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Your firm is the external auditor of Highland Tea Growers Company Ltd., one of the largest tea growing and manufacturing companies in Kenya and indeed

Your firm is the external auditor of Highland Tea Growers Company Ltd., one of the largest tea growing and manufacturing companies in Kenya and indeed in Africa. Highland Tea Growers Company Ltd., does not have an internal audit department. At the interim audit you have been assigned to the audit of the wages system. This will involve obtaining an understanding of the wages system, testing the controls and performing substantive procedures in order to verify wages transactions. The wages records are maintained on a computer and all the wages information is processed at the head office. Some of the employees are paid in cash and all other employees have their wages paid directly into their bank accounts. Head office and manufacturing employees are paid their wages a week in arrears. All other employees are paid at the end of each week or month. There is a personnel department which is independent of the wages department. The personnel department maintains records of the employees including their start date, grade, current wage rate and leaving date (if appropriate).

Previous years audits have revealed frauds by the wages department staff which have been facilitated by weaknesses in controls in the wages system. These frauds included: 1. Paying employees after appointment but before they commenced work. 2. Paying employees after they have left employment, and 3. Paying fictitious employees. A check of current controls in the wages system has revealed that the company has failed to institute controls to prevent these types of fraud recurring. So the audit programme requires extensive substantive procedures to be carried out to ensure that recorded wages transactions have not been mis-stated by similar frauds taking place in the current year. The existence of employees at the head office site can be verified by physical inspection. From a cost effectiveness point of view. Only a small sample of plantations will be visited. The audit manager has asked you to consider the audit procedures you would carry out to obtain sufficient and appropriate evidence of the existence of employees at the plantations not visited by the audit staff. The audit manager has explained that "unclaimed wages" (in part (c) below) arise when employees are not present to collect their wages at the time of payment. The unclaimed wage packets are given to the cashier who records their details in the unclaimed wages book and is responsible for their custody. Any employee who has not received his/her wage packet at the pay-out can obtain it from the cashier. You have ascertained that there is no system of checking the operation of the unclaimed wages system by a person independent of the cashier and the wages department. You are required to describe: a) How you would verify that employees are not paid before they have commenced employment or after they have left (a starters and leaves test). (5 Marks) i. The audit procedures you would carry out in connection with attending a pay-out of wages in cash to the employees.

ii. The substantive checks of transactions you would carry out on the unclaimed wages system. (5 Marks) iii. The evidence you would obtain to verify the existence of employees whose wages are paid directly into their bank accounts. (5 Marks) b) The controls you expect to find in place in all the mentioned areas you deem are prone to fraud.

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