Question

TNC advertising company appointed an auditor to resolve the problem of irregular accounts that is showing in its financial reports: that the gross profit is 40% margin but its net profit is showing loss in the income statement. After comparing the budgeted figures, all the indirect expenses are under control except salaries and wages and their payment method is found to be suspicious. The company decided to hire Mr. Younus as the external auditor.

Based on the above scenario:

1. DesignadequateauditproceduresthatMr.Younuswilluserelated to vouchers and payments.

2. Give recommendations on how to resolve the issues experienced by the company, at the moment. ( 2 marks)

Answer 1

1) Audit procedures are the procedures that are used to check or authenticate whether the transactions in the accounting records are classified correctly. Audit procedure that Mr. Younus can use for vouchers and payments are:

• Check whether the vouchers are on a printed form.
• Check the serial number to determine whether they are consecutively numbered and filed and complies with the entries in various books.
• Check date , name of the issuer and to whom it is issued .
• He should cancel the vouchers already inspected by him with a stamp to avoid representation .
• He should ensure that all the vouchers presented are related to the business. Vouchers that are issued with the name of the partners, directors managers or officers should be given special attention.
• Ensure that all the vouchers are passed by the responsible senior officer and are stamped.
• Ensure that all the vouchers relates to the audit period.

2) TNC advertising is facing problems of irregular accounts. There is a suspicion that the salaries and payments are made wrongly. To solve this the company should make a person responsible for and should devise an internal control to keep a tab on payment made in respect of salaries and wages.