Auditing

Basic Information

You are a partner in the firm of Dunning, Ko & Co. and you are responsible for conducting the final independent review of audits completed by the firm. Dunning, Ko & Co. is a full-service medium-sized public accounting firm that specializes in the audits of moderate-sized high-technology companies.

You are currently reviewing the audit working papers and a draft of the audited financial statements of Simply Electric Inc. (Simply Electric) for the year ended December 31, 2019, as well as the draft audit report (an unqualified opinion dated February 19, 2020) that was prepared by the engagement partner.

Dunning, Ko & Co. have been auditors since the companys inception. The 2019 audit fieldwork was performed by a senior auditor (who had not previously worked on the audit of this particular client) and two junior auditors, and the working papers were reviewed by a manager and the engagement partner.

Based on your review of the working papers, the draft financial statements, and the audit report, you have noted the following:

REAL INFORMATION

Salaries and Benefits

The following is an excerpt of the work performed on the salaries and benefits account:

	Dec 31, 2019	Dec, 31, 2018	$ change	% change
Salaries & Benefits account	$6,900,000	$4,950,000	1,950,000	40%

Per discussions with controller, the increase in salaries is a result of the hiring of 12 new sales representatives. This explanation appears reasonable. Obtained a listing which summarized the total annual salary for 2020 by employee. Re-added the schedule to verify the mathematical accuracy of the listing and agreed the total of $6,900,000 to the general ledger.

QUESTION

List two (2) major deficiencies in the work performed in the testing of Salaries and Benefits and explain the nature of the deficiencies. Provide recommendations regarding further actions and/or audit procedures