee.

 

16. An auditor traces an employee’s name, job category, and employee number to authorized personnel records. This provides evidence of

A. Ownership.

 

B. Completeness.

 

C. Presentation.

 

D. Existence.

 

17. Which of the following accounts is not considered in the production cycle?

A. Inventory.

 

B. Cost of goods sold.

 

C. Amortization expense.

 

D. Sales.

 

18. A bill of materials is associated with which duty?

A. Authorization.

 

B. Custody.

 

C. Record keeping.

 

D. Periodic reconciliation.

 

19. Cost accounting can be performed by those who also ________.

A. authorize production

 

B. allocate overhead charges

 

C. have custody of assets

 

D. reconcile labour reports

 

20. Reconciling the open production cost reports to the work-in-process inventory control account is a procedure designed to test the control objective of ________.

A. environment

 

B. validity

 

C. completeness

 

D. authorization

 

21. Selecting a sample of job orders from the job cost summary and matching them to bills of material and the schedule of production labour requirements is a procedure designed to test the control objective of ________.

A. accounting

 

B. accuracy

 

C. completeness

 

D. validity

 

22. If controls over production accounting are found to be strong, an auditor can plan to do less testing over ________.

A. the existence assertion of inventory

 

B. the valuation assertion of inventory

 

C. the completeness assertion of inventory

 

D. the rights assertion over inventory

 

23. If auditors compare the gross profit margin by product and compare it with prior periods, this is an example of a(n)

A. Analytical procedure.

 

B. Inspection technique.

 

C. Presentation procedure.

 

D. Scanning technique.

 

24. Finished goods inventory is low in inherent risk since production is so well understood.

True    False

 

25. The payroll cycle starts with keeping track of attendance and ends with payment to the employee.

True    False

 

26. The payroll register is the primary original record for payroll accounting.

True    False

 

27. Federal Form T4 Summary is the employer’s annual federal employee remittance return.

True    False

 

28. A payroll “clearing account” is a temporary account that holds payroll transactions until final accounting entries are prepared.

True    False

 

29. One procedure in an audit program for tests of controls reads: “Select a sample of employees from the payroll register and vouch identification numbers, pay rates, and authorized deductions to the personnel files.” This procedure is designed to test the validity of payroll information for employees.

True    False

 

30. A test of the completeness objective is selecting a sample of payroll register entries and vouching them to employee data in the personnel files such as employee identification, rate of pay, and authorized deductions.

True    False

 

31. Overall production authorization starts with production planning, which usually is based on a sales forecast.

True    False

 

32. Most of the transactions in the production cycle are cost accounting allocations, unit cost determinations, and standard cost calculations.

True    False

 

33. A materials requisition is the document that authorizes the inventory custodian to release raw materials and supplies to production personnel.

True    False

 

34. Only supervisors have physical custody of materials, equipment, and labour while the production work is performed.

True    False

 

35. It is permissible for accounting personnel to authorize production orders since they do not have custody of the assets.

True    False

 

36. A test of the validity objective is to examine a sample of production cost reports and recalculate all costs entered.

True    False

 

37. Recalculating all costs entered on a sample of open and closed job cost reports is a test of the accuracy objective.

True    False

 

38. The five functional responsibilities for the payroll cycle are (1) personnel and labour relations, (2) supervision, (3) timekeeping and cost accounting, (4) payroll accounting, and (5) payroll distribution. For each responsibility, identify the type of duty or duties (authorization, custody, record-keeping, periodic reconciliation) associated with the function and briefly describe the activity involved.

 

 

 

 

39. The accounting department at Blue Manufacturing Limited receives production information at the end of each week. The production floor supervisor reports time and production data and the payroll department reports labour cost data. How will the accounting department use this information? Why?

 

 

 

 

40. What is a clearing account? What are the risks associated with this type of account?

 

 

 

 

41. Describe the major risk areas associated with the payroll cycle.

 

 

 

 

42. In the audit of payroll, auditors often examine the endorsements on a sample of cancelled payroll cheques. What is the purpose of this procedure?

