Question

Mr. Khan working as an accountant presented a financial statement to the auditor at the end of the year. There is no supporting document for petty cash disbursement. Some staff who are separated but still their names appear in the payroll and the attendance sheet is signed by the supervisor at site. He reported the case to the owner of the company and then they will investigate.

                          Based upon the scenario:

1. Design a proper audit investigation process that maybe done by an auditor in the company.

2. What recommendations can you provide to resolve the errors committed? .

Answer 1

Solution :

Part 1 :

The audit investigation process shall be as follows :

Petty cash :

1) Inquiry : Since there is no supporting documentation for petty cash, the auditor shall begin his investigation by inquiring the accountant to understand about the nature of petty cash expenses and how he keeps over control on the petty cash maintained.

2) Preparing a reconciliation of petty cash expenses and receipts with the records available.

3) Analysing the nature of expenses incurred based on the inquiry results.

Payroll :

1) Preparing a reconciliation of the payroll register with the current workforce by undertaking a physical verification of the employees.

2) Preparing a reconciliation of attendance register with the updated payroll register.

3) Matching the salary payments made to employees with the payroll register.

Part 2 : Recommendations

1) Implementating an imprest petty cash system.

2) Devising preparation of supporting documentsation mechanism of petty cash payments and receipts.

3) Appointing a separate personal to handle the Human resource and payroll accounting.

4) Preparing a month reconciliation of payroll with the attendance register & updating the payroll register as and when there are changes in the workforce.