Roost and Briley, CPAs, are doing the audit of Leggert Lumber Co., an international wholesale lumber broker. Because of the nature of their business, payroll and telephone expense are the two largest expenses.
You are the in-charge auditor on the engagement responsible for writing the audit program for the payroll and personnel cycle. Leggert Lumber uses a computer service company to prepare weekly payroll checks, update earnings records, and prepare the weekly payroll journal for its 30 employees. The president maintains all human resource files, knows every employee extremely well, and is a full-time participant in the business.
All employees, except the president, check into the company building daily using a time clock. The president€™s secretary, Mary Clark, hands out the time cards daily, observes employees clocking in, collects the cards, and immediately returns them to the file. She goes through the same process when employees clock out on their way home.
At the end of each week, employees calculate their own hours. Clark rechecks those hours and the president approves all time cards. Each Tuesday, Clark submits payroll input to the computer service center. She files a copy of the input data, which includes the following information for each employee:
Information Source_________________________
Employee name ............ Time card
Social Security number ......... Employee list
Hourly labor rate* ........... Wage rate list (approved by president)
Regular hours ............ Time card
Overtime hours ............. Time card
Special deductions* ......... Special form (prepared by employee)
W-4 information* .......... W-4 form
Termination of employment* ....... President
*Included on input form only for new employees, terminations, and changes.
The service center uses the payroll data to update master files, and print out payroll checks and a payroll register. The payroll register has the following headings:

A line is prepared for each employee and the journal is totaled.
Payroll checks and the journal are delivered to Clark, who compares the information on the journal with her payroll input and initials the journal. She gives the checks to the president, who signs them and personally delivers them to employees.
Clark re-adds the journal and posts the totals to the ledger. Bank statements with copies of cancelled checks are mailed to the president, and he prepares a monthly bankreconciliation.

Transcribed Image Text:

Employee name Sodal Security number Regular hours Overtime hours Overtime payroll dollars Gross payrol FICA taxes withheld Medicare withheld Federal taxes withheld State taxes withheld Other deductions Net pay Check number Regular payroll dollars