Chapter $14$ Personnel and Payroll $(11-20)($Make sure to answer each question$)$

$11.$ In determining whether control procedures are potentially reliable in assessing control risk below the maximum, an auditor performs four tasks, listed below in random order:

$(1)$ Design tests of controls.

$(2)$ Consider potential errors or frauds.

$(3)$ Identify control objectives.

$(4)$ Determine control procedures.

In what order are these tasks performed in a financial statement audit?

a$.1,2,3,4$

a$.$ b$.3,2,4,1$

b$.2,3,4,1$

c$.4,3,1,2$

$12.$ After completing tests of controls, an auditor concludes from available evidence that control risk can be assessed below the maximum and detection risk above the minimum. Under these conditions:

a$.$ Substantive tests of controls can be eliminated.

b$.$ Substantive tests can be limited to analytical procedures.

c$.$ The extent of substantive tests of details can be restricted.

d$.$ Substantive tests of details can be performed at an interim date.

$13.$ Which of the following financial statement assertions is of least concern to an auditor

when testing payroll?

a$.$ Occurrence

b$.$ Valuation

c$.$ Completeness

d$.$ Allocation

$14.$ To assess the reasonableness of total payroll, an auditor could:

a$.$ Compare the ratios of direct labor to cost of sales and direct labor to sales with prior years.

b$.$ Compare the ratios of payroll to total expenses and payroll to sales with prior years.

c$.$ Compare payroll to prior$-$year payroll adjusted for pay rate changes and the number of employees.

d$.$ Compare accrued payroll and accrued payroll tax expense with prior years.

$15.$ How could management exploit payroll to manipulate earnings?

a$.$ Capitalize labor costs.

b$.$ Misapply payroll to inappropriate job costing centers.

c$.$ Delay disbursing withheld taxes to the government.

d$.$ Misstate W$-2$ forms to employees.

$16.$ Management has incentives to overstate the discounted present value of future health care obligations because the effect is to:

a$.$ Understate investment performance.

b$.$ Understate net income.

c$.$ Understate assets.

d$.$ Understate liabilities.

$17.$ Current generally accepted accounting principles require that the discount rate for

calculating the present value of future post$-$retirement health care benefits be based on:

a$.$ The current rate of return on the reporting entity's investment portfolio.

b$.$ The current average rate of return on the investment portfolio of other companies operating in the reporting entity's industry.

c$.$ The expected long term rate of return on plan assets.

d$.$ The current rate of return on high$-$quality, fixed$-$income investments.

$18.$ The transition obligation in accounting for post$-$retirement health care benefits is the difference between:

a$.$ The accumulated post$-$retirement obligation and the value of the assets funded to date.

b$.$ The accumulated post$-$retirement obligation and the expected post$-$retirement obligation.

c$.$ The unfunded future benefits and the value of the assets funded to date.

d$.$ The unfunded future benefits and the expected post$-$retirement obligation.

$19.$ In the accounting for post$-$retirement benefits, management has discretion over:

a$.$ Complying with FASB Statement of Financial Accounting Standards No$.106.$

b$.$ Expected rates of return.

c$.$ Retiree payouts.

d$.$ Mandatory retirements.

$20.$ Post$-$retirement health care benefits are a form of:

a$.$ Period expenses.

b$.$ Long$-$term expenses.

c$.$ Compensation.

d$.$ Deferred compensation.