EBK AUDITING+ASSURANCE SERVICES
17th Edition
ISBN: 9780135171219
Author: ARENS
Publisher: PEARSON CO
expand_more
expand_more
format_list_bulleted
Question
Chapter 20, Problem 25DQP
a.
To determine
Identify the internal control deficiencies in the Company R’s payroll system.
b.
To determine
State and describe the type of misstatement that is likely to occur for each deficiency in internal
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Holly Company is a small family-run manufacturer of wooded garden furniture, sheds, and storage containers. The company is located outside Pittsburgh, Pennsylvania, and currently employs 185 workers. Much of the manufacturing work involves casual labor in the lumberyard and sawmill. The work is hard and employees often move on after a few months. Although the company does not issue audited financial statements, its owner has retained your firm to conduct a review of its internal controls. The focus of your review at this time is the payroll process. Holly employees use a time clock in an unsupervised area to record their time on the job. The time-keeping clerk tries to monitor the process, but is often distracted by other duties. Every Friday, the shop foremen collect the time cards for their subordinates, review and approve them, and deliver them to the payroll clerk.The payroll clerk uses a stand-alone PC to record the employee earnings in the employee records and print a hard-copy…
Mary Tan is the controller for Duck Associates, a property management company in Portland, Oregon. Each year, Tan and payroll clerk Toby Stock meet with the external auditors about payroll accounting. This year, the auditors suggest that Tan consider outsourcing Duck Associates’ payroll accounting to a company specializing in payroll processing services. This would allow Tan and her staff to focus on their primary responsibility: accounting for the properties under management. At present, payroll requires 1.5 employee positions: payroll clerk Toby Stock and a bookkeeper who spends half her time entering payroll data in the system.
Tan considers this suggestion, and she lists the following items relating to outsourcing payroll accounting:
a. The current payroll software that was purchased for $4,000 three years ago would not be needed if payroll processing were outsourced.
b. Duck Associates’ bookkeeper would spend half her time preparing the weekly payroll input form that is…
Mary Tan is the controller for Duck Associates, a property management company in Portland, Oregon. Each year, Tan and payroll clerk Toby Stock meet with the external auditors about payroll accounting. This year, the auditors suggest that Tan consider outsourcing Duck Associates' payroll accounting to a company specializing in payroll processing services. This would allow Tan and her staff to focus on their primary responsibility: accounting for the properties under management. At present, payroll requires 1.5 employee positions—payroll clerk Toby Stock and a bookkeeper who spends half her time entering payroll data in the system. Tan considers this suggestion, and she lists the following items relating to outsourcing payroll accounting:
The current payroll software that was purchased for $4,000 three years ago would not be needed if payroll processing were outsourced.
Duck Associates' bookkeeper would spend half her time preparing the weekly payroll input form that is given to the…
Chapter 20 Solutions
EBK AUDITING+ASSURANCE SERVICES
Ch. 20 - Prob. 1RQCh. 20 - Prob. 2RQCh. 20 - Distinguish among a payroll master file, a W-2...Ch. 20 - Prob. 4RQCh. 20 - Prob. 5RQCh. 20 - Prob. 6RQCh. 20 - Prob. 7RQCh. 20 - Prob. 8RQCh. 20 - Prob. 9RQCh. 20 - Prob. 10RQ
Ch. 20 - Prob. 11RQCh. 20 - Prob. 12RQCh. 20 - Prob. 13RQCh. 20 - Prob. 14RQCh. 20 - Prob. 15RQCh. 20 - Prob. 16.1MCQCh. 20 - Prob. 16.2MCQCh. 20 - Prob. 16.3MCQCh. 20 - Prob. 17.1MCQCh. 20 - Prob. 17.2MCQCh. 20 - Prob. 17.3MCQCh. 20 - Prob. 18.1MCQCh. 20 - Prob. 18.2MCQCh. 20 - Prob. 18.3MCQCh. 20 - Prob. 19DQPCh. 20 - Prob. 20DQPCh. 20 - Prob. 21DQPCh. 20 - Prob. 22DQPCh. 20 - Prob. 23DQPCh. 20 - Prob. 24DQPCh. 20 - Prob. 25DQPCh. 20 - Prob. 26DQPCh. 20 - Prob. 27DQPCh. 20 - Prob. 28C
Knowledge Booster
Similar questions
- Usaha Maju is a garment company that produces family-run uniforms and various clothing. The company is located outside Tangerang, Tangsel, and currently employs 128 workers. Most manufacturing jobs involve freelancers in the cutting and sewing departments. The work is long, monotonous, so employees often move after a few months. Although the company does not issue audited financial statements, the owners have asked you, as a freelance consultant, to conduct a review of its internal controls. The focus of your current review is the payroll process. Usaha Maju employees use a time clock in an unsupervised area to record their time on the job. The time-keeping staff tries to monitor the process, but is often distracted by other duties. Every Friday, the shop foremen collects the time cards for their subordinates, review and approve them, and deliver them to the payroll staff. The payroll staff