Chief executive officer compensation can be a material amount and is often scrutinized by regulators, analysts, competitors, and investors. For CEOs of publicly traded companies, compensation can consist of salary, bonus, stock option grants, or other stock awards that can be restricted in terms of how long the officers and directors are required to hold the stock. The Proxy Statement for the 2012 Annual Meeting for Goldman Sachs reports the following values for 2011 compensation of the chairman and CEO.
1. Salary of $2,000,000
2. Bonus of $3,000,000
3. Restricted Stock Units with a grant date fair value of $10,710,073. The grant date fair value is determined based on the closing price-per, share of the common stock on the NYSE on the date of the grant and includes a 15% liquidity discount to reflect the transfer restrictions on the common stock.
a. Provide at least one audit procedure the auditor would perform to test the chairman and CEO’S salary. What audit objective is satisfied with this audit procedure?
b. Provide at least one audit procedure the auditor would perform to test the chairman and CEO’S bonus. What audit objective is satisfied with this audit procedure?
c. How would the auditor test the fair value of the Restricted Stock Units?
d. Why are the presentation and disclosure-related audit objectives so important for stock-based compensation?
Information Source_________________________
Employee name ............ Time card
Social Security number ....... Employee list
Hourly labor rate* ......... Wage rate list (approved by president)
Regular hours .......... Time card
Overtime hours .......... Time card
Special deductions* ........ Special form (prepared by employee)
W-4 information* ......... W-4 form
Termination of employment* .... President
*included on input form only for new employees, terminations, and change&

The service center uses the payroll data to update master files and print out payroll checks and a payroll register. The payroll register has the following headings:

A line is prepared for each employee and the journal is totaled.
Payroll checks and the journal are delivered to Clark, who compares the information on the journal with her payroll input and initials the journal. She gives the checks to the president, who signs them and personally delivers them to employees.
Clark re-adds the journal and posts the totals to the ledger. Bank statements with copies of cancelled checks are mailed to the president, and he prepares a monthly bank reconciliation.

a. Is there any loss of documentation because of the computer service center? Explain.
b. For each transaction-related audit objective for the payroll and personnel cycle, write appropriate tests of controls and substantive tests of transactions audit procedures. Consider both controls and deficiencies in writing your program. Label each procedure as either a test of control or a substantive test of transactions.
c. Rearrange your design format audit program in requirement b. into a performance format audit program.
d. Prepare a sampling data sheet using either nonstatistical or attributes sampling, such as the ones shown in Chapter 15, for the audit program in part b. Set ARO and other factors required for sampling as you consider appropriate. Do not assume that you actually performed anytests.

  • CreatedDecember 28, 2013
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