Viking Ltd, a logistics company, employs a total of 6,000 employees across NSW. The corporate services department recently installed a new Enterprise Resource Planning (ERP) system, that includes integrated payroll and accounting modules. The system is supporting a more accurate and timely recording and maintenance of employee details; calculation, processing and recording of payroll and payroll tax; and an integrated subsidiary and general ledger reducing risk of error in recording expenses and liabilities.

As part of the planning process, Sam, the audit assistant, completed a review of the payroll process and internal controls. The following comments concerning the new software, and the processing and control of salaries, have been extracted from Sam’s notes:

• Payroll officers are responsible for key-entering new employee details and any monthly adjustments (eg, entitlement changes; termination of employee contract; advance payments) into the payroll module.
• A monthly payroll report is run directly by the Payroll Supervisor for review against the originating documents. The Payroll Supervisor approves any of the adjustments, confirms and approves new employee details, and approves final termination
payments before endorsing the monthly payroll report and advancing the digital file to the Payroll Manager for a digital payment approval
• The Payroll Manager approves the payment request, with the file then processed through the accounts department for EFT payments and uploading into the general ledger.
• A digital payment certificate is made available to the employee, confirming the salary earned, deductions, final payment made to their nominated account and any leave entitlement details.
• Employees have access to a self service component of the ERP system that enables them to review their personal details, payment certificates and apply for leave entitlements.

Below is some of the data that can be extracted from the ERP system:
• Employee number (system-generated)
• Employee name
• Employee address
• Employment commencement date
• Employment termination date
• Position number (the particular role they are engaged to perform)
• Position name
• Salary Grade
• Additional entitlements (selection of codes can be ticked that indicate if other payments are made in relation to the employee position)
• Tax rate
• Employee bank details
• Nominated superannuation fund
• Total salary payments
• Accrued recreational leave (system generated; employees process leave application request, approved by their manager; any other amendments are manually entered by payroll officers – eg may be reversed in the event the employee does not use the leave)
• Accrued sick leave (system generated; employees process leave application request, approved by their manager; any other amendments are manually entered by payroll officers – eg may be reversed in the event the employee does not use the leave).

Required
1. What major issues do the audit team need to consider in verifying Viking’s payroll transactions and employee entitlement liability balances?
2. List three tests using CAATs that can be employed to the audit of payroll, including at least one feature of Active Data for Excel.
3. List three programmed controls that Viking could implement to reduce the likelihood of payroll officers making errors.

Answer rating: 100% (QA)

1 Major issues for the audit team to consider in verifying Vikings payroll transactions and employee entitlement liability balances include a Accuracy and completeness of employee data The audit team ... View the full answer