You as the audit manager of Liew and Partners (Liew). One of your firm's clients is...

  
 

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You as the audit manager of Liew and Partners (Liew). One of your firm's clients is Rashid Berhad (Rashid). Rashid is a manufacturing company which operates 24 hours a day, seven days a week. The company's yearend is 31 December. The interim audit for the year ending 31 December 2021 has been completed and you are reviewing the documentation describing Rashid's payroll system. Systems notes - payroll 60% of the 500 employees of Rashid belongs to production department. The production department employees are paid cash on a weekly basis. Rashid's production department runs' three shifts every day with employees working eight hours each. The balance 40% of employees are paid monthly by bank transfer and they work at the head office. Rashid's human resources (HR) department, responsible for setting up all new joiners. HR will complete the pre-printed forms all new employees and, once verified, a copy is sent to the payroll department for the employee to be set up for payment. This form includes the staff member's employee number and payroll cannot set up new joiners without this information. Rashid introduced a discretionary bonus, paid every three months, for production staff. The discretionary bonus is to encourage staff to attend work on time for all shifts. The amounts to be paid are determine the production supervisors and payroll department is notified. Then a clerk will enter the quarterly bonus into the system while the senior clerk will check each of entry for input errors before processing. The bonus listing will be signed by the senior clerk as evidence of carrying out this review. A clock card is issued to each of the production employees which they have to swipe before the beginning and at the end of each of their shift. A security staff monitors this process 24 hours a day. Each card detects the employee number and links to the payroll system which produces the hours worked report. Then the payroll system will automatically calculate the gross and net pay along with relevant deductions based on information in the hours worked report and no checking is done to the calculation. Some of the employees have taken student loan from the central government. All employers have a statutory obligation to remit funds on a timely basis and to maintain accounting records which reconcile with annual loan statements sent by the government to employers. Therefore, some employees, wages are deducted for repayments of student loans owed to the central government along with the tax deductions. The relevant employees must complete a student loan deduction form and based on the information provided the payments are made directly to the government. It is the responsibility of the relevant employees to notify HR once the loan has been fully repaid. On a quarterly basis, the payroll director will review the exception reports relating to changes to the payroll standing data produced. It is the employees' annual entitlement to take 28 days holiday. The employees are needed to fill in the holiday request forms, and their line manager need to authorise the form. However, this process is not always complied. No overtime is worked by employees. The senior payroll manager will review the list of bank payment and counter check with the payroll records before authorising the payment monthly for employees paid by bank transfer. The payroll manager will amend the records if any errors were found. A security company will send on a weekly basis the cash amount necessary to pay the production employees who are paid by cash from the bank. Two staffs belonging the payroll department will prepare pay packets, one is responsible for preparing them and the other checks the finished pay packets. Once the task is completed both staffs involved need to sign the weekly payroll listing. The pay packets are then delivered to the production supervisors, who distribute them to employees at the end of the employees' shift, as they know each member of their production team. Monthly management accounts are produced which detail variances between budgeted amounts and actual. Revenue and key production costs are detailed, however, as there are no overtime costs, wages and salaries are not analysed. Required: (a) In respect of the payroll system of Rashid Berhad: (i) Identify and explain FIVE (5) key controls which the auditor may seek to place reliance (5 marks) on. (ii) Recommend a test of control the auditor should perform to assess if each of these key controls is operating effectively. (5 marks) (b) Identify and explain FIVE (5) deficiencies in Rashid Berhad's payroll system and provide a recommendation to address each of these deficiencies. (10 marks) (c) Rashid Berhad deducts employment taxes from its employees' wages on a weekly/monthly basis and pays these to the local taxation authorities in the following month. At the year end the financial statements will contain an accrual for income tax payable on employment income. Propose the substantive procedures the auditor should perform to confirm the year-end accrual for tax payable on employment income. (5 marks) [Total: 25 Marks] You as the audit manager of Liew and Partners (Liew). One of your firm's clients is Rashid Berhad (Rashid). Rashid is a manufacturing company which operates 24 hours a day, seven days a week. The company's yearend is 31 December. The interim audit for the year ending 31 December 2021 has been completed and you are reviewing the documentation describing Rashid's payroll system. Systems notes - payroll 60% of the 500 employees of Rashid belongs to production department. The production department employees are paid cash on a weekly basis. Rashid's production department runs' three shifts every day with employees working eight