 

 

 

 

43. Match each of the examples of specific control objectives in the production cycle listed 1 through 5 below with the appropriate general control objectives (A through G) and place the identifying letter in the space provided.

A. Validity
B. Completeness
C. Authorization
D. Accuracy
E. Accuracy
F. Classification
G. Proper period cutoff

____1. Entries derived from job cost sheets are subject to independent verification.
____2. Labour usage reports are compared to job time tickets.
____3. The production foreman is required to record all material and labour used as being either direct labour or indirect labour.
____4. Production reports summarizing material and labour used are prepared weekly and transmitted to the accounting department for recording in the correct accounting month.
____5. All documents are pre-numbered and the numerical sequence is accounted for.

 

 

 

 

44. Audit procedures to test controls over work-in-process inventory could include the procedures listed below. Match each of the procedures numbered 1 through 5 to the appropriate control objective (A through G) and place the identifying letter in the space provided.

A. Environment
B. Validity
C. Completeness
D. Authorization
E. Accuracy
F. Classification
G. Proper period

____1. Reconcile the open job cost sheets to the work-in-process inventory control account.
____2. For a sample of open and closed job cost sheets, vouch labour costs to job tickets and labour reports.
____3. For a sample of open and closed job cost sheets, compare labour reports to payroll summaries to ensure the transactions are recorded in the correct accounting month.
____4. Select a sample of production orders and examine for proper approvals.
____5. Select a sample of production orders and match details to bills of material and labour requirements.

 

 

 

 

 

 

c13 Key

1. Production accounting generates important information for management decisions but also is a source of audit risk because ________.

A. production accountants may not be competent

 

B. production processes require a lot of allocations

 

C. goods produced may not be marketable

 

D. goods claimed as produced may not exist

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 13-01 Describe the key risks of misstatement in the payroll and production processes.
Smieliauskas – Chapter 13 #1
Topic: 13-01 Risk Assessment for the Payroll and Production Processes
Topic: 13-02 Payroll Process
Topic: 13-03 Production Process
 

 

2. Which of the following documents is NOT included in the payroll cycle?

A. payroll cheques

 

B. timekeeping records

 

C. termination notices

 

D. supplier invoices

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 13-02 Describe the payroll process: typical transactions; account balances; source documents; and controls.
Smieliauskas – Chapter 13 #2
Topic: 13-04 Section I: Understanding the Payroll Process
Topic: 13-05 Audit Evidence in Management Reports and Files
 

 

3. Which of the following procedures carried out by the personnel department best reduces the risk of payroll fraud and represents an appropriate responsibility for the department?

A. Distributing paycheques.

 

B. Authorizing overtime hours.

 

C. Authorizing the addition or removal of employees from the payroll.

 

D. Collecting and retaining unclaimed paycheques.

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Moderate
Learning Objective: 13-02 Describe the payroll process: typical transactions; account balances; source documents; and controls.
Smieliauskas – Chapter 13 #3
Topic: 13-04 Section I: Understanding the Payroll Process
Topic: 13-05 Audit Evidence in Management Reports and Files
 

 

4. The purpose of segregating the duties of hiring personnel and distributing payroll cheques is to separate the ________.

A. human resources function from the controllership function

 

B. administrative controls from the internal accounting controls

 

C. authorization of transactions from the custody of related assets

 

D. operational responsibility from the record-keeping responsibility

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Moderate
Learning Objective: 13-02 Describe the payroll process: typical transactions; account balances; source documents; and controls.
Smieliauskas – Chapter 13 #4
Topic: 13-04 Section I: Understanding the Payroll Process
Topic: 13-05 Audit Evidence in Management Reports and Files
 

 

5. In the area of payroll, which of the following procedures represents proper control over the custody of assets?

A. The supervisor receives a copy of the payroll register for a chance to approve the payroll after it is completed.

 

B. Individual paycheques are prepared.

 

C. Unclaimed payroll cheques are held in the office of the chief financial officer.

 

D. Signatures from employees are obtained for calculation of deductions.

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 13-02 Describe the payroll process: typical transactions; account balances; source documents; and controls.
Smieliauskas – Chapter 13 #5
Topic: 13-04 Section I: Understanding the Payroll Process
Topic: 13-05 Audit Evidence in Management Reports and Files
 

 

6. Small Corporation uses a Wages Clearing Account for its payroll disbursements. At the end of February, a reasonably large debit balance remained in this account. What is the most likely reason?