uses a standalone PC to record the employee earnings in the employee records and print a…arrow_forwardUsaha Maju is a garment company that produces family-run uniforms and various clothing. The company is located outside Tangerang, Tangsel, and currently employs 128 workers. Most manufacturing jobs involve freelancers in the cutting and sewing departments. The work is long, monotonous, so employees often move after a few months. Although the company does not issue audited financial statements, the owners have asked you, as a freelance consultant, to conduct a review of its internal controls. The focus of your current review is the payroll process. Usaha Maju employees use a time clock in an unsupervised area to record their time on the job. The time-keeping staff tries to monitor the process, but is often distracted by other duties. Every Friday, the shop foremen collects the time cards for their subordinates, review and approve them, and deliver them to the payroll staff. The payroll staff uses a standalone PC to record the employee earnings in the employee records and print a…arrow_forwardTIGHT LINES FISHING AND CAMPING SUPPLIES (NETWORKED COMPUTER SYSTEM AND MANUAL PROCEDURES) Tight Lines Fishing and Camping Supplies is a New York–based wholesaler of fishing and camping equipment that serves fishing and camping retailers throughout the north east. Tight Lines uses a centralized accounting system with networked terminals in the departments. You have been hired by Tight Lines to evaluate their processes, risks, and internal controls. The following paragraphs describe Tight Lines payroll and fixed asset systems. Payroll System Each day Tight Lines employees record their hours worked on time cards, which their supervisors review for correctness and submit to the payroll department at the end of the workweek.Using a terminal connected to the central payroll system, which is located in the data processing department, the payroll clerk inputs the time-card data, prints hard copies of the paychecks, prints two copies of the payroll register, and posts to digital employee…arrow_forward
- During your first audit of medium-size manufacturing company, the owner, John Bell, explains that in order to establish clear-cut lines of responsibility for various aspects of the business, he has made the following assignments: One employee is responsible for the purchasing, receiving, and storing of merchandise. A second employee has full responsibility for maintenance of accounts receivable records and collections from customers. A third employee is responsible for personnel records, timekeeping, preparation of payrolls, and distribution of payroll checks. Bell asks your opinion concerning this plan of organization. Instructions: Explain fully the reasons supporting your opinion on each assignment. If the assignment violates an internal control principle, describe the principle and how to correct the violation. 1. One employee is responsible for the purchasing, receiving, and storing of merchandise. 2: A second employee has full responsibility for maintenance of accounts receivable…arrow_forwardGolden Bear Construction operates throughout California. The owner, Gaylan Beavers, employs 15 work crews. Construction supervisors report directly to Beavers, and the supervisors are trusted employees. The home office staff consists of an accountant and an office manager. Because employee turnover is high in the construction industry, supervisors hire and fire their own crews. Supervisors notify the office of all personnel changes. Also, supervisors forward the employee W-4 forms to the home office. Each Thursday, the supervisors submit weekly time sheets for their crews, and the accountant prepares the payroll. At noon on Friday, the supervisors come to the office to get paychecks for distribution to the workers at 5 p.m. The company accountant prepares the payroll, including the paychecks. Beavers signs all paychecks. To verify that each construction worker is a bona fide employee, the accountant matches the employee’s endorsement signature on the back of the canceled paycheck with…arrow_forwardSusan Small, CPA has Medium Corporation as an audit client. Medium has asked Small to create and install a new computerized payroll system. Because Small does not have the appropriate level of expertise, she referred Medium to Compusystems, Inc., a local software consulting company. Small has an arrangement where she is paid ten percent of any fee received by Compusystems from her referrals. Small has disclosed this to her client. Required: The situation above involves a possible violation of the AICPA's Code of Professional Conduct. State the rule in question and explain why or why not there is a violation of the code. You need not refer to the rule number, but should clearly describe the rule in question.arrow_forward