hours each. The balance 40% of employees are paid monthly by bank transfer and they work at the head office. Rashid's human resources (HR) department, responsible for setting up all new joiners. HR will complete the pre-printed forms all new employees and, once verified, a copy is sent to the payroll department for the employee to be set up for payment. This form includes the staff member's employee number and payroll cannot set up new joiners without this information. Rashid introduced a discretionary bonus, paid every three months, for production staff. The discretionary bonus is to encourage staff to attend work on time for all shifts. The amounts to be paid are determine the production supervisors and payroll department is notified. Then a clerk will enter the quarterly bonus into the system while the senior clerk will check each of entry for input errors before processing. The bonus listing will be signed by the senior clerk as evidence of carrying out this review. A clock card is issued to each of the production employees which they have to swipe before the beginning and at the end of each of their shift. A security staff monitors this process 24 hours a day. Each card detects the employee number and links to the payroll system which produces the hours worked report. Then the payroll system will automatically calculate the gross and net pay along with relevant deductions based on information in the hours worked report and no checking is done to the calculation. Some of the employees have taken student loan from the central government. All employers have a statutory obligation to remit funds on a timely basis and to maintain accounting records which reconcile with annual loan statements sent by the government to employers. Therefore, some employees, wages are deducted for repayments of student loans owed to the central government along with the tax deductions. The relevant employees must complete a student loan deduction form and based on the information provided the payments are made directly to the government. It is the responsibility of the relevant employees to notify HR once the loan has been fully repaid. On a quarterly basis, the payroll director will review the exception reports relating to changes to the payroll standing data produced. It is the employees' annual entitlement to take 28 days holiday. The employees are needed to fill in the holiday request forms, and their line manager need to authorise the form. However, this process is not always complied. No overtime is worked by employees. The senior payroll manager will review the list of bank payment and counter check with the payroll records before authorising the payment monthly for employees paid by bank transfer. The payroll manager will amend the records if any errors were found. A security company will send on a weekly basis the cash amount necessary to pay the production employees who are paid by cash from the bank. Two staffs belonging the payroll department will prepare pay packets, one is responsible for preparing them and the other checks the finished pay packets. Once the task is completed both staffs involved need to sign the weekly payroll listing. The pay packets are then delivered to the production supervisors, who distribute them to employees at the end of the employees' shift, as they know each member of their production team. Monthly management accounts are produced which detail variances between budgeted amounts and actual. Revenue and key production costs are detailed, however, as there are no overtime costs, wages and salaries are not analysed. Required: (a) In respect of the payroll system of Rashid Berhad: (i) Identify and explain FIVE (5) key controls which the auditor may seek to place reliance (5 marks) on. (ii) Recommend a test of control the auditor should perform to assess if each of these key controls is operating effectively. (5 marks) (b) Identify and explain FIVE (5) deficiencies in Rashid Berhad's payroll system and provide a recommendation to address each of these deficiencies. (10 marks) (c) Rashid Berhad deducts employment taxes from its employees' wages on a weekly/monthly basis and pays these to the local taxation authorities in the following month. At the year end the financial statements will contain an accrual for income tax payable on employment income. Propose the substantive procedures the auditor should perform to confirm the year-end accrual for tax payable on employment income. (5 marks) [Total: 25 Marks] You as the audit manager of Liew and Partners (Liew). One of your firm's clients is Rashid Berhad (Rashid). Rashid is a manufacturing company which operates 24 hours a day, seven days a week. The company's yearend is 31 December. The interim audit for the year ending 31 December 2021 has been completed and you are reviewing the documentation describing Rashid's payroll system. Systems notes - payroll 60% of the 500 employees of Rashid belongs to production department. The production department employees are paid cash on a weekly basis. Rashid's production department runs' three shifts every day with employees working eight hours each. The balance 40% of employees are paid monthly by bank transfer and they work at the head office. Rashid's human resources (HR) department, responsible for setting up all new joiners. HR will complete the pre-printed forms all new employees and, once verified, a copy is sent to the payroll department for the employee to be set up for payment. This form includes the staff member's employee number and payroll cannot set up new joiners without this information. Rashid introduced a discretionary bonus, paid every three months, for production staff. The discretionary bonus is to encourage staff to attend work on time for all shifts. The amounts to be paid are determine the production supervisors and payroll department is notified. Then a clerk will enter the