A. More labour cost had been assigned to the expense accounts than had been paid.

 

B. Some labour cost had not been properly classified in the expense accounts.

 

C. Some employees had not yet cashed their cheques.

 

D. Not enough cash had been transferred to the bank account.

 

Accessibility: Keyboard Navigation
Blooms: Application
Difficulty: Difficult
Learning Objective: 13-02 Describe the payroll process: typical transactions; account balances; source documents; and controls.
Smieliauskas – Chapter 13 #6
Topic: 13-04 Section I: Understanding the Payroll Process
Topic: 13-05 Audit Evidence in Management Reports and Files
 

 

7. An auditor is most likely to assess control risk at maximum if the payroll department supervisor is responsible for ________.

A. examining authorization forms for new employees

 

B. authorizing payroll rate changes for all employees

 

C. comparing payroll registers with original batch transmittal data

 

D. hiring all subordinate payroll department employees

 

Accessibility: Keyboard Navigation
Blooms: Application
Difficulty: Difficult
Learning Objective: 13-03 Describe of control tests for auditing control over hiring; firing; and payment of employees in the payroll process.
Smieliauskas – Chapter 13 #7
Topic: 13-06 Control Risk Assessment
Topic: 13-07 General Control Considerations
Topic: 13-08 Control Tests
Topic: 13-09 Summary: Control Risk Assessment
 

 

8. Which of the following is most likely to approve changes in pay rates and deductions from employee salaries?

A. Personnel department.

 

B. Treasurer.

 

C. Controller.

 

D. Payroll department.

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 13-03 Describe of control tests for auditing control over hiring; firing; and payment of employees in the payroll process.
Smieliauskas – Chapter 13 #8
Topic: 13-06 Control Risk Assessment
Topic: 13-07 General Control Considerations
Topic: 13-08 Control Tests
Topic: 13-09 Summary: Control Risk Assessment
 

 

9. Which of the following is NOT a major risk in the payroll cycle?

A. Paying fictitious employees.

 

B. Paying employees more than a market wage.

 

C. Overpayment for time or production.

 

D. Incorrect accounting for costs and expenses.

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 13-03 Describe of control tests for auditing control over hiring; firing; and payment of employees in the payroll process.
Smieliauskas – Chapter 13 #9
Topic: 13-06 Control Risk Assessment
Topic: 13-07 General Control Considerations
Topic: 13-08 Control Tests
Topic: 13-09 Summary: Control Risk Assessment
 

 

10. Selecting a sample of time clock cards and examining them for evidence of approval by a supervisor then tracing the hours recorded to the payroll registers is a procedure designed to obtain evidence about the control objective(s) of ________.

A. validity only

 

B. authorization only

 

C. completeness only

 

D. authorization and completeness.

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 13-03 Describe of control tests for auditing control over hiring; firing; and payment of employees in the payroll process.
Smieliauskas – Chapter 13 #10
Topic: 13-06 Control Risk Assessment
Topic: 13-07 General Control Considerations
Topic: 13-08 Control Tests
Topic: 13-09 Summary: Control Risk Assessment
 

 

11. The sampling unit in a test of controls relating to the validity of payroll transactions is ordinarily a(n) ________.

A. clock card or time ticket

 

B. employee T-4 form

 

C. employee personnel record

 

D. payroll register entry

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Moderate
Learning Objective: 13-03 Describe of control tests for auditing control over hiring; firing; and payment of employees in the payroll process.
Smieliauskas – Chapter 13 #11
Topic: 13-06 Control Risk Assessment
Topic: 13-07 General Control Considerations
Topic: 13-08 Control Tests
Topic: 13-09 Summary: Control Risk Assessment
 

 

12. Tracing selected items from the payroll register to approved, employee time cards provides evidence that ________.

A. internal controls relating to payroll disbursements were operating effectively

 

