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10.2.3 AUDITING 3: ASSIGNMENT 2 [100] QUESTION ONE [40] Toy (Pty) Ltd is a manufacturer of toys. In addition to a large salaried staff, the company employs about 100 skilled and semi-skilled wage earners. As part of the planning for the audit, you obtained the following information: 1. The 100 skilled employees are spread evenly over three sections. 2. Each section is headed by a foreman. The foremen report to Raymond Zulu, the factory manager 3. The three sections are located in a single factory building and to enter or leave the building, hourly paid employees must pass a clock card through a clocking machine to record their time of entry or exit and to activate the control gate. The clock is located at the control gate. There is only one point of entrylexit. 4. The clocking procedure is observed by Jake Martin the factory administration clerk who has a glass fronted office overlooking the clocking area. 5. Employees work Monday to Friday and are required to "clock-in" by 7am and "clock-out" at 4 pm. Any additional time worked is regarded as overtime. Overtime work is carefully planned and scheduled by the section foreman. Raymond Zulu authorises the schedule of overtime. 6. Wages are paid every two weeks and the clockcards for each wage period are prepared in the human resources department and sent to Jake Martin with a listing of each employee for whom there is a card. Jake Martin agrees the cards to the list, signs the list and retains a copy. 7. The wage period runs from Thursday morning until Wednesday afternoon two weeks later. Early on the Thursday morning Jake Martin collects all the clock cards for the wage period just completed from the racks next to the clocking machine, and replaces them with the clockcards for the two week wage period commencing that morning. 8. Once the previous period's cards have been collected, various batch controls and other procedures are carried out before the clockcards are taken to the wage office by Raymond Zulu. 9. The wage office is staffed by the paymaster, Natalie Brown and her assistant, Siya Ngcobo. The wages are processed using application software developed and maintained by the company itself. Enhancements to the software are made from time to time by Toy (Pty) Ltd's small information technology (IT) section to keep the application up to date with tax requirements and to provide management with better information for controlling wages, which is a major expense. The company runs all of its accounting applications on a local area network and the IT department is headed by Lee-Anne Singh. 10. Siya Ngcobo is responsible for preparing the payroll. Once he has received the clockcards, he selects the "enter hours worked" module and then captures the employee number, as well as the normal and overtime hours from each clockcard. Once he is satisfied that the hours captured are accurate and complete, he selects the process payroll" option to effect the processing of the payroll. The software is well designed and includes a number of programme (automated) controls to provide valid, accurate and complete capture and processing of data. Required a) Explain the internal control objectives of validity, accuracy and completeness in the context of the payroll cycle. (6) b) Describe the batch controls and other procedures which should be in place from the time Jake Martin collects the completed wage period's clockcards from the racks, to the time Siya Ngcobo accepts the clockcards from Jake Martin. (12) c) Identify and explain the controls which should be in place to prevent unauthorised access to the wage application and its various modules on Toy (Pty) Ltd's local area network. (8) d) Briefly explain the following programme control and give an example of how each control could be used to assist Siya Ngcobo in capturing valid, accurate and complete data Mandatory field check Verification check Limit check (3 x 2) (6)