A PA’s audit working papers contain a narrative description of a segment of the Croyden Factory Inc. payroll system and an accompanying flow chart (Exhibit DC13-7) as follows:
The internal control system, with respect to the personnel department, is well functioning and is not included in the accompanying flowchart.
At the beginning of each workweek, payroll clerk No. 1 reviews the payroll department files to determine the employment status of factory employees. Clerk No. 1 then prepares time cards and distributes them as each individual arrives at work. This payroll clerk, who also is responsible for custody of the cheque signature stamp machine, verifies the identity of each payee before delivering signed cheques to the supervisor.
At the end of each workweek, the supervisor distributes payroll cheques for the preceding work-week. Concurrent with this activity, the supervisor reviews the current week’s employee time cards, notes the regular and overtime hours worked on a summary form, and initial the time cards. The supervisor then delivers all time cards and unclaimed payroll cheques to payroll clerk No. 2.

a. Based on the narrative and accompanying flowchart, what are the weaknesses in the system of internal control?
b. Based on the narrative and accompanying flowchart, what enquiries should be made with respect to clarifying the existence of possible additional weaknesses in the system of internalcontrol?

  • CreatedJanuary 09, 2015
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