Your firm is the external auditor for Southpoint Engineering, a publicly listed company with annual sales...
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Your firm is the external auditor for Southpoint Engineering, a publicly listed company with annual sales of $100 million. The company's head office site houses the manufacturing unit, accounting functions, and main administration, while there are several sales offices located in different regions across the country. It is important to note that Southpoint Engineering does not have an internal audit department. As part of the interim audit, you have been assigned to examine the wages system. This entails gaining an understanding of the system, testing controls, and performing substantive procedures to verify the accuracy of wages transactions. The wages records are stored electronically and all wage-related information is processed at the head office. While some employees in the manufacturing unit receive cash payments, others have their wages directly deposited into their bank accounts. Manufacturing employees are paid a week after the services are rendered, whereas other employees are paid at the end of each week or month. The company has a personnel department that operates independently from the wages department. The personnel department maintains records of employees, including their start dates, job grades, current wage rates, and departure dates (if applicable). Past audits have uncovered instances of fraud committed by wages department staff, which were facilitated by weaknesses in the controls of the wages system. These fraudulent activities included paying employees after their appointment but before they started working, making payments to employees who had already left the company, and disbursing wages to fictitious employees. A review of the current control environment for the wages system has revealed a lack of measures implemented to prevent the recurrence of similar frauds. Consequently, your audit program necessitates extensive substantive procedures to ensure that recorded wages transactions have not been misrepresented due to similar fraudulent activities occurring in the current year. The existence of employees at the head office site can be confirmed through physical inspections. However, for cost-effectiveness, you will only visit a small sample of sales offices. The audit manager has requested that you consider appropriate audit procedures to obtain sufficient evidence regarding the existence of employees at sales offices that are not visited by your audit staff. The audit manager has explained the concept of "unclaimed wages," which occurs when manufacturing employees are not present to collect their wages during pay-outs. In such cases, unclaimed wage packets are given to the cashier, who records the details in an unclaimed wages book and is responsible for their safekeeping. Any employee who has not received their wage package at the time of pay-out can obtain it from the cashier. However, it has been discovered that there is no independent system in place to verify the proper functioning of the unclaimed wages process, separate from the cashier and the wages department. Required: a) Describe how you would ensure that employees are not paid before they start or after they leave (a "starters and leavers" test). b) Describe the audit processes you would follow if you were attending a cash wage payment to manufacturing employees. c) Describe the substantive checks you would perform on unclaimed wages transactions. d) Describe the proof you would gather to authenticate the existence of employees, including those at sales offices, whose wages are remitted straight into their bank accounts. Your firm is the external auditor for Southpoint Engineering, a publicly listed company with annual sales of $100 million. The company's head office site houses the manufacturing unit, accounting functions, and main administration, while there are several sales offices located in different regions across the country. It is important to note that Southpoint Engineering does not have an internal audit department. As part of the interim audit, you have been assigned to examine the wages system. This entails gaining an understanding of the system, testing controls, and performing substantive procedures to verify the accuracy of wages transactions. The wages records are stored electronically and all wage-related information is processed at the head office. While some employees in the manufacturing unit receive cash payments, others have their wages directly deposited into their bank accounts. Manufacturing employees are paid a week after the services are rendered, whereas other employees are paid at the end of each week or month. The company has a personnel department that operates independently from the wages department. The personnel department maintains records of employees, including their start dates, job grades, current wage rates, and departure dates (if applicable). Past audits have uncovered instances of fraud committed by wages department staff, which were facilitated by weaknesses in the controls of the wages system. These fraudulent activities included paying employees after their appointment but before they started working, making payments to employees who had already left the company, and disbursing wages to fictitious employees. A review of the current control environment for the wages system has revealed a lack of measures implemented to prevent the recurrence of similar frauds. Consequently, your audit program necessitates extensive substantive procedures to ensure that recorded wages transactions have not been misrepresented due to similar fraudulent activities occurring in the current year. The existence of employees at the head office site can be confirmed through physical inspections. However, for cost-effectiveness, you will only visit a small sample of sales offices. The audit manager has requested that you consider appropriate audit procedures to obtain sufficient evidence regarding the existence of employees at sales offices that are not visited by your audit staff. The audit manager has explained the concept of "unclaimed wages," which occurs when manufacturing employees are not present to collect their wages during pay-outs. In such cases, unclaimed wage packets are given to the cashier, who records the details in an unclaimed wages book and is responsible for their safekeeping. Any employee who has not received their wage package at the time of pay-out can obtain it from the cashier. However, it has been discovered that there is no independent system in place to verify the proper functioning of the unclaimed wages process, separate from the cashier and the wages department. Required: a) Describe how you would ensure that employees are not paid before they start or after they leave (a "starters and leavers" test). b) Describe the audit processes you would follow if you were attending a cash wage payment to manufacturing employees. c) Describe the substantive checks you would perform on unclaimed wages transactions. d) Describe the proof you would gather to authenticate the existence of employees, including those at sales offices, whose wages are remitted straight into their bank accounts.
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Related Book For
Equity Asset Valuation
ISBN: 978-0470571439
2nd Edition
Authors: Jerald E. Pinto, Elaine Henry, Thomas R. Robinson, John D. Stowe, Abby Cohen
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