Reference no: EM133939893

Question: "An understanding of the client's internal control will assist the auditor to understand and identify potential misstatements and factors that affect the risks of material misstatements as well as in designing the nature, timing and extent of the audit procedures to be used in the audit." You have been assigned to audit a supermarket in a rural town.

Required:

A. Explain TWO (2) limitations of internal control systems that are at the client's organization.

B. Describe FOUR (4) methods of documenting the accounting and control systems at the supermarket.

C. Summarize how the following would be applied at the supermarket:

i. Segregation of duties
ii. Physical controls
iii. Authorization and approval
iv. Management controls (4 marks)

SECTION B

One of your clients is Hotel Rio Jenuvo, a small hotel on the north coast. There are three main operating departments in the hotel: Rooms, Food & Beverage and Corporate Events. As part of the audit procedures, you are assessing the controls surrounding payroll. Based on last years' audit file, the following information was noted:

i. Both full time and part time staff are employed. Most of the work is done on shifts due to the nature of the business. All staff are paid on a monthly basis.

ii. When new staff joins the hotel, they are each given an electronic identification card by the personnel department on the first day of work. Get instant assignment help from top tutors.

iii. This ID card is used to clock in and out to record the hours worked.

iv. The information recorded on the system regarding hours worked is automatically sent to the payroll department at the end of each week and also to each of the heads of the three operating departments.

v. Each department's head must reply to the payroll department by email to authorise the hours worked by the respective staff.

vi. The payroll clerk then collates the authorised information and then input the data into a standardised computerised payroll package.

vii. The computerised system is password protected using an alphanumerical password that only the payroll clerk and the finance manager knows.

viii. The gross pay is calculated automatically to include statutory and any other non-statutory deductions.

ix. A payroll report is then produced and printed and sent to the finance manager for review. This is compared with the previous month's data for consistency and variances as well as for any follow up that is necessary.

x. When he is satisfied, the payroll report is signed and returned to the payroll clerk who then submits the data.

xi. Payslips are sent to home addresses and payment is made by bank transfer.

Required:
A. Explain FOUR (4) strengths of the internal control system at the hotel with regards to the payroll.

B. For each of the strengths identified above, state ONE (1) test of control the auditor could perform to assess if the controls are operating effectively.

C. Outline FOUR (4) control activities (internal control principles) that are evident in the processing of payroll at Hotel Rio Jenuvo.