Four Control Objectives Of Wages System Accounting Essay

Four Control Objectives Of Wages System Accounting Essay concord to Millichamp Taylor (2008), go objectives of wage dust ar as follows To find that hire are give to the existing employees at authorized rates of impart To ensure that final payment are computed in accordance with work-performed records, in obligingness of operative magazine, units produced, and other(a) criteriaTo ensure that gross assume and net pay are calculated correctly and payments are made to the correct employeesTo ensure that paysheets deductions to Central Provident Fund Board are correctly report carded and paid(b) As the external studyors of Blake Ltd, write a centering letter to the directors in respect of the discharge-workers wages arrangement and payment brasss whichIdentifies and explains FOUR deficiencies in that systemExplains the possible take of separately deficiencyProvides a recommendation to mitigate each deficiency 14mThe Board of DirectorsBlake Limited1208 Chancery Lane ,Strand, London. 08th DEC 2010 nigh(a) Sirs/Madams,BLAKE LIMITEDREPORT TO MANAGEMENT FOR THE YEAR ENDED 30TH celestial latitude 2010Following our recent canvass, we bring to your attention certain honorings in the companys trading operations which we believe can help you in improving the profitability and strength of the business.First Deficiency Logging in processThe logging in process development an electronic identification card is not monitored. doable effectCard scanned doesnt mean that work starts As the logging in process is not monitored, collusion between employees by helping each other scanning the identification cards may result solvent of wages on the non-approval leave days or working hours. testimonial Replacement of electronic identification card to finger-print scanning may in effect cut off the collusion, yet it may be salutely for the management. glare check on the reckon of workers on the production line by shift passenger vehicle from time to time a nd comparability the flake of employees logged in via the time arranging system.Second Deficiency Overtime supervisionThe shift tribal chief 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 solo reduces the productivity, but besides increases the labor costs. testimony As each group of shift workers (25 persons) is allocated with limited vehicle at specific amount, the management may adopt piece-work systems, where employees are paid for output instead of time Dunn, 1990. remove of existing working environment where the overtime working should be monitored by the shift foreman or through the installation of CCTVs.Third Deficiency Code rule book in computerized wage systemThe warrant code word (pets name) uses in comparing the accuracy of time worked from the time recording system to the computerize d wages system is generally known around the department.Possible effect unofficial alterations may be made by the employees inside and outside the department.Recommendation Further security treads should be carried out, such as authorization using force identification number and password. This ordain help in keeping the records of the employees name who certified the wages amount of particular employees. Change of code word on a regular grounding 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 department which stating the inside learning of employees termination.Possible effectTerminated employees may remain on the payroll system Leung, Coram, Cooper Richardson, 2009 and hence the peaks department clerk result advance making payments to those employees as there is no link be tween accounts and personnel department.RecommendationIt is essential in ensuring that the termination e-mails are received in personnel, and this can be done by sending a apprisal feedback mails from payroll department to personnel department.We hope to discuss the report with you at our forthcoming meeting.May we squander this opportunity to express our thanks to you and your employees for the help provided during the audit period.If you require any further information on the above, recreate do not hesitate to contact us.Disclaimers This letter does not describe all the weaknesses in the company internal control systems. This letter is for management use only.Yours Faithfully,FungJason Smith Audit Co.(c) List THREE substantive analytical procedures you should perform on the shift managers salary system. For each procedure, state your mind-set on the result of that procedure. 6mSubstantive procedures are designed to obtain audit depict to reduce detection risks relating to sp ecific 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 summary of substantive trends and ratios, which entail the use of relationships and comparisons to determine the balance of accounts and reasonability of selective information Porter, Simon Hatherly, 2008.When analytical procedures take to heart as substantive tests in the shift managers salary system, substantive analytical procedures may be conducted by attendees comprise of(i) Trend Analysis The analysis of changes in an account balance over time Rick, Dassen, Schilder Wallage, 2005. surgical operation official autonomous comparisons of shift managers salaries paid with budgets and previous year, through investigation of variances Porter, Simon Hatherly, 2008. foretaste Assuming that the budgeted shift managers salaries included the 3% increment in indorse half year and the 5% annual inducement, variances between actual and budgeted add together salary expenses should persist at similar 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 years 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 entropy 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. forethought As non-financial data may serve as a basis for comparisons, the estimated total payrolls can be get hold ofd through the multipli cation of total number of shift managers with the mean salary rates.(iii) Reasonableness Testing The analysis of account balances 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 model on shift managers payroll expenses could be created Rick, Dassen, Schilder Wallage, 2005.Expectation As reasonableness interrogation develop explicit information, the monthly salary expenses should be quite constant in the early half years and an approximately 3% increment took place from July forrader and a further increment in November due to the annual bonus paid.(d) Audit state can be obtained using various audit procedures, such as inspection. APART FROM THIS PROCEDURE, in respect of testing the accuracy of the time recording system at Blake Ltd, explain FOUR procedures apply in collecting audit evidence and discuss whether the tender will benefit 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 dickens functions, both closely concerned with evidence. The first one is the evidence-gathering function the indorsement is that of evidence evaluation. Dunn, 1991. Test of controls is the tool uses in testing the strongness of control policies and procedures in supporting the detection of control risk Rick, Dassen, Schilder Wallage, 2005. Apart from inspection, the procedures and techniques utilize in collecting audit evidence and the benefit to auditor in testing the accuracy of time recording system are as follows(1) Confirmation The receipt of a written or oral response from an independent third pa rty verifying the accuracy of information that was quest by the auditor Loebbecke, 1999. hit/Applicability to auditor in testing the accuracy of time recording systemAs the evidence is from independent third party, it is highly convincing. However, the time recoding system manufacturer may feel reluctant to share the weaknesses and problems of the system in order to shelter its product and business. Due to the time constraint and the inconveniencies in obtaining information, this procedure is slight likely to be selected by auditors.(2) Observation A control consists of feeling at a process or procedure being performed by others Rick, Dassen, Schilder Wallage, 2005, which can be a significant procedure in determine 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 while being observed. 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 comparable 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 a nalysis used to evaluate financial information by studying plausible and predictable relationships among both financial and non-financial data 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 typeface 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 endeavor is more persuasive than that secured solely from withinEvidence originated by the auditor is more reliable than evidence obtained fro m othersDunn, 1990