You are an auditor in William & Associates, a mid-tier audit firm. You are deciding whether...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
You are an auditor in William & Associates, a mid-tier audit firm. You are deciding whether to continue with the audit engagement of G&L Ltd in the financial year 2024. G&L Ltd is a consumer goods company headquartered in Melbourne. G&L Ltd developed a wide range of personal health, personal care and hygiene products. G&L Ltd has products including beauty, health care, baby care, feminine care, and family care. The market is very competitive, encouraging rapid product innovation. New products are continually in development and improvements are made to existing formulations. These products must meet very stringent regulatory requirements prior to being licensed for production and sale. You are aware that during the 2024 financial year, G&L Ltd lost several customer contracts to overseas competitors. Since the previous audit in 2023, G&L Ltd has listed on the Australian Securities Exchange which requires it to comply with additional reporting regulations. Due to rapid growth, G&L Ltd is financially stressed and its accounting systems are struggling to cope with the growth in the business. You recently read an article in the Sydney Morning Herald, which stated that G&L Ltd is currently under investigation by the Australian Taxation Office (ATO) for alleged failure to pay the appropriate amount of Pay As You Go (PAYG) tax on their payroll. G&L Ltd approached its bank during the year to extend its borrowing facilities. An extension of $10 million was sought to its existing loan to support the on-going development of new products. The long-term borrowings are subject to debt covenants in which the company must maintain a current ratio of 3:1. In addition, the company asked the bank to make cash of $3 million available in the event that an existing court case against the company is successful. The The Audit Team Controls over Cash Cycle The audit team consists of 4 people. The partner is Andrew. He has been involved in the G&L Ltd audit for over 20 years and partner on the engagement for the last 15 years. The audit Jack performed a review of the controls over the cash receipts and cash payments process for manager is Kate. This is Kate's first time on the G&L Ltd audit. She has no accounting G&L Ltd. G&L Ltd has many bank accounts and the staff usually prepare weekly bank knowledge and is not involved with the recording or processing of accounting transactions. reconciliations. Jack is the audit senior and is responsible for the initial audit planning. Jack has recently There has been significant turnover of staff in the accounting department. Currently the completed the graduate diploma of Chartered Accounting. The junior auditor is Ben. Ben accounting department is understaffed, and bank reconciliations are prepared by Emily, an worked part-time in the accounting department at G&L Ltd undertaking basic processing tasks employee who is also responsible for the recording of transactions in the cash payments journal. while a student. Ben's friend is the receptionist at G&L Ltd. The receptionist has no accounting Due to time pressure, Emily prepares the bank reconciliations monthly. Previously Emily's knowledge and has no involvement with the recording or processing of accounting transactions. manager approved all payments and checked the bank reconciliation. However, Emily's The audit team commenced planning the audit on G&L Ltd in the middle of April 2024. In preparation for the audit, Andrew telephoned G&L Ltd's finance director, Calvin Cox, to set up a planning meeting and to remind him that fees relating to the audit engagement from the previous year were still outstanding. Calvin raised concerns about the conduct of the previous audit, stating numerous examples of when he and his staff had been interrupted when they were busy. He stated that he wanted guarantees that this year's audit will be more efficient, less intrusive and cheaper, otherwise he will seek an alternative auditor in future. In addition to auditing the financial statements, William & Associates provides a range of non-audit services to G&L Ltd, which includes bookkeeping, payroll, tax computation and advice. Payroll Accounting and Internal Control System There have been no significant changes in the payroll processing cycle since the previous audit. The company had around 70 employees. As the rapid growth, more employees were court case is being brought by an individual who suffered severe side effects when participating employed, and the total number of employees increased to 90 by the end of April 2024. The in a clinical trial in 2020. newly employed staff were casual workers. Two staff members from the payroll department have the responsibility to add new employees to the payroll. No further authorisation from On 3 June 2024, the Company announced to the market it had been the victim of a cyber- management or supervisors was required, and these two payroll department staff process the security incident that resulted in supplier and customer details being disclosed on the dark web. G&L Ltd is assessing the costs of the incident and the subsequent reduction in revenue. G&L Ltd expects this to have a material impact on future earnings. In December 2023, the internal audit department of G&L Ltd performed a review of the operation