Saint John leges
PRE 2
Midterm Examination
32/45 = 85.56%
Midterm Grade = 85.82%
Name: JAN JOSEPH LEARY L. DORIA
1. Describe the audit procedures to test payroll account balances and the possible errors you can uncover.
(Provide two columns: Column I, Procedures and Column II, Possible Error).
No Answer
2. In audit of production costs, you came across the following documents. Indicate how they are being
utilized.
a. Production order
b. Bill of Materials
c. Materials Requisition
d. Cost Accumulation Report
e. Materials Requisition Summary
f. Labor Ticket
g. Labor Ticket Summary
h. Completed Production Report
a. PRODUCTION ORDER – PROVIDES DOCUMENTATION OF PRODUCTION PERSONNEL'S
AUTHORIZATION MANUFACTURE PRODUCTS.
b. BILL OF MATERIALS – SPECIFIES THE COMPONENTS THAT WILL BE USED IN THE
MANUFACTURE OF A PRODUCE
c. MATERIALS REQUISITIONS – INDICATES RECORDED APPROVAL FOR MATERIAL RELEASE
TO PRODUCTION.
d. COST ACCUMULATION REPORT – PREPARED BY OPERATING PERSONNEL WHEREIN THE
COSTS INCURRED AS GOODS ARE TRANSFERRED THROUGH PRODUCTION.
e. MATERIALS REQUISITION SUMMARY – CONTAINS A RECORD OF MATERIALS USED DURING
A SPECIFIC TIME PERIOD.
f. LABOR TICKET – REFLECTS THE AMOUNT OF TIME A PRODUCTION WORKER SPENDS ON A
JOB
g. LABOR TICKET SUMMARY - PROVIDES A RECORD OF PRODUCTION LABOR USED OVER A
SET PERIOD OF TIME, SUCH AS A DAY
h. COMPLETED PRODUCTION REPORT - SERVE AS A FOUNDATION FOR INVENTORY
VALUATION
3. In your audit assignment, you discovered the following matters while you are performing tests of controls:
a. The production supervisor believes he has good judgment about what customers will buy. He
surprised the sales manager with a new product that was produced on December 24, 2022.
b. Raw materials were transferred to production but were not transferred in the accounting records.
c. Salaries of the sakes department were charged to manufacturing overhead.
d. The materials usage variance is unusually large because materials issued to product development
were charged to production.
e. The work-in-process account is overstated because goods were not transferred out when they were
completed.
f. The labor cost on one job is high because an employee completed a duplicate labor ticket.
Required:
i. What control would have prevented or detected each of the errors or irregularities?
ii. What test s should the auditor perform to test each control?
iii. To which financial statement assertion does ach error or irregularities relate?
Provide three columns for your answers: Column 1, Control; Column II, Test; and, Column III, FS
Assertion,
CONTROL TEST OF CONTROL ASSERTION
1. PROPER AUTHORITY INSPECTION OF THE CLASSIFICATION
AND APPROVAL DOCUMENTS
2. REAL TIME TRANSFER RECALCULATION COMPLETENESS
IN THE ACCOUNTING
SYSTEM FOR THE RAW
MATERIALS THAT ARE
USED FOR THE
PRODUCTION
3. TIME REVIEW OF THE INSPECTION CLASSIFICATION
PRODUCTION RECORD
4. TIME REVIEW AND INQUIRY CLASSIFICATION
MONITORING
5. INSPECT AND PROPER INSPECTION OF THE CLASSIFICATION
RECORDING OF THE DOCUMENTS
ACCOUNT THAT ARE
RELATED TO THE
PRODUCTION
6. LABOR TICKER INSPECTION OF THE EXISTANCE
SHOULD BE DOCUMENTS
PRENUMBERED AND
MUST REVIEW BY A
RIGHT PERSONNEL
Choose the best answer
1. The audit of the payroll and personnel cycle revealed the following situations:
A. The audit showed that on several occasions a payroll clerk had added fake employees in the payroll
and deposited checks in accounts of fiends and relatives. What controls should have prevented the
occurrence of such practice?
a. Using time cards and attendance records in the computation of employee gross earnings.
b. Requiring the preparation of a voucher for the payment of payroll.
c. Having the treasurer’s office sign and distribute payroll check.
d. Allowing changes to the payroll to be authorized only by the personnel department.
B. Which of the following activities performed by a factory supervisor is a control strength other than
a control weakness?
a. Setting the pay rate for production workers.
b. Preparing a job time report that summarizes regular and overtime hours.
c. Distributing paychecks to the production workers.
d. Returning any unclaimed payroll checks to the payroll clerk.
C. One payroll audit objective is to determine whether there is proper segregation of duties. Which of
the following activities are incompatible?
a. Hiring employees and authorizing changes to pay rates.
b. Preparing the payroll and filing tax forms.
c. Signing and distributing payroll checks. wrong
d. Preparing attendance data and preparing the payroll.
D. Management is concerned with the potential for unauthorized changes to the payroll. Which of the
following is the proper organizational structure to prevent such unauthorized changes?
a. The payroll department maintains and authorizes all changes to the personnel records.
b. The payroll department is supervised by the manager of the human resource department.
c. The payroll department’s functions are limited maintaining the payroll records, distributing
paychecks, and posting the payroll entries to the general ledger. . wrong
d. The personnel department authorizes the hiring and pay levels of all employees.
E. Which of the following controls would be the most appropriate means to ensure that terminated
employees have been removed from the payroll?
a. Mailing checks to employees’ residences.
b. Establishing direct deposit procedures with employees’ banks.
c. Reconciling payroll and timekeeping records.
d. Establishing computerized limit checks on payroll rates.
F. A means of ensuring that payroll checks are drawn for properly authorized amounts is to:
a. Conduct periodic floor verification of employees on the payroll Wrongl.
b. Require that undelivered checks be returned to the cashier.
c. Require supervisory approval of employee time cards.
d. Witness the distribution of payroll checks.