- Read the following information and then answer questions a & b below: Assume you are an internal auditor for a large, multinational, manufacturing organization with a division in Mexico. One of your responsibilities is to investigate allegations made on the company’s fraud hotline. When you arrive at work one morning you learn an anonymous tip was left on the hotline that alleges fraud involving the division manager. “Pat’s significant other is a fraudulent vendor,” was the anonymous tip left on your company’s fraud hotline. Pat is a division manager at your company. “Wow. I can’t believe this guy is so blatant,” you are thinking as you review some accounts payable invoices while following up on this anonymous tip. A quick search of the AP file reveals a total of three invoices like the one, all for identical amounts but on different dates. The division manager, Pat, has the authority to approve payment of invoices for less than $10,000. It is obvious to you that the manager has…arrow_forwardFollowing are five separate cases involving internal control issues. Required: 1. For each case, identify the principle(s) of internal control that is violated. a. Chi Han receives all incoming customer cash receipts for her employer and posts the customer payments to their respective accounts. b. Sutton Company has two employees handling acquisitions of inventory. One employee places purchase orders and pays vendors. The second employee receives the merchandise. c. Ben Shales prides himself on hiring quality workers who require little supervision. As office manager, Ben gives his employees full discretion over their tasks and for years has seen no reason to perform independent reviews of their work. d. At Tico Company, Julia and Trevor alternate lunch hours. Julia is the petty cash custodian, but if someone needs petty cash when she is at lunch, Trevor fills in as custodian. e. Nori Nozumi posts all patient charges and payments at the Hopeville Medical Clinic. Each night Nori backs up…arrow_forwardCenturion Homes of Calgary, Alberta, builds houses and has four construction crews. The supervisors hire and terminate workers and keep their hourly records. Each Friday morning, the supervisors telephone their workers’ hours to the home office, where accountants prepare the weekly pay cheques. Around noon, the supervisors pick up the pay cheques. They return to the construction site and pay the workers at day’s end. What is the internal control weakness in this situation? Propose a way to improve the internal controls.arrow_forward
- Mary Tan is the controller for Duck Associates, a property management company in Portland, Oregon. Each year, Tan and payroll clerk Toby Stock meet with the external auditors about payroll accounting. This year, the auditors suggest that Tan consider outsourcing Duck Associates’s payroll accounting to a company specializing in payroll processing services. This would allow Tan and her staff to focus on their primary responsibility: accounting for the properties under management. At present, payroll requires 1.5 employee positions—payroll clerk Toby Stock and a bookkeeper who spends half her time entering payroll data in the system. Tan considers this suggestion, and she lists the following items relating to outsourcing payroll accounting: The current payroll software that was purchased for $4,000 three years ago would not be needed if payroll processing were outsourced. Duck Associates’s bookkeeper would spend half her time preparing the weekly payroll input form that is given to the…arrow_forwardRichard Palm is the accounting clerk of Olive Limited. He uses the source documents such as purchase orders, sales invoices, and suppliers’ invoices to prepare journal vouchers for general ledger entries. Each day he posts the journal vouchers to the general ledger and the related subsidiary ledgers. At the end of each month, he reconciles the subsidiary accounts to their control accounts in the general ledger to ensure they balance. Discuss the internal control weaknesses and risks associated with the above process. (maximum 300 words)arrow_forwardYou are the audit senior of Blair & Co and your team has just completed the interim audit of Chuck Industries Co, whose year end is 31 January 2012. You are in the process of reviewing the systems testing completed on the payroll cycle, as well as preparing the audit programmes for the final audit. Chuck Industries Co manufactures lights and the manufacturing process is predominantly automated; however there is a workforce of 85 employees, who monitor the machines, as well as approximately 50 employees who work in sales and administration. The company manufactures 24 hours a day seven days a week. Below is a description of the payroll system along with deficiencies identified by the audit team: Factory workforce The company operates three shifts every day with employees working eight hours each. They are required to clock in and out using an employee swipe card, which identifies the employee number and links into the hours worked report produced by the computerised payroll system.…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Business Its Legal Ethical & Global EnvironmentAccountingISBN:9781305224414Author:JENNINGSPublisher:Cengage
Business Its Legal Ethical & Global Environment
Accounting
ISBN:9781305224414
Author:JENNINGS
Publisher:Cengage