Question 1 CASE 1: TEMPO (20 Marks) (Max 600 words) You are the audit manager working on the audit of the Tempo Manufacturing Company (TMC), a new client of your audit firm StellarAudit, a medium-size Chartered Professional Accounting firm located in downtown Montreal. You are working on the audit planning and you have started to gather details about the internal control procedures applicable to the payroll cycle. TMC employs 40 production workers and has the following payroll procedures: The factory foreman interviews applicants and, on the basis of the interview, either hires or rejects them. When applicants are hired, they prepare a TD] (Employee's Withholding Exemption Certificate) and give it to the foreman. The foreman writes the hourly rate of pay for the new employee in the corner of the TD] form and then gives the form to a payroll clerk as notice that the worker has been employed. The foreman verbally advises the payroll department of rate adjustments. A supply of blank time cards is kept in a box near the entrance to the factory. Each worker takes a time card on Monday morning, fills in his or her name, and punches in his or her daily arrival and departure times at a time clock. At the end of the week, the workers drop the time cards in a box near the door to the factory. On Monday morning, the completed time cards are taken from the box by a payroll clerk. One of the payroll clerks then records the payroll transactions into a payroll software package, which posts all information to the payroll journal and automatically calculates and updates the employees' earnings records and general ledger. Employees do not receive their paycheques if they fail to turn in their time cards. The payroll clerk prints the payroll cheques using the software package and gives them to the chief accountant. The payroll cheques are manually signed by the chief accountant and given to the foreman. The foreman distributes the cheques to the workers in the factory and arranges for the delivery of the cheques to the workers who are absent. The payroll bank account is reconciled by the chief accountant, who also prepares the various quarterly and annual payroll tax reports. Based on this description, you draft a memo to Veronica, the partner, with an assessment of the main strengths and weaknesses of the internal controls for payroll, an evaluation of the related risks, and a justification of the appropriate audit approach. Since the chief accountant has informed you that TMC is planning to outsource the payroll function next year, you also decide to include to your memo a discussion of what would be the effects of the outsourcing of the payroll function on the audit for next year