B. payroll cheques were signed by an appropriate officer independent of the payroll preparation process

 

C. only bona fide employees worked and their pay was properly computed

 

D. employees worked the number of hours for which their pay was computed

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Moderate
Learning Objective: 13-03 Describe of control tests for auditing control over hiring; firing; and payment of employees in the payroll process.
Smieliauskas – Chapter 13 #12
Topic: 13-06 Control Risk Assessment
Topic: 13-07 General Control Considerations
Topic: 13-08 Control Tests
Topic: 13-09 Summary: Control Risk Assessment
 

 

13. To best ensure that employees are paid authorized rates, the auditor should trace wage rates from the ________.

A. master files to payroll journal

 

B. payroll journal to master files

 

C. personnel files to master files

 

D. cheque register to payroll journal

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Moderate
Learning Objective: 13-03 Describe of control tests for auditing control over hiring; firing; and payment of employees in the payroll process.
Smieliauskas – Chapter 13 #13
Topic: 13-06 Control Risk Assessment
Topic: 13-07 General Control Considerations
Topic: 13-08 Control Tests
Topic: 13-09 Summary: Control Risk Assessment
 

 

14. Selecting a sample of payroll summaries and vouching the details to time records is a procedure designed to test the control objective of ________.

A. environment

 

B. validity

 

C. completeness

 

D. classification

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Moderate
Learning Objective: 13-03 Describe of control tests for auditing control over hiring; firing; and payment of employees in the payroll process.
Smieliauskas – Chapter 13 #14
Topic: 13-06 Control Risk Assessment
Topic: 13-07 General Control Considerations
Topic: 13-08 Control Tests
Topic: 13-09 Summary: Control Risk Assessment
 

 

15. Which of the following would raise a red flag in the audit of payroll?

A. One person in the company is authorized to sign all payroll cheques.

 

B. The endorsement on a cancelled payroll cheque included the words “for deposit only” above the payee’s signature.

 

C. The endorsement on a cancelled payroll cheque included the signature of a supervisor below the signature of the payee.

 

D. A supervisor initialled the time card of an employee.

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Moderate
Learning Objective: 13-03 Describe of control tests for auditing control over hiring; firing; and payment of employees in the payroll process.
Smieliauskas – Chapter 13 #15
Topic: 13-06 Control Risk Assessment
Topic: 13-07 General Control Considerations
Topic: 13-08 Control Tests
Topic: 13-09 Summary: Control Risk Assessment
 

 

16. An auditor traces an employee’s name, job category, and employee number to authorized personnel records. This provides evidence of

A. Ownership.

 

B. Completeness.

 

C. Presentation.

 

D. Existence.

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 13-04 Give examples of the typical substantive procedures used to address the assessed risk of material misstatement in the main accounts in the payroll process.
Smieliauskas – Chapter 13 #16
Topic: 13-10 Substantive Audit Program for Payroll
Topic: 13-11 Analysis of Financial Statement Relationships
Topic: 13-12 Misstatement Analysis
 

 

17. Which of the following accounts is not considered in the production cycle?

A. Inventory.

 

B. Cost of goods sold.

 

C. Amortization expense.

 

D. Sales.

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 13-05 Describe the production process: typical transactions; account balances; source documents; and controls.
Smieliauskas – Chapter 13 #17
Topic: 13-13 Section II: Understanding the Production Process
Topic: 13-14 Audit Evidence in Management Reports and Files
 

 

18. A bill of materials is associated with which duty?

A. Authorization.

 

B. Custody.

 

C. Record keeping.

 

D. Periodic reconciliation.

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 13-05 Describe the production process: typical transactions; account balances; source documents; and controls.
Smieliauskas – Chapter 13 #18
Topic: 13-13 Section II: Understanding the Production Process
Topic: 13-14 Audit Evidence in Management Reports and Files
 

 

19. Cost accounting can be performed by those who also ________.

A. authorize production

 

B. allocate overhead charges

 

C. have custody of assets

 

D. reconcile labour reports

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Moderate
Learning Objective: 13-05 Describe the production process: typical transactions; account balances; source documents; and controls.
Smieliauskas – Chapter 13 #19
Topic: 13-13 Section II: Understanding the Production Process
Topic: 13-14 Audit Evidence in Management Reports and Files
 

 

20. Reconciling the open production cost reports to the work-in-process inventory control account is a procedure designed to test the control objective of ________.

