Jane has been the payroll supervisor at Large Distribution Company (LDC) for ten years. She has never missed a payroll and Haley, the owner of the company, is delighted with her conscientiousness and knowledge. This is particularly important, as Haley spends a lot of time on the road drumming up new business, and needs competent personnel back at the office.

There are two accounting personnel at the office, a receptionist, five shipping and receiving personnel, and thirty sales people employed by LDC. Office and shipping/receiving personnel are paid a salary, while the sales people are paid a monthly base salary plus a percentage of their sales, calculated quarterly. The base salary is low, at $20 000, with a 2% commission, calculated based on sales less any bad debts written off related to their customers.

Jane prints off the sales by customer every month and uses this information to calculate commissions. She then prepares the payroll cheques and gives them to Haley, who signs them and gives them to the sales staff at the monthly sales meeting. The cheques are written against a payroll imprest bank account, kept at a balance of $1,000 and refunded as needed. This account is not reconciled, as the staff are very overworked with the increasing volume of business handled by the company.

Required:

A) Identify control weaknesses and their impact, and provide recommendations for improvement.

B) What is the impact of the control weaknesses upon your audit approach?

Answer rating: 100% (QA)

Control weakness Impact Recommendation Impact on audit approach 1 Absence ... View the full answer