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AAA – L3 – Q65 – Reporting

Prepare a management report on payroll internal control deficiencies at Bibini Co. Ltd., including implications and recommendations.

Question

Kofi & Co. have audited the annual financial statements of Akoma Co. Ltd., a public limited liability company, for the year ended 31st December 2014. The accounting system of the company is partially computerised.
During the audit, it was detected that just two members of staff, out of one hundred and fifty workers, were entirely and equally responsible for the maintenance of personnel records and preparation of the payroll. The chief accountant only confirms that the amount of the wages and salaries cheque agrees with the total of the net wages column in the payroll, then he signs without any reasonableness check of the amount of the total wages cheque. This situation is a serious deficiency in the system of internal control which can have serious implications. As audit senior, you are considering communicating this situation to the management, showing the deficiency, implications, and recommendations.

Required:
Prepare an appropriate report to management on the deficiency noted in the system of internal control for payroll.

Answer

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Tags: Audit Deficiency, Audit Procedures, Corporate Governance, Financial Statements, Fraud Risk, Internal Control, Management Report, Payroll, Recommendations, Risk Assessment
Level: Level 3

Topic: Reporting

AA – L2 – Q51 – Audit Evidence

Describe audit work to check supplier statements against purchase ledger balances for Kumasi Manufacturing Ltd. Describe audit work to verify purchases cut-off at year-end for Kumasi Manufacturing Ltd. Describe audit work to ensure sundry payables and accruals are correctly stated for Kumasi Manufacturing Ltd.

Question

our firm is the auditor of Kumasi Manufacturing Ltd, and you have been asked to suggest the audit work you will carry out in verifying accounts payable and purchase accruals at the company’s year-end of 30 September 2025. You attended the inventory count at the year end.

The company operates from a single site and all raw materials for production are received by the goods inwards department. When the materials are received they are checked for quantity and quality to the delivery note and purchase order, and a multipart goods received note is made out and signed by the storekeeper. If there are any problems with the raw materials, a discrepancy note is raised which gives details of the problems (e.g. incorrect quantities or faulty materials).

The purchase accounting department receive the purchase invoices, check them to the purchase order and goods received note and post them to the purchase ledger. At the end of each month, payments are made to suppliers. The purchase ledger is maintained on a PC.

The main sundry payables and accruals at the year-end include:
(i) wages accruals and associated taxes payable;
(ii) sales taxes payable;
(iii) time dependent accruals, such as interest on loans and overdrafts, telephone, heat and light, and other expenses paid in arrears.

Most employees’ wages are paid weekly in arrears.

Required:
(a) Describe in detail the audit work you will carry out to check suppliers’ statements to the balances on the purchase ledger.

(b) Verify that purchases cut-off has been correctly carried out at the year-end.

(c) Ensure that sundry payables and accruals are correctly stated.

Answer

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Tags: Accruals, Audit Evidence, Payroll, Substantive Procedures, Sundry Payables, Taxes
Level: Level 2

Topic: Audit Evidence

AA – L2 – Q28 – Internal Control Systems

Draft questions for an internal control questionnaire for a weekly cash wages system at a healthcare company.

Question

28 Horizon Health Services
Horizon Health Services (HHS) has the following wages and salaries system for its 40 nurses who are paid weekly in cash.
Each employee fills in a record of nursing hours worked which is signed by one of two supervisors before being passed to the accounts department. The payroll clerk takes these details, and prepares the payroll, referring to the personnel records kept by the company secretary. The payroll clerk then requests a cheque for the weekly cash wages and prepares the pay packets which are distributed by the supervisors.
Required
Draft questions to be included in an internal control questionnaire for weekly wages paid in cash.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cash Payments, Fraud Prevention, Internal controls, Payroll, Wages System
Level: Level 2

Topic: Internal Control Systems

Tag (SQ): Payroll

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AAA – L3 – Q65 – Reporting

Prepare a management report on payroll internal control deficiencies at Bibini Co. Ltd., including implications and recommendations.

AA – L2 – Q51 – Audit Evidence

AA – L2 – Q28 – Internal Control Systems

Draft questions for an internal control questionnaire for a weekly cash wages system at a healthcare company.

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AAA – L3 – Q65 – Reporting

Prepare a management report on payroll internal control deficiencies at Bibini Co. Ltd., including implications and recommendations.

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AA – L2 – Q51 – Audit Evidence

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AA – L2 – Q28 – Internal Control Systems

Draft questions for an internal control questionnaire for a weekly cash wages system at a healthcare company.

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