Four Control Objectives Of Wages System Accounting Essay

Four Control Objectives Of Wages System Accounting EssayAccording to Millichamp Taylor (2008), take hold objectives of wage dodge are as follows To ensure that fee are nonrecreational to the existing employees at authorized rates of pay To ensure that wages are computed in accordance with work-performed records, in respect of working date, units produced, and other criteriaTo ensure that gross pay and net pay are calculated decent and payments are made to the correct employeesTo ensure that payrolls deductions to Central Provident Fund Board are correctly method of accountinged and paid(b) As the external auditors of Blake Ltd, write a management letter to the directors in respect of the shift-workers wages save and payment dusts whichIdentifies and explains FOUR deficiencies in that systemExplains the possible stamp of each deficiencyProvides a recommendation to alleviate each deficiency 14mThe Board of DirectorsBlake Limited1208 Chancery Lane,Strand, London. 08th DEC 201 0Dear Sirs/Madams,BLAKE LIMITEDREPORT TO MANAGEMENT FOR THE YEAR ENDED thirtieth DECEMBER 2010Following our recent audit, we bring to your attention certain observations in the companys operations which we believe can dish up you in improving the profitability and faculty of the business.First Deficiency Logging in processThe logging in process exploitation an electronic appellative card is non monitored.Possible effectCard scanned doesnt mean that work starts As the logging in process is not monitored, tacit consent between employees by helping each other scan the identification cards whitethorn result receipt of wages on the non-approval leave days or working hours.Recommendation Replacement of electronic identification card to finger-print scanning may effectively cut off the collusion, yet it may be costly for the management. Spot check on the issue forth of workers on the production line by shift manager from age to time and equivalence the number of employees logged i n via the time recording system.Second Deficiency extra time supervisionThe shift foreman is not required to monitor the extent of any overtime working.Possible effectAs overtime working is not supervised, the employees may get wages paid at overtime rates for no work done by logging-off late. This phenomenon not only reduces the productivity, but alike increases the labor costs.Recommendation As each group of shift workers (25 persons) is allocated with specific vehicle at specific amount, the management may adopt piece-work systems, where employees are paid for output instead of time Dunn, 1990. Change of existing working environment where the overtime working should be monitored by the shift foreman or by dint of the installation of CCTVs.Third Deficiency Code word in computerized wage systemThe authorization code word (pets name) uses in comparing the truth of time worked from the time recording system to the computerized wages system is generally known around the department .Possible effectUnauthorized alterations may be made by the employees inside and foreign the department.Recommendation Further security steps should be carried out, such as authorization using forcefulness identification number and password. This will help in keeping the records of the employees name who certified the wages amount of particular employees. Change of code word on a regular can and only inform to the responsible employees instead of whole department, may help in reducing this deficiency.Forth Deficiency Termination of employeesNo effort in ensuring the receipt of e-mails sent from personnel department to payroll department which stating the details of employees termination.Possible effectTerminated employees may remain on the payroll system Leung, Coram, Cooper Richardson, 2009 and hence the accounts department clerk will continue making payments to those employees as there is no link between accounts and personnel department.RecommendationIt is native in ensuring that the termination e-mails are received in personnel, and this can be done by sending a notification feedback mails from payroll department to personnel department.We hope to discuss the report with you at our forthcoming meeting.May we take this opportunity to express our thanks to you and your employees for the assistance provided during the audit period.If you require any get ahead information on the above, please do not hesitate to contact us.Disclaimers This letter does not identify all the weaknesses in the company internal oblige systems. This letter is for management use only.Yours Faithfully,FungJason Smith Audit Co.(c) List THREE substantive analytical outgrowths you should perform on the shift managers salary system. For each procedure, call down your expectation on the result of that procedure. 6mSubstantive procedures are designed to obtain audit differentiate to reduce detecting risks relating to specific financial statement assertions Rick, Dassen, Schilder Wallage, 2005, using the tools tests of details of transaction and balances, and analytical procedures. Analytical procedures consist of the analysis of significant trends and ratios, which entail the use of relationships and comparisons to determine the balance of accounts and reasonability of data Porter, Simon Hatherly, 2008.When analytical procedures serve as substantive tests in the shift managers salary system, substantive analytical procedures may be conducted by auditors comprise of(i) Trend Analysis The analysis of changes in an account balance over time Rick, Dassen, Schilder Wallage, 2005. turn Regular independent comparisons of shift managers salaries paid with budgets and previous year, through investigation of variances Porter, Simon Hatherly, 2008.Expectation Assuming that the budgeted shift managers salaries include the 3% increment in second half year and the 5% yearbook bonus, variances between actual and budgeted complete salary expenses should persist at s imilar level. On the other hand, presuming that the number of total shift managers remained unchanged, only inflation rates supposed to take place when comparing current and previous eld salary expenses.