1.

To assess the Audit conduct risk we would need to know:

• What controls are in place, for example if the payroll system is

password protected.

• We would need to see the policies and procedures designed. Who is

authorized to do what, does Carmen also has access to Payroll system.

• We need to see if there is proper storage and updating of payroll files

and employee master files.

• We need to know is there any data encryption used to secure

information when sent over the internet.

• We need to know how accessible the payroll system is physically. Is it

protected .

• Tone of management in terms of applying the company’s policy and

procedures. Do they do background checks of employees.

1. -Risk: Employees want to inflate their commissions

Substantive audit test: Since commission income is connected with sales, we

will check and confirm the sales amount for channel stuffing.

-Risk: unauthorized person can access the system and change payroll

amounts

Substantive audit test: Check if passwords are placed and

-Risk: Paul can override standard Tax Calculations

 Audit Risk of error or Substantive audit test to be
assertion misstatement used to investigate the risk
of error or misstatement

Accuracy Wrong tax rate applied for From each country take
deductions sample of 4 employees for
recalculation of tax and
compare with transaction
file

Occurrenc Employee wrongly paid For each month payroll

e, twice expense payments check for
Accuracy unusual high amounts

Valuation Wrong bonus awarded Compare with previous

month payments for bonus
amounts

Accuracy Employee paid salary of Check for any reversed and

another employee corrected transactions

Cut-off, Accrued Salary at year end Recalculate last periods

Valuation salary and compare with the
accrued amount

Existence Salary being paid to retired Check for any accounts that
owners are still in the name of
retired owners

Valuation Miss-calculation of Confirm the total sales

commissions figure and calculate
commission using the rates
and compare with reported
amount

Occurance Commissions given to Take samples of all

employee on probation employees on commission
and check for any
commission payment

2.
 Fff4.4

4 CAAT test:

1. Testing of Tax/deductions amount: In this test we can tell the

program to check transaction file and see if the Deductions made are

done using the appropriate Tax rates as stated on employee master file.

(Valuation)

2. Test for Net pay per period amounts: We can tell the program to

check Net pay figures on the” Net pay” field of the employee payroll

transaction file and compare it with “pay per period” amount on the

employee master file. They should match. (Accuracy, Valuation).

3. Test for employees on Probationary period: We can tell the program

to compare the Transaction file and employee master files to see if any

employee on within the probationary period is being paid any

commission. The fields involved would be the “Date hired”, comparing it

with the ending probation period date and looking for any “commissions”

issued during that time. ( occurrence)

4. Test for unusual large amounts: We can tell the program to check if

the Transaction file has any figures which are below or beyond a certain

range. We will use the “Net Pay”and “Deductions” filed from the

transaction file. A range will be calculated using the employee master file

and then compared with the results of the test done on transaction file. ()

5. Test for Non-existent employee account: We will ask the program to

check the employee “Number” field on the payroll transaction file by

 comparing it with the employee master file to see if there are any

unknown employee numbers. (existence)

6. Test for Commission amounts: We will tell the program to check from

employee master file and check if the commissions added to each

employee’s gross pay in transaction file is calculated right.

7. Test for Dividends paid to Retired Partners: We will tell the program

to calculate the dividends of the retired partners using their shareholder

file information.

8. Test for cancelled transactions: We will tell the program to check the

transaction file for any transactions that were cancelled during the period.

If any, then the reason will be inquired. (completeness, occurrence)

9. Test for work Department: We will tell the program to check

transaction file for employees who have been awarded bonuses. The

objective would be to see if they deserve the bonus according to the

projects they are involved in, as stated on the employee master file.

( Valuation)

10.Dsdf

4 For this audit a substantive approach is recommended. The main reason

being is the lack of controls and company policies present. This is evident due

to lack of segregation of duties. Paul has too much authority in the payroll

department. Also since there will be transfer of data internationally this itself

is a high risk factor .