A. environment

 

B. validity

 

C. completeness

 

D. authorization

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 13-06 Describe control tests for auditing control over conversion of materials and labour in the production process.
Smieliauskas – Chapter 13 #20
Topic: 13-15 Control Risk Assessment
Topic: 13-16 General Control Considerations
Topic: 13-17 Control Tests
 

 

21. Selecting a sample of job orders from the job cost summary and matching them to bills of material and the schedule of production labour requirements is a procedure designed to test the control objective of ________.

A. accounting

 

B. accuracy

 

C. completeness

 

D. validity

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 13-06 Describe control tests for auditing control over conversion of materials and labour in the production process.
Smieliauskas – Chapter 13 #21
Topic: 13-15 Control Risk Assessment
Topic: 13-16 General Control Considerations
Topic: 13-17 Control Tests
 

 

22. If controls over production accounting are found to be strong, an auditor can plan to do less testing over ________.

A. the existence assertion of inventory

 

B. the valuation assertion of inventory

 

C. the completeness assertion of inventory

 

D. the rights assertion over inventory

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 13-06 Describe control tests for auditing control over conversion of materials and labour in the production process.
Smieliauskas – Chapter 13 #22
Topic: 13-15 Control Risk Assessment
Topic: 13-16 General Control Considerations
Topic: 13-17 Control Tests
 

 

23. If auditors compare the gross profit margin by product and compare it with prior periods, this is an example of a(n)

A. Analytical procedure.

 

B. Inspection technique.

 

C. Presentation procedure.

 

D. Scanning technique.

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Moderate
Learning Objective: 13-07 Describe the typical substantive procedures used to address the assessed risk of material misstatement in the main accounts in the production process.
Smieliauskas – Chapter 13 #23
Topic: 13-18 Substantive Audit Program for the Production Process
Topic: 13-19 Analysis of Financial Statement Relationships
Topic: 13-20 Misstatement Analysis
 

 

24. Finished goods inventory is low in inherent risk since production is so well understood.

FALSE

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 13-01 Describe the key risks of misstatement in the payroll and production processes.
Smieliauskas – Chapter 13 #24
Topic: 13-01 Risk Assessment for the Payroll and Production Processes
Topic: 13-02 Payroll Process
Topic: 13-03 Production Process
 

 

25. The payroll cycle starts with keeping track of attendance and ends with payment to the employee.

FALSE

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 13-02 Describe the payroll process: typical transactions; account balances; source documents; and controls.
Smieliauskas – Chapter 13 #25
Topic: 13-04 Section I: Understanding the Payroll Process
Topic: 13-05 Audit Evidence in Management Reports and Files
 

 

26. The payroll register is the primary original record for payroll accounting.

TRUE

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 13-02 Describe the payroll process: typical transactions; account balances; source documents; and controls.
Smieliauskas – Chapter 13 #26
Topic: 13-04 Section I: Understanding the Payroll Process
Topic: 13-05 Audit Evidence in Management Reports and Files
 

 

27. Federal Form T4 Summary is the employer’s annual federal employee remittance return.

TRUE

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Moderate
Learning Objective: 13-02 Describe the payroll process: typical transactions; account balances; source documents; and controls.
Smieliauskas – Chapter 13 #27
Topic: 13-04 Section I: Understanding the Payroll Process
Topic: 13-05 Audit Evidence in Management Reports and Files
 

 

28. A payroll “clearing account” is a temporary account that holds payroll transactions until final accounting entries are prepared.

TRUE

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 13-02 Describe the payroll process: typical transactions; account balances; source documents; and controls.
Smieliauskas – Chapter 13 #28
Topic: 13-04 Section I: Understanding the Payroll Process
Topic: 13-05 Audit Evidence in Management Reports and Files
 

 

29. One procedure in an audit program for tests of controls reads: “Select a sample of employees from the payroll register and vouch identification numbers, pay rates, and authorized deductions to the personnel files.” This procedure is designed to test the validity of payroll information for employees.