(ii) Ratio Analysis The comparison of relationships between financial statement accounts, thecomparison of an account with non-financial data, or the comparison of relationships between firms in an industry Rick, Dassen, Schilder Wallage, 2005.Procedure Data collection of employment and rates payment of each shift manager in Blake Ltd from HR department Porter, Simon Hatherly, 2008. Calculation of aggregate amount and compare it with the actual salary disclosed in financial statement Rick, Dassen, Schilder Wallage, 2005.Expectation As non-financial data may serve as a basis for comparisons, the estimated total payrolls can be achieved through the multiplication of total number of shift managers with the mean salary rates.(iii) Reasonableness Testing The analysis of account bala nces or changes in account balances withinan accounting period in terms of their reasonableness in light of expected relationships between accounts Rick, Dassen, Schilder Wallage, 2005.Procedure Data collection of number of shift managers hired and terminated, the timing of pay changes (increment of 3% in July and annual bonus of 5% in November), and the effect of vacation and sick leave, a lesson on shift managers payroll expenses could be created Rick, Dassen, Schilder Wallage, 2005.Expectation As reasonableness testing develop explicit information, the monthly salary expenses should be quite eonian in the first half years and an approximately 3% increment took place from July onwards and a further increment in November due to the annual bonus paid.(d) Audit evidence can be obtained using various audit procedures, such as inspection. APART FROM THIS PROCEDURE, in respect of testing the truth of the time recording system at Blake Ltd, explain FOUR procedures used in collecting audit evidence and discuss whether the auditor will gain ground from using each procedure. 8mThe collection and gathering of audit evidence lies at the heart of the audit, where Mautz and Sharaf claimed that Auditing in its entirety is made up of two functions, both al nigh concerned with evidence. The first one is the evidence-gathering function the second is that of evidence evaluation. Dunn, 1991. Test of controls is the tool uses in testing the effectiveness of control policies and procedures in supporting the detection of control risk Rick, Dassen, Schilder Wallage, 2005. Apart from inspection, the procedures and techniques used in collecting audit evidence and the benefit to auditor in testing the trueness of time recording system are as follows(1) Confirmation The receipt of a written or oral response from an independent third party verifying the accuracy of information that was requested by the auditor Loebbecke, 1999.Benefit/Applicability to auditor in testing the accu racy of time recording systemAs the evidence is from independent third party, it is highly persuasive. However, the time recoding system manufacturer may feel reluctant to share the weaknesses and problems of the system in order to treasure its product and business. Due to the time constraint and the inconveniencies in obtaining information, this procedure is less likely to be selected by auditors.(2) Observation A control consists of looking at a process or procedure being performed by others Rick, Dassen, Schilder Wallage, 2005, which can be a significant procedure in determining whether the control system is operating Mascarenhas Turley, 1990.Benefit/Applicability to auditor in testing the accuracy of time recording systemThis procedure enables the auditor to find out whether collusion in logging-in and out among shift workers takes place. However, observation may not provide an accurate reflection as employees will usually perform duties appropriately succession being obser ved. Hence, combination with other procedures in gathering evidence may be necessary step in order to achieve higher accuracy Mascarenhas Turley, 1990.(3) Recalculation The procedure of checking the arithmetical accuracy of source of documents and accounting records or performing independent calculations Rick, Dassen, Schilder Wallage, 2005.Benefit/Applicability to auditor in testing the accuracy of time recording systemRecalculation helps in confirming the total hours paid are the same with the total time logging-in and out on the time recording system. Recalculation may provide strong evidence but the evidence is rarely persuasive and conclusive by itself Rick, Dassen, Schilder Wallage, 2005. A further step via re-performance procedure may help in increasing the overall accuracy of the time recording system.(4) Analytical Procedure The analysis used to evaluate financial information by analyse plausible and predictable relationships among both financial and non-financial dat a Mascarenhas Turley, 1990.Benefit/Applicability to auditor in testing the accuracy of time recording systemThis procedure could be a reasonably effective test, which enables the auditor to monitor the number of total hours claimed (time recoding system) and the total cost of wages paid (computerized wage system) through standard costing system Dunn, 1990. Any excessive variance occurred should be investigated.In conclusion, auditors always face difficulties in deciding the most suitable procedures which is most appropriate to achieve the objective. Guideline on Audit Evidence suggests the followingDocumentary evidence is more reliable than oralEvidence obtained from independent sources outside the enterprise is more persuasive than that secured solely from withinEvidence originated by the auditor is more reliable than evidence obtained from othersDunn, 1990