Question $3(35$ Marks$)$

Mudengu manufactures a range of components and spare parts for textile industry. Thecompany employs $150$ hourly paid production workers and $90$ selling, distributing andadministrative

staff, including the three directors of the company. There are two wages clerkswho deal with the weekly payroll of the hourly paid employees. They are directly responsible tothe assistant

accountant.The company uses a computerized time clock at the factory gate to record the hours worked bythe production employees. Each employee has a card with magnetic strip with

own identificationcode on it$.$ This card is inserted in the computerized time clock on the arrival and departure of the workers whereupon it records the hours worked on the card. The cards

are collected weeklyby the wages clerks who simply insert them individually into the microcomputer which readsthem and prepares the payroll.

The production manager keeps the unused clock cards in alocked cabinet in his office.Wages are paid one week in arrears. The wages clerk compile the payroll by means of

themicrocomputer system$$ pass the payroll to the assistant accountant who scrutinizes it beforedrawing the wages cheque $,$ which is passed to one of the directors for signature. Any pay

increases are negotiated locally by representatives of the employees. If any alterations are required to standing data on the microcomputer, then the wages clerks amend the records

$.$For example, when a wage increase has been negotiated, the rates of pay are changed by the wages clerks. The cheque is drawn to cover net wages and the cashier makes

arrangements for collecting the cash from the bank. The wages clerks then make up the wages envelopes. Whenever there is assistance required on preparing wages, the assistant

accountant helps the wages clerks. The payment of wages is carried out by the production manager who returns any unclaimed wages to the wages clerks who keep them in a locked

filling cabinet. Each employee is expected to collect his unclaimed wages personally. New production employees are notified to the wages department verbally by the production manager

and when the employees leave a note to that effect is sent to the wages department by the production manager. All statutory deductions are paid to the appropriate authorities by the chief

accountant. You have recently been appointed the auditor of Mudengu for the year ended $31$ December and have just started your interim audit. You are about to commerce your audit

evaluation and testing of the wages system

Required

$3\mathrm{.}1.$ Describe the weaknesses and implications of those weaknesses in the present wages and salaries system, and suggest, with reasons, improvements which could be

made to the system $($assuming the controls are those set out above.$)$

$(25$ marks$)$

$3\mathrm{.}2.$ Describe the audit procedures that should be performed to confirm the accuracy, cutoff, completeness, occurrence, and classification of wages. $(10$ marks$)$