You are engaged in auditing the financial statements of Henry Brown, a large independent contractor. All employees
Question:
You are engaged in auditing the financial statements of Henry Brown, a large independent contractor. All employees are paid in cash because Brown believes this arrangement reduces clerical expenses and is preferred by his employees.
During the audit, you find in the petty cash fund approximately \(\$ 200\) of which \(\$ 185\) is stated to be unclaimed wages. Further investigation revea!s that Brown has installed the procedure of putting any unclaimed wages in the petty cash fund so that the cash can be used for disbursements. When the claimant to the wages appears, he is paid from the petty cash fund. Brown contends that this procedure reduces the number of checks drawn to replenish the petty cash fund and centers the responsibility for all cash on hand in one person inasmuch as the petty cash custodian distributes the pay envelopes.
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a. Does Brown's system provide proper internal control of unclaimed wages? Explain fully.
b. Because Brown insists on paying salaries in cash, what procedures would you recommend to provide better internal control over unclaimed wages?
Step by Step Answer:
Modern Auditing
ISBN: 9780471542834
5th Edition
Authors: Walter Gerry Kell, William C. Boynton, Richard E. Ziegler