Question

Morrison Company is a manufacturing company. The senior auditor described the essential characteristics of Morrison Company’s internal control system for new staff auditors during a pre-audit conference. He notes that the payroll cycle controls have been deficient, while the auditors have been satisfied with controls in the other cycles. He is concerned since material errors and fraud occur readily within payroll departments. Some of the deficiencies he details are:
Supervisors do not review times cards prepared by employees.
Pay rates, hours, extensions and withholdings are not reviewed independently.
After being signed, paychecks are returned to department supervisors for distribution.
The company does not participate in direct deposits.

Required:
(a) Based on the information presented, what should auditors do in response to these weak controls and what effects could these weak payroll controls have on financial statements?
(b) What are some of the procedures that the auditors might apply in testing the payroll controls?



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  • CreatedJanuary 21, 2015
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