of controls over processing of overtime payments in the payroll department. It was found that the company's specified internal control procedures in relation to the processing of overtime payments were not followed. The accounting team at G&L Ltd is expanding but it is still relatively small, so it is not possible to segregate all accounting duties. Below are some results of the analytical review procedures performed by the Senior Auditor (Jack) during the planning stage: Revenue Net profit after tax Accounts payable Cash at Bank Accounts receivable 12.5% decrease since prior year 20% decrease since prior year 15% decrease since prior year 16% decrease since prior year 18% decrease since prior year payroll. Staff recruitment When staff are hired, all their details are entered on the computerised payroll system by the staff in the payroll department. All staff are paid award wages as per the relevant award. All award rates are in the payroll master file and do not need to be entered for each employee. The entering of staff details is not checked or authorised by a supervisor. Processing of pays All staff working in the production and warehouse areas are required to clock-on using time- cards. They are forbidden to clock-on for their colleagues. All timecards are authorised by the production manager who signs the cards as evidence. The time-cards are then sent to the payroll office. Payroll staff enter the hours from the timesheets into the payroll system. While there is no double-checking of data entry, the system has data entry checks to ensure that hours over 60 hours cannot be entered and that only numeric data has been entered. Whilst performing an observation of the payroll processes and in particular observing the clock-on procedures of factory staff on four mornings, the audit team noted that two workers were clocking on more than one time-card at a time. The payroll department manager was queried about this and he told Ben that the workers do sometimes clock-on for their friends if they know they are going to be late for work. The payroll department manager thanked William & Associates for bringing the matter to his attention and said that he will remind workers of the rules about not clocking-on for others. manager left the company three months ago and she has not yet been replaced. In her absence, approvals of payments and reconciliations are performed by the Finance Director, Calvin. Calvin is extremely busy and therefore payments and reconciliations are often not approved on a timely basis or are not approved at all. Question 3 a) Identify two (2) weaknesses in internal control in the payroll cycle. b) Identify an error or fraud which could occur as a result of each of the internal control weaknesses you identified in part (a). You are an auditor in William & Associates, a mid-tier audit firm. You are deciding whether to continue with the audit engagement of G&L Ltd in the financial year 2024. G&L Ltd is a consumer goods company headquartered in Melbourne. G&L Ltd developed a wide range of personal health, personal care and hygiene products. G&L Ltd has products including beauty, health care, baby care, feminine care, and family care. The market is very competitive, encouraging rapid product innovation. New products are continually in development and improvements are made to existing formulations. These products must meet very stringent regulatory requirements prior to being licensed for production and sale. You are aware that during the 2024 financial year, G&L Ltd lost several customer contracts to overseas competitors. Since the previous audit in 2023, G&L Ltd has listed on the Australian Securities Exchange which requires it to comply with additional reporting regulations. Due to rapid growth, G&L Ltd is financially stressed and its accounting systems are struggling to cope with the growth in the business. You recently read an article in the Sydney Morning Herald, which stated that G&L Ltd is currently under investigation by the Australian Taxation Office (ATO) for alleged failure to pay the appropriate amount of Pay As You Go (PAYG) tax on their payroll. G&L Ltd approached its bank during the year to extend its borrowing facilities. An extension of $10 million was sought to its existing loan to support the on-going development of new products. The long-term borrowings are subject to debt covenants in which the company must maintain a current ratio of 3:1. In addition, the company asked the bank to make cash of $3 million available in the event that an existing court case against the company is successful. The The Audit Team Controls over Cash Cycle The audit team consists of 4 people. The partner is Andrew. He has been involved in the G&L Ltd audit for over 20 years and partner on the engagement for the last 15 years. The audit Jack performed a review of the controls over the cash receipts and cash payments process for manager is Kate. This is Kate's first time on the G&L Ltd audit. She has no accounting G&L Ltd. G&L Ltd has many bank accounts and the staff usually prepare weekly bank knowledge and is not involved with the recording or processing of accounting transactions. reconciliations. Jack is the audit senior and is responsible for the initial audit planning. Jack has recently There has been significant turnover of staff in the accounting department. Currently the completed the graduate diploma of Chartered