QUESTION $1$

$25$ MARKS

Japan manufactures cars, Mitsubishi Limited is a manufacturing company with a large labour force.

The company operates a cashless wage system. The company takes its internal control seriously,

including sound division of duties. The following control procedures are carried out within the

payroll cycle.

a$)$ When amendments to pay rates have been authorised by the wage committee$/$union$,$ they

are recorded on a standard amendment form, which is cross$-$referenced to the authorising

document.

b$)$ The entry$/$exit point to the factory is supervised by security personnel at the start and end of

work shifts.

c$)$ At the end of the wage period, the production foremen $($three sections, each with their own

foreman$)$ receive a report on the normal and overtime hours worked by employees in their

section which they must authorise before wages are processed.

d$)$ The software produces a period$-$to$-$period wage reconciliation, which is reviewed by the

financial controller.

e$)$ Each employee is handed a payslip, which provides a breakdown of the amount deposited

in his or her bank account.

f$)$ The software calculates the amounts to be deducted from employees in respect of the

repayment of staff loans.

g$)$ The financial controller inspects the cash payments journal to confirm that taxation

deducted from employees is promptly paid over to the South African Revenue Services.

h$)$ Background checks are carried out on all prospective skilled workers before they are

employed.

i$)$ The financial controller carefully checks all details on the on$-$screen schedule of electronic

wage payments before "releasing" it to the bank for payment.

j$)$ Warning letters are sent to employees who are persistently late for work.

$1\mathrm{.}1$ Describe the purpose of each of the above internal controls $($a$-$j$).(10)$

$1\mathrm{.}2$ Compile one $(1)$ audit engagement procedure to test each of the internal

controls $($a$-$j$).$