FALSE

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Easy
Learning Objective: 13-03 Describe of control tests for auditing control over hiring; firing; and payment of employees in the payroll process.
Smieliauskas – Chapter 13 #29
Topic: 13-04 Section I: Understanding the Payroll Process
Topic: 13-05 Audit Evidence in Management Reports and Files
 

 

30. A test of the completeness objective is selecting a sample of payroll register entries and vouching them to employee data in the personnel files such as employee identification, rate of pay, and authorized deductions.

FALSE

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 13-03 Describe of control tests for auditing control over hiring; firing; and payment of employees in the payroll process.
Smieliauskas – Chapter 13 #30
Topic: 13-04 Section I: Understanding the Payroll Process
Topic: 13-05 Audit Evidence in Management Reports and Files
 

 

31. Overall production authorization starts with production planning, which usually is based on a sales forecast.

TRUE

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 13-05 Describe the production process: typical transactions; account balances; source documents; and controls.
Smieliauskas – Chapter 13 #31
Topic: 13-13 Section II: Understanding the Production Process
Topic: 13-14 Audit Evidence in Management Reports and Files
 

 

32. Most of the transactions in the production cycle are cost accounting allocations, unit cost determinations, and standard cost calculations.

TRUE

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 13-05 Describe the production process: typical transactions; account balances; source documents; and controls.
Smieliauskas – Chapter 13 #32
Topic: 13-13 Section II: Understanding the Production Process
Topic: 13-14 Audit Evidence in Management Reports and Files
 

 

33. A materials requisition is the document that authorizes the inventory custodian to release raw materials and supplies to production personnel.

TRUE

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 13-05 Describe the production process: typical transactions; account balances; source documents; and controls.
Smieliauskas – Chapter 13 #33
Topic: 13-13 Section II: Understanding the Production Process
Topic: 13-14 Audit Evidence in Management Reports and Files
 

 

34. Only supervisors have physical custody of materials, equipment, and labour while the production work is performed.

FALSE

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 13-05 Describe the production process: typical transactions; account balances; source documents; and controls.
Smieliauskas – Chapter 13 #34
Topic: 13-13 Section II: Understanding the Production Process
Topic: 13-14 Audit Evidence in Management Reports and Files
 

 

35. It is permissible for accounting personnel to authorize production orders since they do not have custody of the assets.

FALSE

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Moderate
Learning Objective: 13-05 Describe the production process: typical transactions; account balances; source documents; and controls.
Smieliauskas – Chapter 13 #35
Topic: 13-13 Section II: Understanding the Production Process
Topic: 13-14 Audit Evidence in Management Reports and Files
 

 

36. A test of the validity objective is to examine a sample of production cost reports and recalculate all costs entered.

FALSE

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 13-06 Describe control tests for auditing control over conversion of materials and labour in the production process.
Smieliauskas – Chapter 13 #36
Topic: 13-15 Control Risk Assessment
Topic: 13-16 General Control Considerations
Topic: 13-17 Control Tests
 

 

37. Recalculating all costs entered on a sample of open and closed job cost reports is a test of the accuracy objective.

TRUE

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 13-06 Describe control tests for auditing control over conversion of materials and labour in the production process.
Smieliauskas – Chapter 13 #37
Topic: 13-15 Control Risk Assessment
Topic: 13-16 General Control Considerations
Topic: 13-17 Control Tests
 

 

38. The five functional responsibilities for the payroll cycle are (1) personnel and labour relations, (2) supervision, (3) timekeeping and cost accounting, (4) payroll accounting, and (5) payroll distribution. For each responsibility, identify the type of duty or duties (authorization, custody, record-keeping, periodic reconciliation) associated with the function and briefly describe the activity involved.

a. Personnel and labour relations: Authorization. This function is responsible for the hiring and firing of personnel and for obtaining authorizations from employees for payroll deductions.
b. Supervision: Authorization. This function is responsible for approving the number of hours worked by employees.
c. Timekeeping and cost accounting: Authorization. This function takes care of payroll preparation and cost accounting analyses.
d. Payroll accounting: Record-keeping. This function is responsible for preparing cheques and related payroll reports.
e. Payroll distribution: Custody. This function has custody of the cheques and is responsible for distributing them to the employees.