quarterly bonus into the system while the senior clerk will check each of entry for input errors before processing. The bonus listing will be signed by the senior clerk as evidence of carrying out this review. A clock card is issued to each of the production employees which they have to swipe before the beginning and at the end of each of their shift. A security staff monitors this process 24 hours a day. Each card detects the employee number and links to the payroll system which produces the hours worked report. Then the payroll system will automatically calculate the gross and net pay along with relevant deductions based on information in the hours worked report and no checking is done to the calculation. Some of the employees have taken student loan from the central government. All employers have a statutory obligation to remit funds on a timely basis and to maintain accounting records which reconcile with annual loan statements sent by the government to employers. Therefore, some employees, wages are deducted for repayments of student loans owed to the central government along with the tax deductions. The relevant employees must complete a student loan deduction form and based on the information provided the payments are made directly to the government. It is the responsibility of the relevant employees to notify HR once the loan has been fully repaid. On a quarterly basis, the payroll director will review the exception reports relating to changes to the payroll standing data produced. It is the employees' annual entitlement to take 28 days holiday. The employees are needed to fill in the holiday request forms, and their line manager need to authorise the form. However, this process is not always complied. No overtime is worked by employees. The senior payroll manager will review the list of bank payment and counter check with the payroll records before authorising the payment monthly for employees paid by bank transfer. The payroll manager will amend the records if any errors were found. A security company will send on a weekly basis the cash amount necessary to pay the production employees who are paid by cash from the bank. Two staffs belonging the payroll department will prepare pay packets, one is responsible for preparing them and the other checks the finished pay packets. Once the task is completed both staffs involved need to sign the weekly payroll listing. The pay packets are then delivered to the production supervisors, who distribute them to employees at the end of the employees' shift, as they know each member of their production team. Monthly management accounts are produced which detail variances between budgeted amounts and actual. Revenue and key production costs are detailed, however, as there are no overtime costs, wages and salaries are not analysed. Required: (a) In respect of the payroll system of Rashid Berhad: (i) Identify and explain FIVE (5) key controls which the auditor may seek to place reliance (5 marks) on. (ii) Recommend a test of control the auditor should perform to assess if each of these key controls is operating effectively. (5 marks) (b) Identify and explain FIVE (5) deficiencies in Rashid Berhad's payroll system and provide a recommendation to address each of these deficiencies. (10 marks) (c) Rashid Berhad deducts employment taxes from its employees' wages on a weekly/monthly basis and pays these to the local taxation authorities in the following month. At the year end the financial statements will contain an accrual for income tax payable on employment income. Propose the substantive procedures the auditor should perform to confirm the year-end accrual for tax payable on employment income. (5 marks) [Total: 25 Marks] You as the audit manager of Liew and Partners (Liew). One of your firm's clients is Rashid Berhad (Rashid). Rashid is a manufacturing company which operates 24 hours a day, seven days a week. The company's yearend is 31 December. The interim audit for the year ending 31 December 2021 has been completed and you are reviewing the documentation describing Rashid's payroll system. Systems notes - payroll 60% of the 500 employees of Rashid belongs to production department. The production department employees are paid cash on a weekly basis. Rashid's production department runs' three shifts every day with employees working eight hours each. The balance 40% of employees are paid monthly by bank transfer and they work at the head office. Rashid's human resources (HR) department, responsible for setting up all new joiners. HR will complete the pre-printed forms all new employees and, once verified, a copy is sent to the payroll department for the employee to be set up for payment. This form includes the staff member's employee number and payroll cannot set up new joiners without this information. Rashid introduced a discretionary bonus, paid every three months, for production staff. The discretionary bonus is to encourage staff to attend work on time for all shifts. The amounts to be paid are determine the production supervisors and payroll department is notified. Then a clerk will enter the quarterly bonus into the system while the senior clerk will check each of entry for input errors before processing. The bonus listing will be signed by the senior clerk as evidence of carrying out this review. A clock card is issued to each of the production employees which they have to swipe before the beginning and at the end of each of their shift. A security staff monitors this process 24 hours a day. Each card detects the employee number and links to the payroll system which produces the hours worked report. Then the payroll system will automatically calculate the gross and net pay along with relevant deductions based on information in the hours worked report and no checking is done to the calculation. Some of the employees have taken student loan from the