Question

Control 8:

If a company’s control risk is initially assessed as low, the auditor needs to gather evidence on the operating effectiveness of the controls. For the following control activity listed, do the following two tasks:

a. Describe the test of control that the auditor would use to determine the operating effectiveness of the control.

b. Briefly describe how substantive tests of account balances should be modified if the auditor finds that the control is not working as planned. In doing so, indicate (a) what misstatement could occur because of the control deficiency, and (b) how the auditor’s substantive tests should be expanded to test for the potential misstatement.

Control Activity:

8. Edit tests built into the computerized payroll program prohibit the processing of weekly payroll hours in excess of fifty-three and prohibit the payment to an employee for more than three different job classifications during a one-week period.

Task A)

Task B)

Answer 1

Answer -

. Control Activity	(A) Test of Control	(B) Modification of Audit Procedures if Control is not Effective
Edit tests built into the computerized payroll program prohibit the processing of weekly payroll hours in excess of fifty-three and prohibit the payment to an employee for more than three different job classifications during a one-week period.	1). Auditors could try and add weekly hours in excess of fifty-three into the computerized system. 2). Auditors could try and add in more than three job classifications within a one week period on one employees pay.	1) a). This could allow employees to get more overtime than they were approved for if the system did not work. Which would cause the company to payout more than they want on payroll. b).  Auditors could extend their testing to all employees who are more likely to work overtime hours to see if the deficiency happens all the time or only once in a while. 2) a). This would allow employees to think they can just work anywhere they want to during the pay period, even if it is not their grade of pay. b). Auditors should review each employees grade of work to ensure they are only working the jobs they are assigned to work and get the pay they are eligible to get.