Questions
1. Identify the key audit objectives for a client’s payroll function. Comment on objectives related to tests of controls and substantive audit procedures.
The key audit objectives for a client’s payroll function is to test management’s assertions about timekeeping, paycheck processing, record keeping, employee benefits and pay distribution. The assertions about payroll that would be tested here are occurrence, existence, completeness, authorization, and accuracy.
The objective of testing controls is to make sure that the company’s controls sufficiently address the risks of misstatement that could occur.
The objective of substantive audit procedures is to detect material misstatements in a transaction class, account balance, or disclosure component of the financial statements. (Messier 2014)
(Messier, William. Auditing and Assurance Services. McGraw Hill, New York, NY. 2012. Print.)
2. What internal control weaknesses were evident in the Dodgers’ payroll system?
Control Weaknesses * No separation of duties such as the person writing the checks and the person keeping the books – Campos kept the books and wrote the checks * Control environment and tone at the top was inadequate – collusion among employees helped Campos succeed in his scheme. * Inadequate documentation of the components of internal control – it was a system only he fully understood.
3. Identify audit procedures that might have led to the discovery of the fraudulent scheme masterminded by Campos.
Inspection: Close inspection of payroll by an auditor would probably show that weekly paychecks were unusually large. Here you would want to make sure that original timecards match payroll entry amounts entered.
Recalculation: Checking the mathematical accuracy of documents and records. EX: multiplying wage rates by employee time would uncover amounts that were in excess of