central government. All employers have a statutory obligation to remit funds on a timely basis and to maintain accounting records which reconcile with annual loan statements sent by the government to employers. Therefore, some employees, wages are deducted for repayments of student loans owed to the central government along with the tax deductions. The relevant employees must complete a student loan deduction form and based on the information provided the payments are made directly to the government. It is the responsibility of the relevant employees to notify HR once the loan has been fully repaid. On a quarterly basis, the payroll director will review the exception reports relating to changes to the payroll standing data produced. It is the employees' annual entitlement to take 28 days holiday. The employees are needed to fill in the holiday request forms, and their line manager need to authorise the form. However, this process is not always complied. No overtime is worked by employees. The senior payroll manager will review the list of bank payment and counter check with the payroll records before authorising the payment monthly for employees paid by bank transfer. The payroll manager will amend the records if any errors were found. A security company will send on a weekly basis the cash amount necessary to pay the production employees who are paid by cash from the bank. Two staffs belonging the payroll department will prepare pay packets, one is responsible for preparing them and the other checks the finished pay packets. Once the task is completed both staffs involved need to sign the weekly payroll listing. The pay packets are then delivered to the production supervisors, who distribute them to employees at the end of the employees' shift, as they know each member of their production team. Monthly management accounts are produced which detail variances between budgeted amounts and actual. Revenue and key production costs are detailed, however, as there are no overtime costs, wages and salaries are not analysed. Required: (a) In respect of the payroll system of Rashid Berhad: (i) Identify and explain FIVE (5) key controls which the auditor may seek to place reliance (5 marks) on. (ii) Recommend a test of control the auditor should perform to assess if each of these key controls is operating effectively. (5 marks) (b) Identify and explain FIVE (5) deficiencies in Rashid Berhad's payroll system and provide a recommendation to address each of these deficiencies. (10 marks) (c) Rashid Berhad deducts employment taxes from its employees' wages on a weekly/monthly basis and pays these to the local taxation authorities in the following month. At the year end the financial statements will contain an accrual for income tax payable on employment income. Propose the substantive procedures the auditor should perform to confirm the year-end accrual for tax payable on employment income. (5 marks) [Total: 25 Marks] You as the audit manager of Liew and Partners (Liew). One of your firm's clients is Rashid Berhad (Rashid). Rashid is a manufacturing company which operates 24 hours a day, seven days a week. The company's yearend is 31 December. The interim audit for the year ending 31 December 2021 has been completed and you are reviewing the documentation describing Rashid's payroll system. Systems notes - payroll 60% of the 500 employees of Rashid belongs to production department. The production department employees are paid cash on a weekly basis. Rashid's production department runs' three shifts every day with employees working eight hours each. The balance 40% of employees are paid monthly by bank transfer and they work at the head office. Rashid's human resources (HR) department, responsible for setting up all new joiners. HR will complete the pre-printed forms all new employees and, once verified, a copy is sent to the payroll department for the employee to be set up for payment. This form includes the staff member's employee number and payroll cannot set up new joiners without this information. Rashid introduced a discretionary bonus, paid every three months, for production staff. The discretionary bonus is to encourage staff to attend work on time for all shifts. The amounts to be paid are determine the production supervisors and payroll department is notified. Then a clerk will enter the quarterly bonus into the system while the senior clerk will check each of entry for input errors before processing. The bonus listing will be signed by the senior clerk as evidence of carrying out this review. A clock card is issued to each of the production employees which they have to swipe before the beginning and at the end of each of their shift. A security staff monitors this process 24 hours a day. Each card detects the employee number and links to the payroll system which produces the hours worked report. Then the payroll system will automatically calculate the gross and net pay along with relevant deductions based on information in the hours worked report and no checking is done to the calculation. Some of the employees have taken student loan from the central government. All employers have a statutory obligation to remit funds on a timely basis and to maintain accounting records which reconcile with annual loan statements sent by the government to employers. Therefore, some employees, wages are deducted for repayments of student loans owed to the central government along with the tax deductions. The relevant employees must complete a student loan deduction form and based on the information provided the payments are made directly to the government. It is the responsibility of the relevant employees to notify HR once the loan has been fully repaid. On a quarterly basis, the payroll director will review the exception reports relating to changes to the payroll standing data produced. It is the employees' annual entitlement