 

Blooms: Comprehension
Difficulty: Moderate
Learning Objective: 13-02 Describe the payroll process: typical transactions; account balances; source documents; and controls.
Smieliauskas – Chapter 13 #38
Topic: 13-04 Section I: Understanding the Payroll Process
Topic: 13-05 Audit Evidence in Management Reports and Files
 

 

39. The accounting department at Blue Manufacturing Limited receives production information at the end of each week. The production floor supervisor reports time and production data and the payroll department reports labour cost data. How will the accounting department use this information? Why?

The accounting department is receiving data about labour hours and costs from two independent sources. The accounting department should reconcile the information from the two sources as to hours worked and dollars paid or accrued. This reconciliation ensures that the accounting department is using accurate payroll data and that the payroll department is paying only for work performed.

 

Blooms: Application
Difficulty: Difficult
Learning Objective: 13-02 Describe the payroll process: typical transactions; account balances; source documents; and controls.
Smieliauskas – Chapter 13 #39
Topic: 13-04 Section I: Understanding the Payroll Process
Topic: 13-05 Audit Evidence in Management Reports and Files
 

 

40. What is a clearing account? What are the risks associated with this type of account?

A clearing account is a temporary storage place for transactions awaiting final accounting. All clearing accounts, or suspense accounts as they are sometimes called, should have a zero balance at the end of each accounting period.
If not managed properly or addressed on a timely basis, clearing accounts may become cumbersome and result in poor accounting practices as well as errors. These errors may include misclassifications and income errors.

 

Blooms: Comprehension
Difficulty: Moderate
Learning Objective: 13-02 Describe the payroll process: typical transactions; account balances; source documents; and controls.
Smieliauskas – Chapter 13 #40
Topic: 13-04 Section I: Understanding the Payroll Process
Topic: 13-05 Audit Evidence in Management Reports and Files
 

 

41. Describe the major risk areas associated with the payroll cycle.

a. Paying fictitious employees (invalid transactions, employees do not exist)
b. Overpaying for time or production (inaccurate transactions, improper valuations)
c. Incorrect accounting for costs and expenses (incorrect classification, improper or inconsistent presentation and disclosure)

 

Blooms: Knowledge
Difficulty: Easy
Learning Objective: 13-03 Describe of control tests for auditing control over hiring; firing; and payment of employees in the payroll process.
Smieliauskas – Chapter 13 #41
Topic: 13-04 Section I: Understanding the Payroll Process
Topic: 13-05 Audit Evidence in Management Reports and Files
 

 

42. In the audit of payroll, auditors often examine the endorsements on a sample of cancelled payroll cheques. What is the purpose of this procedure?

The auditor is looking for indications that endorsements are invalid. An endorsement should be that of the payee (the employee). Second endorsements, such as those of a supervisor, could indicate a problem. In such a circumstance, the payee could be a fictitious employee or an employee who had been terminated but not removed from the personnel records. The supervisor could be defrauding the company by keeping an unclaimed cheque, forging the payee’s signature, and then cashing the cheque for his or her own benefit.

 

Blooms: Comprehension
Difficulty: Moderate
Learning Objective: 13-03 Describe of control tests for auditing control over hiring; firing; and payment of employees in the payroll process.
Smieliauskas – Chapter 13 #42
Topic: 13-04 Section I: Understanding the Payroll Process
Topic: 13-05 Audit Evidence in Management Reports and Files
 

 

43. Match each of the examples of specific control objectives in the production cycle listed 1 through 5 below with the appropriate general control objectives (A through G) and place the identifying letter in the space provided.