Accounting. The junior auditor is Ben. Ben accounting department is understaffed, and bank reconciliations are prepared by Emily, an worked part-time in the accounting department at G&L Ltd undertaking basic processing tasks employee who is also responsible for the recording of transactions in the cash payments journal. while a student. Ben's friend is the receptionist at G&L Ltd. The receptionist has no accounting Due to time pressure, Emily prepares the bank reconciliations monthly. Previously Emily's knowledge and has no involvement with the recording or processing of accounting transactions. manager approved all payments and checked the bank reconciliation. However, Emily's The audit team commenced planning the audit on G&L Ltd in the middle of April 2024. In preparation for the audit, Andrew telephoned G&L Ltd's finance director, Calvin Cox, to set up a planning meeting and to remind him that fees relating to the audit engagement from the previous year were still outstanding. Calvin raised concerns about the conduct of the previous audit, stating numerous examples of when he and his staff had been interrupted when they were busy. He stated that he wanted guarantees that this year's audit will be more efficient, less intrusive and cheaper, otherwise he will seek an alternative auditor in future. In addition to auditing the financial statements, William & Associates provides a range of non-audit services to G&L Ltd, which includes bookkeeping, payroll, tax computation and advice. Payroll Accounting and Internal Control System There have been no significant changes in the payroll processing cycle since the previous audit. The company had around 70 employees. As the rapid growth, more employees were court case is being brought by an individual who suffered severe side effects when participating employed, and the total number of employees increased to 90 by the end of April 2024. The in a clinical trial in 2020. newly employed staff were casual workers. Two staff members from the payroll department have the responsibility to add new employees to the payroll. No further authorisation from On 3 June 2024, the Company announced to the market it had been the victim of a cyber- management or supervisors was required, and these two payroll department staff process the security incident that resulted in supplier and customer details being disclosed on the dark web. G&L Ltd is assessing the costs of the incident and the subsequent reduction in revenue. G&L Ltd expects this to have a material impact on future earnings. In December 2023, the internal audit department of G&L Ltd performed a review of the operation of controls over processing of overtime payments in the payroll department. It was found that the company's specified internal control procedures in relation to the processing of overtime payments were not followed. The accounting team at G&L Ltd is expanding but it is still relatively small, so it is not possible to segregate all accounting duties. Below are some results of the analytical review procedures performed by the Senior Auditor (Jack) during the planning stage: Revenue Net profit after tax Accounts payable Cash at Bank Accounts receivable 12.5% decrease since prior year 20% decrease since prior year 15% decrease since prior year 16% decrease since prior year 18% decrease since prior year payroll. Staff recruitment When staff are hired, all their details are entered on the computerised payroll system by the staff in the payroll department. All staff are paid award wages as per the relevant award. All award rates are in the payroll master file and do not need to be entered for each employee. The entering of staff details is not checked or authorised by a supervisor. Processing of pays All staff working in the production and warehouse areas are required to clock-on using time- cards. They are forbidden to clock-on for their colleagues. All timecards are authorised by the production manager who signs the cards as evidence. The time-cards are then sent to the payroll office. Payroll staff enter the hours from the timesheets into the payroll system. While there is no double-checking of data entry, the system has data entry checks to ensure that hours over 60 hours cannot be entered and that only numeric data has been entered. Whilst performing an observation of the payroll processes and in particular observing the clock-on procedures of factory staff on four mornings, the audit team noted that two workers were clocking on more than one time-card at a time. The payroll department manager was queried about this and he told Ben that the workers do sometimes clock-on for their friends if they know they are going to be late for work. The payroll department manager thanked William & Associates for bringing the matter to his attention and said that he will remind workers of the rules about not clocking-on for others. manager left the company three months ago and she has not yet been replaced. In her absence, approvals of payments and reconciliations are performed by the Finance Director, Calvin. Calvin is extremely busy and therefore payments and reconciliations are often not approved on a timely basis or are not approved at all. Question 3 a) Identify two (2) weaknesses in internal control in the payroll cycle. b) Identify an error or fraud which could occur as a result of each of the internal control weaknesses you identified in part (a).