to take 28 days holiday. The employees are needed to fill in the holiday request forms, and their line manager need to authorise the form. However, this process is not always complied. No overtime is worked by employees. The senior payroll manager will review the list of bank payment and counter check with the payroll records before authorising the payment monthly for employees paid by bank transfer. The payroll manager will amend the records if any errors were found. A security company will send on a weekly basis the cash amount necessary to pay the production employees who are paid by cash from the bank. Two staffs belonging the payroll department will prepare pay packets, one is responsible for preparing them and the other checks the finished pay packets. Once the task is completed both staffs involved need to sign the weekly payroll listing. The pay packets are then delivered to the production supervisors, who distribute them to employees at the end of the employees' shift, as they know each member of their production team. Monthly management accounts are produced which detail variances between budgeted amounts and actual. Revenue and key production costs are detailed, however, as there are no overtime costs, wages and salaries are not analysed. Required: (a) In respect of the payroll system of Rashid Berhad: (i) Identify and explain FIVE (5) key controls which the auditor may seek to place reliance (5 marks) on. (ii) Recommend a test of control the auditor should perform to assess if each of these key controls is operating effectively. (5 marks) (b) Identify and explain FIVE (5) deficiencies in Rashid Berhad's payroll system and provide a recommendation to address each of these deficiencies. (10 marks) (c) Rashid Berhad deducts employment taxes from its employees' wages on a weekly/monthly basis and pays these to the local taxation authorities in the following month. At the year end the financial statements will contain an accrual for income tax payable on employment income. Propose the substantive procedures the auditor should perform to confirm the year-end accrual for tax payable on employment income. (5 marks) [Total: 25 Marks] You as the audit manager of Liew and Partners (Liew). One of your firm's clients is Rashid Berhad (Rashid). Rashid is a manufacturing company which operates 24 hours a day, seven days a week. The company's yearend is 31 December. The interim audit for the year ending 31 December 2021 has been completed and you are reviewing the documentation describing Rashid's payroll system. Systems notes - payroll 60% of the 500 employees of Rashid belongs to production department. The production department employees are paid cash on a weekly basis. Rashid's production department runs' three shifts every day with employees working eight hours each. The balance 40% of employees are paid monthly by bank transfer and they work at the head office. Rashid's human resources (HR) department, responsible for setting up all new joiners. HR will complete the pre-printed forms all new employees and, once verified, a copy is sent to the payroll department for the employee to be set up for payment. This form includes the staff member's employee number and payroll cannot set up new joiners without this information. Rashid introduced a discretionary bonus, paid every three months, for production staff. The discretionary bonus is to encourage staff to attend work on time for all shifts. The amounts to be paid are determine the production supervisors and payroll department is notified. Then a clerk will enter the quarterly bonus into the system while the senior clerk will check each of entry for input errors before processing. The bonus listing will be signed by the senior clerk as evidence of carrying out this review. A clock card is issued to each of the production employees which they have to swipe before the beginning and at the end of each of their shift. A security staff monitors this process 24 hours a day. Each card detects the employee number and links to the payroll system which produces the hours worked report. Then the payroll system will automatically calculate the gross and net pay along with relevant deductions based on information in the hours worked report and no checking is done to the calculation. Some of the employees have taken student loan from the central government. All employers have a statutory obligation to remit funds on a timely basis and to maintain accounting records which reconcile with annual loan statements sent by the government to employers. Therefore, some employees, wages are deducted for repayments of student loans owed to the central government along with the tax deductions. The relevant employees must complete a student loan deduction form and based on the information provided the payments are made directly to the government. It is the responsibility of the relevant employees to notify HR once the loan has been fully repaid. On a quarterly basis, the payroll director will review the exception reports relating to changes to the payroll standing data produced. It is the employees' annual entitlement to take 28 days holiday. The employees are needed to fill in the holiday request forms, and their line manager need to authorise the form. However, this process is not always complied. No overtime is worked by employees. The senior payroll manager will review the list of bank payment and counter check with the payroll records before authorising the payment monthly for employees paid by bank transfer. The payroll manager will amend the records if any errors were found. A security company will send on a weekly basis the cash amount necessary to pay the production employees who are paid by cash from the bank. Two staffs belonging the payroll department will prepare pay packets, one is responsible for preparing them and the other checks the finished pay packets. Once