A company manufactures high-performance exhaust systems for the automotive industry. The company is publicly owned and profitable. All production is carried out in an Alberta plant, which has 250 unionized employees. Non-unionized staff work in the following departments: material handling, scheduling and expediting, accounting, industrial engineering, and personnel.

Non-unionized staff up to and including the level of the production supervisors are paid according to a company pay scale that links each job with a set pay rate. The pay scale is adjusted from time to time, usually just after a new union contract is settled. Management staff above the production supervisor level are paid according to individual contracts, original copies of which are kept in the respective employees personnel file.

All employees are paid every 2 weeks by direct deposit to their personal bank account, with the production supervisors distributing the pay stubs to the employees on the Friday shift of pay week. The production supervisors pick up the pay stubs from the accounting office. All payroll for all employees is recorded in separate general ledger accounts (unionized totals, office staff totals by department, production supervisors total, and upper management totals). Subsidiary records are maintained with more detail; for example, unionized staff must punch in and out for each shift, and department managers must report any employee absences to personnel daily. The time cards for each employee are summarized in a weekly report maintained by accounting staff.

Required:

a. Design an audit program of three substantive procedures to test for fictitious employees on

the companys payroll. Explain how each procedure would uncover fictitious employees in the

situation described. Do not give analysis as an audit procedure.

b. Design an audit program of two substantive procedures that would support the valuation

assertion for payroll for the companys financial statements. For each procedure, state the

purpose of the procedure. Do not give analysis as an audit procedure.