Expert Answer:
Posted Date:
Students also viewed these accounting questions
-
Summit Systems will pay a dividend of $1.47 this year. If you expect Summit's dividend to grow by 6.7% per year, what is its price per share if the firm's equity cost of capital is 10.6%? The price...
-
Good Day Tutor! Can you help me with my assignment about Intermediate Accounting? THANK YOU IN ADVANCE TUTOR! Answer and Explain how you come up with the answer. On January 1, 2X19, an investor...
-
Con la finalidad de hacer un recordatorio de todos los temas que has revisado a lo largo de este curso, realizars un Portafolio Digital de Aprendizaje de la materia Administracin de personal
-
Which of the following is not one of the techniques used in webmining? a. Content mining b. Structure mining c. Server mining d. Usage mining e. Data mining Which of the following would you use to...
-
A laboratory technician measures the breaking strength of each of five kinds of linen threads by using four different measuring instruments, I1, I2, I3 and I4, and obtains the following results, in...
-
It has been estimated that for every dollar spent cleaning up hazardous waste sites, administrative agencies spend seven dollars in overhead. (a) The first group will list and explain possible ways...
-
An increasing number of large groups now ask their top managers to invest a large amount of their personal wealth (often more than 40%) in company shares. What is the theory behind this type of...
-
A plane wall of a furnace is fabricated from plain carbon steel (k = 60 W/m K, p = 7850 kg/m 3 , c = 430 J/kg K) and is of thickness L = 10 mm. To protect it from the corrosive effects of the...
-
K Graph the solution set of the inequality -
-
4. (20) Give the output and trace the call stack for the following program void Bubba (int x) { cout < < "B" < < x < < endl; if (x > 0) { Bubba (x-2); " cout < < "M < < x < < endl; Bubba (x-3); cout...
-
For tax purpose, the company changes (1) depreciation method for building ($100,000,000) from double-declining to straight, and (2) salvage value from $25,000,000 to $868,800. Tax rate is 20% for all...
-
A bug zapper consists of two metal plates connected to a high-voltage power supply. The voltage between the plates is set to give an electric field slightly less than 1x10 V/m. When a bug flies...
-
Mrs. Munch later informs you and attorney Case that she will need back surgery due to this accident. Attorney Case is unsure if the surgery is related based upon the medical records. Should an expert...
-
Long-term liabilities Bonds payable $3,600,000 Less: Discount on bonds payable 81,000 $3,519,000 Oriole decides to redeem these bonds at 106 after paying annual interest. Prepare the journal entry to...
-
Based on this case, What ring and wrong things CBA, Count, Court and Arbitration, lawyer or agcenies did and how they can solve or help clients (Aubin - plaintiffs and Unilever) win the case and...
-
In the essay by John Shook, titled, "How to Change a Culture: Lessons from NUUMI," andon is a process AND culture that empowers any worker to "stop-the-line," and call attention to any problem....
-
Let X be a random variable taking on values a1, a2, . . . , pr with probabilities p1, p2, . . . , pr and with E(X) = μ. Define the spread of X as follows: This, like the standard deviation, is a...
-
Paddle Petroleum has the following account balances at 12/31/15: The above properties are abandoned in 2016. Record the abandonment entry. Lease A: unproved property Lease B: proved property... Wells...
-
Aaron Energy Corporation has the following account balances at 12/31/15: At 12/31/15, Lease A is considered to be 40% impaired. Aaron Energys estimated abandonment rate of insignificant unproved...
-
Dwight Oil and Gas Company has the following information at 12/31/15. Production in 2015: Capitalized costs, plus future development costs..... Accumulated DD&A.. Proved reserves Oil. Gas. $2,000,000...
Study smarter with the SolutionInn App