the task is completed both staffs involved need to sign the weekly payroll listing. The pay packets are then delivered to the production supervisors, who distribute them to employees at the end of the employees' shift, as they know each member of their production team. Monthly management accounts are produced which detail variances between budgeted amounts and actual. Revenue and key production costs are detailed, however, as there are no overtime costs, wages and salaries are not analysed. Required: (a) In respect of the payroll system of Rashid Berhad: (i) Identify and explain FIVE (5) key controls which the auditor may seek to place reliance (5 marks) on. (ii) Recommend a test of control the auditor should perform to assess if each of these key controls is operating effectively. (5 marks) (b) Identify and explain FIVE (5) deficiencies in Rashid Berhad's payroll system and provide a recommendation to address each of these deficiencies. (10 marks) (c) Rashid Berhad deducts employment taxes from its employees' wages on a weekly/monthly basis and pays these to the local taxation authorities in the following month. At the year end the financial statements will contain an accrual for income tax payable on employment income. Propose the substantive procedures the auditor should perform to confirm the year-end accrual for tax payable on employment income. (5 marks) [Total: 25 Marks] You as the audit manager of Liew and Partners (Liew). One of your firm's clients is Rashid Berhad (Rashid). Rashid is a manufacturing company which operates 24 hours a day, seven days a week. The company's yearend is 31 December. The interim audit for the year ending 31 December 2021 has been completed and you are reviewing the documentation describing Rashid's payroll system. Systems notes - payroll 60% of the 500 employees of Rashid belongs to production department. The production department employees are paid cash on a weekly basis. Rashid's production department runs' three shifts every day with employees working eight hours each. The balance 40% of employees are paid monthly by bank transfer and they work at the head office. Rashid's human resources (HR) department, responsible for setting up all new joiners. HR will complete the pre-printed forms all new employees and, once verified, a copy is sent to the payroll department for the employee to be set up for payment. This form includes the staff member's employee number and payroll cannot set up new joiners without this information. Rashid introduced a discretionary bonus, paid every three months, for production staff. The discretionary bonus is to encourage staff to attend work on time for all shifts. The amounts to be paid are determine the production supervisors and payroll department is notified. Then a clerk will enter the quarterly bonus into the system while the senior clerk will check each of entry for input errors before processing. The bonus listing will be signed by the senior clerk as evidence of carrying out this review. A clock card is issued to each of the production employees which they have to swipe before the beginning and at the end of each of their shift. A security staff monitors this process 24 hours a day. Each card detects the employee number and links to the payroll system which produces the hours worked report. Then the payroll system will automatically calculate the gross and net pay along with relevant deductions based on information in the hours worked report and no checking is done to the calculation. Some of the employees have taken student loan from the central government. All employers have a statutory obligation to remit funds on a timely basis and to maintain accounting records which reconcile with annual loan statements sent by the government to employers. Therefore, some employees, wages are deducted for repayments of student loans owed to the central government along with the tax deductions. The relevant employees must complete a student loan deduction form and based on the information provided the payments are made directly to the government. It is the responsibility of the relevant employees to notify HR once the loan has been fully repaid. On a quarterly basis, the payroll director will review the exception reports relating to changes to the payroll standing data produced. It is the employees' annual entitlement to take 28 days holiday. The employees are needed to fill in the holiday request forms, and their line manager need to authorise the form. However, this process is not always complied. No overtime is worked by employees. The senior payroll manager will review the list of bank payment and counter check with the payroll records before authorising the payment monthly for employees paid by bank transfer. The payroll manager will amend the records if any errors were found. A security company will send on a weekly basis the cash amount necessary to pay the production employees who are paid by cash from the bank. Two staffs belonging the payroll department will prepare pay packets, one is responsible for preparing them and the other checks the finished pay packets. Once the task is completed both staffs involved need to sign the weekly payroll listing. The pay packets are then delivered to the production supervisors, who distribute them to employees at the end of the employees' shift, as they know each member of their production team. Monthly management accounts are produced which detail variances between budgeted amounts and actual. Revenue and key production costs are detailed, however, as there are no overtime costs, wages and salaries are not analysed. Required: (a) In respect of the payroll system of Rashid Berhad: (i) Identify and explain FIVE (5) key controls which the auditor may seek to place reliance (5 marks) on. (ii) Recommend a test of control the auditor should perform to assess if each of these key controls is operating