SURNAME NAME REG NUMBER
CHAGWIZA MBENJANIC097822B CHIHORO RUMBIDZAYI .G C1111314X CHIVETO SHARLEEN C1111432A JIRIVENGWA TENDAI .T.T C1111237N KAMBATI PHILLIP C1111449T MAWEMA LORRAINE .F C1111312V MOYO REJOICE C1111224Z TRIMBOI TATENDA C1111265T TSOKODAYI GAMUCHIRAI C1111239Q ZHOYA MONALISA .E C1111036V
BSCAC 2:1
AUDITING PRESENTATION
QUESTION: You are the senior in charge of the audit of Bix ltd plc a manufacturing company. You have been talking with the payroll supervisor who has commented on the strength of the company’s payrolls internal control syste . She has assumed that this internal control system guarantees the completeness, accuracy and validity of the payroll accounting records.
a)State whether you agree with the supervisors assumption that an internal control system can guarantee the completeness, accuracy and validity of the records supporting your answer by using an example from a payroll system.
b)The supervisor has also asked you to explain some internal control terminology whichshe does not understand.
Explain the meaning of the following terms using payroll examples different from those you have given above. 1)Segregation of duties 2)Arithmetical and Accounting controls
a)An Internal control system refers to the whole system of controls ,financial and established by the management in order to carry on the business of the enterprise in an orderly and efficient manner ,ensure adherence to management policies , safeguard the assets and secure as far as possible the completeness and accuracy of the records.
-A payroll system is a function of the internal control system that is used to calculate wages andsalaries in a consistent manner. Payrolls can be in three forms that is manual , inhouse computerized system and outsourced.
Bixplc uses a computerized payroll system,andclock cards are used for the control. This system to a greater extent ensures completeness , accuracy and validity of accounting records.
Completeness
-This is the assurance that all valid transactions are recorded and processed , and that no transaction has been left out. – The internal control activities includes an employee being paid only if the employee already exists on the master payroll and the payroll department verifies by existence of the clock cards.
Accuracy
Refers to the correct recording of all transactions for all the relevant workers . -Accuracy is ensured by the internal control system in that all wages and salaries are computed in accordance with records of work performed in respect of time in this case.
-For example In computerized payroll system a clock card entered in a time recording clock are recorded in the system and this will enable correct calculation of the salaries after a certain period of time ,time overworked and underworked will also be catered for in the salary calculation. –Also the internal control system ensures accuracy in that the wages and salaries are paid only to actual employees at authorized rates of pay.-Due to the fact that the payroll calculates pay for individuals who would have entered their clock cards in the system thereby reflecting their profile information about the departments they work in and their posts , appropriate remuneration will therefore be awarded to the employees based on their positions.
Validity
All recorded transactions should be valid , that is actually occurred , and are supported by sufficient documentation and evidence. –Since the process of the clock cards is done on a daily basis the information will always be up to date. And information about only those who would have attended work is captured since one needs to manually enter his clock card into the system the time he or she enters and leaves work.
However the internal control system has its drawbacks which to a lesser extent do not guarantee the completeness, accuracy and validity of the records.
-Internal controls tend to be directed at routine transactions thus one-off or unusual transactions tend not to be the subject of internal control. In the case of Bixplc who uses clock cards for payment calculation it can be difficult to calculate the remuneration for a manufacturing employee who will be attending work but not producing any goods ,since the system is not programmed to deal with such a situation.
Abuse of responsibility by senior managers which results in management overriding control is also a drawback of internal control systems.
-The use of clock cards cannot be very accurate in calculating wages and salaries since the top management which is usually not closely monitored can just come and check In then leave the firm thereafter to do some other personal businesses, and return later to check out.
(b) i. Segregation of duties-is a most fundamental control activity. The concept underlying segregation of duties is that individuals should be put in a situation in which they could both perpetrate and cover up fraudulent activities by manipulating the accounting records. Proper segregation of duties require that at least two employees be involved in processing a transaction, so that one employee provides an independent check on performance of the other.
Segregation of duties is-a control process.
It is the most important single activity that is the key to a good system and procedure design, no one should be responsible for the recoding that processing of a complete transaction.
Involvement of several people reduces risk of intentional manipulation or accidental error that increases the element of checking of work.
3.4 Case study: segregation of duty
Bixplc is a manufacturing company employing a total of 300 persons, 200 of these beingworkers who are paid weekly in cash. The supervisor records the number of hours worked by each employee using production sheets on which he records the total number of units or finished goods produced by each employee.
At weekly intervals the sheets are collected and passed to the works office where the clerks total up the unit produced by each employee and lists them. The sheets and the add list are then passed to Charlene in the wages department who enters the names and units produced on the payroll sheet, and agrees the add list total.
The payroll sheets are then passed to Clive who keeps the payroll records. He enters the rate of pay in relation to the units produced and calculates the gross pay. He also computes the tax deduction, which he enters on the payroll. He passes the payroll back to Charleen who calculates the net amount and totals all the columns on the payroll.
The completed payroll is then passed to Philip, the accountant, who scans the payroll, compares the totals with the previous week, and initials the payroll. Philip raises acheque requisition which is sent to the cashier’s department.
The cashier draws a cheque for the net amount of the payroll which is then signed by two directors. The cheque is given to a representative in the finance department who draws the money from the bank and delivers it under guard to Charleen. The cashier, Donald, then puts the money into pay envelopes along with a pay slip.The sealed envelopes and relevant production sheets are then used for payouts. Each worker obtains his money once he has identified himself and signed his sheet. Unclaimed wages are held for three weeks before being re-banked
ii.Arithemetical and Accounting
These are controls in the recoding function which check that the transaction have been authorised that is they are all included and that they are correctly recorded and accurately processed.
Procedures include-checking the arithemetical accuracy of the records, the maintenance and checking of total reconciliations control accounts , trial balances and accounting for documents .
The payroll system can be subdivided into two parties are:
a)basis of payroll calculation
b)payment of wages and salaries accounting.
In the case above authorisation is being done by directors who signs the payroll sheet so as to approve payment of salaries of workers. The human resources officer also checks the totals on payroll sheet so as to make sure that they tally with the units produced.