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    Case Study 1

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    Pau Aderin
    The payroll system of Trombone Co has several deficiencies: - Overtime sheets are not always authorized by department heads - Payroll clerks do not check that overtime hours taken as paid are properly authorized - Payroll clerks do not verify overtime hours worked against hours taken as paid time off - Payroll standing data is updated by clerks without independent review - The finance director's review of payroll does not verify calculations are correct

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    Case Study 1

    Uploaded by

    Pau Aderin
    37 views1 page
    The payroll system of Trombone Co has several deficiencies: - Overtime sheets are not always authorized by department heads - Payroll clerks do not check that overtime hours taken as paid are properly authorized - Payroll clerks do not verify overtime hours worked against hours taken as paid time off - Payroll standing data is updated by clerks without independent review - The finance director's review of payroll does not verify calculations are correct

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    Case study 1

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    The payroll system of Trombone Co has several deficiencies: - Overtime sheets are not always authorized by department heads - Payroll clerks do not check that overtime hours taken as paid are properly authorized - Payroll clerks do not verify overtime hours worked against hours taken as paid time off - Payroll standing data is updated by clerks without independent review - The finance director's review of payroll does not verify calculations are correct

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    37 views1 page

    Case Study 1

    Uploaded by

    Pau Aderin
    The payroll system of Trombone Co has several deficiencies: - Overtime sheets are not always authorized by department heads - Payroll clerks do not check that overtime hours taken as paid are properly authorized - Payroll clerks do not verify overtime hours worked against hours taken as paid time off - Payroll standing data is updated by clerks without independent review - The finance director's review of payroll does not verify calculations are correct

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 1

    Case study 1 - Payroll

    Trombone Co (Trombone) operates a chain of hotels across the country. Trombone employs in
    excess of 250 permanent employees and its year end is 31 August 2014. You are the audit
    supervisor of Viola & Co and are currently reviewing the documentation of Trombone’s payroll
    system, detailed below, in preparation for the interim audit. Trombone’s payroll system Permanent
    employees work a standard number of hours per week as specified in their employment contract.
    However, when the hotels are busy, staff can be requested by management to work additional
    shifts as overtime. This can either be paid on a monthly basis or taken as days off. Employees
    record any overtime worked and days taken off on weekly overtime sheets which are sent to the
    payroll department. The standard hours per employee are automatically set up in the system and
    the overtime sheets are entered by clerks into the payroll package, which automatically calculates
    the gross and net pay along with relevant deductions. These calculations are not checked at all.
    Wages are increased by the rate of inflation each year and the clerks are responsible for updating
    the standing data in the payroll system. Employees are paid on a monthly basis by bank transfer
    for their contracted weekly hours and for any overtime worked in the previous month. If employees
    choose to be paid for overtime, authorisation is required by department heads of any overtime in
    excess of 30% of standard hours. If employees choose instead to take days off, the payroll clerks
    should check back to the ‘overtime worked’ report; however, this report is not always checked.
    The ‘overtime worked’ report, which details any overtime recorded by employees, is run by the
    payroll department weekly and emailed to department heads for authorisation. The payroll
    department asks department heads to only report if there are any errors recorded. Department heads
    are required to arrange for overtime sheets to be authorised by an alternative responsible official
    if they are away on annual leave; however, there are instances where this arrangement has not
    occurred. The payroll package produces a list of payments per employee; this links into the bank
    system to produce a list of automatic payments. The finance director reviews the total list of bank
    transfers and compares this to the total amount to be paid per the payroll records; if any issues
    arise then the automatic bank transfer can be manually changed by the finance director.
    Required:
    In respect of the payroll system of Trombone Co:
    a) Identify and explain FIVE deficiencies;
    b) Recommend a control to address each of these deficiencies; and
    c) Describe a test of control Viola & Co should perform to assess if each of these controls is
    operating effectively.
    d) Describe substantive procedures you should perform at the final audit to confirm the
    completeness and accuracy of Trombone Co’s payroll expense.
    e) Trombone deducts employment taxes from its employees’ wages on a monthly basis and pays
    these to the local taxation authorities in the following month. At the year end the financial
    statements will contain an accrual for income tax payable on employment income. You will be
    in charge of auditing this accrual. Describe the audit procedures required in respect of the year
    end accrual for tax payable on employment income.

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