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NEW QUESTION 54
An auditor is scheduled to audit payroll controls for a company which has recently outsourced its processing to an information service bureau. What action should the auditor take, considering the outsourcing decision?

• A. Review only the company's controls over data sent to and received from the service bureau.
• B. Review only the controls over payments to the service bureau based on the contract.
• C. Review the controls over payroll in both the company and the service bureau.
• D. Cancel the engagement because the processing is being performed outside of the organization.

Answer: C

Explanation:
Section: Volume A

NEW QUESTION 55
Confirmation would be most effective in addressing the existence assertion for:

• A. The granting of a patent for a special process developed by the organization.
• B. Sales of merchandise during the regular course of business.
• C. Inventory held on consignment.
• D. The addition of a milling machine to a machine shop.

Answer: C

NEW QUESTION 56
An internal audit activity implemented an integrated test facility to test payroll processing. The auditors identified the key controls and processing steps built into the computer program and developed test data to test them. The auditors submitted test transactions throughout the year and did not find any differences in their test results. The auditors can conclude that:

• A. The computer application and its control procedures were processing payroll transactions correctly during the past year.
• B. All employees were correctly paid during the year and their pay was correctly computed.
• C. The system is properly capturing the hours worked by employees during the year and the hours have been properly submitted to payroll and processed correctly.
• D. All of the above.

Answer: A

NEW QUESTION 57
While conducting a payroll audit, an internal auditor in a large government organization found inadequate segregation in the duties assigned to the assistant director of personnel. When the auditor explained the risk of fraud, the assistant director became upset, terminated the interview, and threatened to sue the organization for defamation of character if the audit engagement was not curtailed. The auditor discussed the situation with the chief audit executive (CAE). The CAE should then:

• A. Curtail the audit engagement to avoid potential legal action.
• B. Add additional testing to determine whether other indicators of fraud exist.
• C. Continue the original engagement program as planned but include a comment about the assistant director's reaction in the engagement final communication.
• D. Provide a report to senior management recommending a fraud investigation.

Answer: B

NEW QUESTION 58
......

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