Chapter05 - answer - CHAPTER 5 AUDIT OF THE EXPENDITURE...

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5-1. The following duties must be separated in the preparation of payroll: hiring, reporting and approval of time, paycheck preparation, check signing, and paycheck distribution. 5-2. Payroll checks should be prenumbered and accounted for in a bank reconciliation. 5-3. Auditors’ substantive tests of payroll balances are primarily analytical procedures. Procedure Possible Error Scan the payroll register, general ledger, and payroll earnings records for entries that appear unusual, such as very large paychecks or employees not assigned to departments. Fictitious employees may be paid, or significant overpayments may be made to genuine employees. Compare average pay per employee for the current year to average pay for prior year (taking into consideration pay raises). Payroll expense may be overstated or understated. Compare direct labor as a percentage of cost of sales with the previous year’s percentage. Payroll expense may be overstated or understated. Compare the ratio of commission expense to sales with previous year’s percentage. Commission expense may be overstated or understated. Compare payroll tax expense as a percentage of cost of goods sold with percentage of previous years. Payroll tax expense may be overstated or understated. 5-4. a. A production order provides a record of authorization to production personnel to produce products. b. A bill of materials is a list that indicates components to be used in producing a product. c. A materials requisition is a recorded authorization to issue materials to production. CHAPTER 5 AUDIT OF THE EXPENDITURE CYCLE: TESTS OF CONTROLS AND SUBSTANTIVE TESTS OF TRANSACTIONS - II
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5-2 Solutions Manual to Accompany Applied Auditing, 2006 Edition d. A cost accumulation report
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Chapter05 - answer - CHAPTER 5 AUDIT OF THE EXPENDITURE...

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