3.1 the Trolley Dodgers
Question 1
Key audit objectives for a client’s payroll function
1. To confirm that the payroll function is properly controlled and operating efficiently.
2. To ensure that authority for all pay entitlement is clearly defined and effectively exercised.
3. To ensure that employees on the payroll are valid and that leavers do not remain on the payroll.
4. To ensure that salary additions are bona fide & timesheets are authorized
5. That payroll deductions are correctly applied.
Auditors evaluate the design of controls, then determine if the controls are in operation. In order to rely on the controls they must also obtain evidence as to whether the controls are operating effectively.
If, during the audit of internal control over financial reporting, the auditor identifies a deficiency, he or she should determine the effect of the deficiency, if any, on the nature, timing, and extent of substantive procedures to be performed to reduce audit risk in the audit of the financial statements to an appropriately low level.
Question 2
There are obvious internal control weaknesses this case, “Campos controlled the system so completely that he personally filled out the weekly payroll cards for each of the 400 employees of the dodgers.”
Human resources is often responsible for setting up new employees in the payroll system, processing payroll data and distributing paychecks. Entering payroll data and processing paychecks should be split between human resources and accounting to ensure that one person or department cannot complete the payroll cycle without scrutiny. Without a separation of responsibility, a dishonest employee could set up a false employee, record time worked or vacation hours and divert the money to a personal account through direct deposit. There is less opportunity to divert funds when one department inputs data and the other processes the payroll data and receives paychecks.
Question 3
The following audit procedures might have
Key audit objectives for a client’s payroll function
1. To confirm that the payroll function is properly controlled and operating efficiently.
2. To ensure that authority for all pay entitlement is clearly defined and effectively exercised.
3. To ensure that employees on the payroll are valid and that leavers do not remain on the payroll.
4. To ensure that salary additions are bona fide & timesheets are authorized
5. That payroll deductions are correctly applied.
Auditors evaluate the design of controls, then determine if the controls are in operation. In order to rely on the controls they must also obtain evidence as to whether the controls are operating effectively.
If, during the audit of internal control over financial reporting, the auditor identifies a deficiency, he or she should determine the effect of the deficiency, if any, on the nature, timing, and extent of substantive procedures to be performed to reduce audit risk in the audit of the financial statements to an appropriately low level.
Question 2
There are obvious internal control weaknesses this case, “Campos controlled the system so completely that he personally filled out the weekly payroll cards for each of the 400 employees of the dodgers.”
Human resources is often responsible for setting up new employees in the payroll system, processing payroll data and distributing paychecks. Entering payroll data and processing paychecks should be split between human resources and accounting to ensure that one person or department cannot complete the payroll cycle without scrutiny. Without a separation of responsibility, a dishonest employee could set up a false employee, record time worked or vacation hours and divert the money to a personal account through direct deposit. There is less opportunity to divert funds when one department inputs data and the other processes the payroll data and receives paychecks.
Question 3
The following audit procedures might have