Auditing and assurance revision question and answer

Auditing and Assurance Revision Questions and Answers

State, in respect of each of the following observations, an internal control procedure that would prevent the error and a substantive procedure through which the auditor can detect the error: (5 Marks, June 2006)
i. An employee whose services were terminated during the year continued to be paid his monthly salary.

ii. The foreman of a department punches the time card of an employee of his department on days when the employee is absent or is late for work.

iii. During the year, there was a reduction in the rate of interest granted to employees. The person responsible for preparing the payroll continued to deduct interest at the old rates while entering the interest at revised rates in the advances register and pocketed the difference.
Answer:
Internal control procedures: Substantive Procedures:
(i) All terminations should be immediately
intimated to the payroll department through pre-numbered advices. Compare a sample of such advices with the payroll.
(ii) There should be an independent
reconciliation of time cards and job cards. Compare a sample of time cards with the related job cards.
(iii) Payroll should be thoroughly checked the supervisor. In this process, deductions shown in payroll should be verified with reference to the entries in the advance registers. The person responsible for preparing payroll should not be allowed to disburse
wages. Conduct an in-depth audit of sample entries in the payroll.



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