effectively. (5 marks) (b) Identify and explain FIVE (5) deficiencies in Rashid Berhad's payroll system and provide a recommendation to address each of these deficiencies. (10 marks) (c) Rashid Berhad deducts employment taxes from its employees' wages on a weekly/monthly basis and pays these to the local taxation authorities in the following month. At the year end the financial statements will contain an accrual for income tax payable on employment income. Propose the substantive procedures the auditor should perform to confirm the year-end accrual for tax payable on employment income. (5 marks) [Total: 25 Marks] You as the audit manager of Liew and Partners (Liew). One of your firm's clients is Rashid Berhad (Rashid). Rashid is a manufacturing company which operates 24 hours a day, seven days a week. The company's yearend is 31 December. The interim audit for the year ending 31 December 2021 has been completed and you are reviewing the documentation describing Rashid's payroll system. Systems notes - payroll 60% of the 500 employees of Rashid belongs to production department. The production department employees are paid cash on a weekly basis. Rashid's production department runs' three shifts every day with employees working eight hours each. The balance 40% of employees are paid monthly by bank transfer and they work at the head office. Rashid's human resources (HR) department, responsible for setting up all new joiners. HR will complete the pre-printed forms all new employees and, once verified, a copy is sent to the payroll department for the employee to be set up for payment. This form includes the staff member's employee number and payroll cannot set up new joiners without this information. Rashid introduced a discretionary bonus, paid every three months, for production staff. The discretionary bonus is to encourage staff to attend work on time for all shifts. The amounts to be paid are determine the production supervisors and payroll department is notified. Then a clerk will enter the quarterly bonus into the system while the senior clerk will check each of entry for input errors before processing. The bonus listing will be signed by the senior clerk as evidence of carrying out this review. A clock card is issued to each of the production employees which they have to swipe before the beginning and at the end of each of their shift. A security staff monitors this process 24 hours a day. Each card detects the employee number and links to the payroll system which produces the hours worked report. Then the payroll system will automatically calculate the gross and net pay along with relevant deductions based on information in the hours worked report and no checking is done to the calculation. Some of the employees have taken student loan from the central government. All employers have a statutory obligation to remit funds on a timely basis and to maintain accounting records which reconcile with annual loan statements sent by the government to employers. Therefore, some employees, wages are deducted for repayments of student loans owed to the central government along with the tax deductions. The relevant employees must complete a student loan deduction form and based on the information provided the payments are made directly to the government. It is the responsibility of the relevant employees to notify HR once the loan has been fully repaid. On a quarterly basis, the payroll director will review the exception reports relating to changes to the payroll standing data produced. It is the employees' annual entitlement to take 28 days holiday. The employees are needed to fill in the holiday request forms, and their line manager need to authorise the form. However, this process is not always complied. No overtime is worked by employees. The senior payroll manager will review the list of bank payment and counter check with the payroll records before authorising the payment monthly for employees paid by bank transfer. The payroll manager will amend the records if any errors were found. A security company will send on a weekly basis the cash amount necessary to pay the production employees who are paid by cash from the bank. Two staffs belonging the payroll department will prepare pay packets, one is responsible for preparing them and the other checks the finished pay packets. Once the task is completed both staffs involved need to sign the weekly payroll listing. The pay packets are then delivered to the production supervisors, who distribute them to employees at the end of the employees' shift, as they know each member of their production team. Monthly management accounts are produced which detail variances between budgeted amounts and actual. Revenue and key production costs are detailed, however, as there are no overtime costs, wages and salaries are not analysed. Required: (a) In respect of the payroll system of Rashid Berhad: (i) Identify and explain FIVE (5) key controls which the auditor may seek to place reliance (5 marks) on. (ii) Recommend a test of control the auditor should perform to assess if each of these key controls is operating effectively. (5 marks) (b) Identify and explain FIVE (5) deficiencies in Rashid Berhad's payroll system and provide a recommendation to address each of these deficiencies. (10 marks) (c) Rashid Berhad deducts employment taxes from its employees' wages on a weekly/monthly basis and pays these to the local taxation authorities in the following month. At the year end the financial statements will contain an accrual for income tax payable on employment income. Propose the substantive procedures the auditor should perform to confirm the year-end accrual for tax payable on employment income. (5 marks) [Total: 25 Marks]

Answer rating: 100% (QA)

Answer Controls Time tracking methods that are computerized Consider setting up a computerized time ... View the full answer