Tutorial 7 Questions, p.1 ACCT7103 Tutorial 7 Questions Arens chapters 8 and 9 8.22 (c,d), 8.25, 8.26, 9.3, 9.5, 9.6. There won't be enough time in class to cover all of the questions. Students should attempt the questions before the tutorial and ask the tutor to explain questions that you have difficulties with. 8.22 The following are general questions about internal control. Choose the best response. c. Which of the following statements about the auditor's responsibility for internal control is correct? 1) The auditor must gain an understanding of internal controls in every audit given that the auditor's opinion on the financial statements addresses assurance obtained about internal controls. 2) The nature and extent of procedures performed to gain an understanding of internal controls and to test controls are essentially the same. 3) Even when controls are adequately designed and placed in operation, the auditor can assess control at maximum and not perform tests of controls when substantive tests are less costly to perform. 4) Auditing standards require that the auditor obtain evidence in every audit that internal controls are operating effectively on a consistent basis throughout the year. d. What is the independent auditor's principal purpose for obtaining an understanding of internal control and assessing control risk? 1) to comply with accounting standards 2) to obtain a measure of assurance of management's efficiency 3) to maintain a state of independence in mental attitude during the audit 4) to determine the nature, timing and extent of subsequent audit work.
Tutorial 7 Questions, p.2 8.25 Each of the following internal controls has been taken from a standard internal control questionnaire used by a public accounting firm for assessing control risk in the payroll and personnel cycle. 1. Approval of department head or supervisor on time cards is required before preparing payroll . 2. All pre-numbered time cards are accounted for before beginning data entry for payroll processing. 3. The payroll accounting software application won't accept data input for an employee number not contained in the employee master file. 4. Persons preparing the payroll don't perform other payroll duties (timekeeping, distribution of cheques) or have access to payroll master files or cash. 5. The computer calculates gross and net pay based on hours inputted and information in employee master files, and payroll accounting personnel double-check the mathematical accuracy on a test basis. 6. All voided and spoiled payroll cheques are properly mutilated and retained. 7. Human resources policy requires an investigation of an employment application from new employees. Investigation includes checking the employee's background, former employers and references. 8. Written termination notices, with properly documented reasons for termination and approval of an appropriate official, are required. 9. All cheques not distributed to employees are returned to the financial controller for safekeeping. 10. Online ability to add employees or change pay rates to the payroll master file is restricted via passwords and user profiles to certain human resource personnel. REQUIRED a. For each internal control, identify the type(s) of specific control activity (activities)to