A. Validity
B. Completeness
C. Authorization
D. Accuracy
E. Accuracy
F. Classification
G. Proper period cutoff

____1. Entries derived from job cost sheets are subject to independent verification.
____2. Labour usage reports are compared to job time tickets.
____3. The production foreman is required to record all material and labour used as being either direct labour or indirect labour.
____4. Production reports summarizing material and labour used are prepared weekly and transmitted to the accounting department for recording in the correct accounting month.
____5. All documents are pre-numbered and the numerical sequence is accounted for.

1. D
2. A
3. E
4. G
5. B

 

Blooms: Knowledge
Difficulty: Easy
Learning Objective: 13-06 Describe control tests for auditing control over conversion of materials and labour in the production process.
Smieliauskas – Chapter 13 #43
Topic: 13-15 Control Risk Assessment
Topic: 13-16 General Control Considerations
Topic: 13-17 Control Tests
 

 

44. Audit procedures to test controls over work-in-process inventory could include the procedures listed below. Match each of the procedures numbered 1 through 5 to the appropriate control objective (A through G) and place the identifying letter in the space provided.

A. Environment
B. Validity
C. Completeness
D. Authorization
E. Accuracy
F. Classification
G. Proper period

____1. Reconcile the open job cost sheets to the work-in-process inventory control account.
____2. For a sample of open and closed job cost sheets, vouch labour costs to job tickets and labour reports.
____3. For a sample of open and closed job cost sheets, compare labour reports to payroll summaries to ensure the transactions are recorded in the correct accounting month.
____4. Select a sample of production orders and examine for proper approvals.
____5. Select a sample of production orders and match details to bills of material and labour requirements.

1. C
2. B
3. G
4. D
5. C

 

Blooms: Comprehension
Difficulty: Moderate
Learning Objective: 13-06 Describe control tests for auditing control over conversion of materials and labour in the production process.
Smieliauskas – Chapter 13 #44
Topic: 13-15 Control Risk Assessment
Topic: 13-16 General Control Considerations
Topic: 13-17 Control Tests
 

 

 

c13 Summary

Category # of Questions
Accessibility: Keyboard Navigation 37
Blooms: Application 3
Blooms: Comprehension 15
Blooms: Knowledge 26
Difficulty: Difficult 3
Difficulty: Easy 26
Difficulty: Moderate 15
Learning Objective: 13-01 Describe the key risks of misstatement in the payroll and production processes. 2
Learning Objective: 13-02 Describe the payroll process: typical transactions; account balances; source documents; and controls. 12
Learning Objective: 13-03 Describe of control tests for auditing control over hiring; firing; and payment of employees in the payroll process. 13
Learning Objective: 13-04 Give examples of the typical substantive procedures used to address the assessed risk of material misstatement in the main accounts in the payroll process. 1
Learning Objective: 13-05 Describe the production process: typical transactions; account balances; source documents; and controls. 8
Learning Objective: 13-06 Describe control tests for auditing control over conversion of materials and labour in the production process. 7
Learning Objective: 13-07 Describe the typical substantive procedures used to address the assessed risk of material misstatement in the main accounts in the production process. 1
Smieliauskas – Chapter 13 44
Topic: 13-01 Risk Assessment for the Payroll and Production Processes 2
Topic: 13-02 Payroll Process 2
Topic: 13-03 Production Process 2
Topic: 13-04 Section I: Understanding the Payroll Process 16
Topic: 13-05 Audit Evidence in Management Reports and Files 16
Topic: 13-06 Control Risk Assessment 9
Topic: 13-07 General Control Considerations 9
Topic: 13-08 Control Tests 9
Topic: 13-09 Summary: Control Risk Assessment 9
Topic: 13-10 Substantive Audit Program for Payroll 1
Topic: 13-11 Analysis of Financial Statement Relationships 1
Topic: 13-12 Misstatement Analysis 1
Topic: 13-13 Section II: Understanding the Production Process 8
Topic: 13-14 Audit Evidence in Management Reports and Files 8
Topic: 13-15 Control Risk Assessment 7
Topic: 13-16 General Control Considerations 7
Topic: 13-17 Control Tests 7
Topic: 13-18 Substantive Audit Program for the Production Process 1
Topic: 13-19 Analysis of Financial Statement Relationships 1
Topic: 13-20 Misstatement Analysis 1

 

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