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Case 3.1 the Trolley Dodgers

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Case 3.1 The Trolley Dodgers

1. The key audit objectives for a clients payroll function are a. Occurrence and existence, b. Completeness, c. Accuracy, d. Posting & summarization, e. Presentation and disclosure, f. Timing and classification.
The objective of completeness requires checking all of the amounts paid to the employees to see if they are correct and paid in full. Auditors should level the control risk on all payroll transaction cycle, which is auditor’s major objective on performing tests of controls. In order to determine the nature, extent, and timing of the year-end substantive tests, auditors need to assess control risk for a transaction cycle to get strong evidences.
A payroll transaction cycle has two key accounts, which are accrued payroll and payroll expenses. Auditors mainly are concerned of these two accounts violating the completeness objective for most expense and liability accounts. Auditors should use comprehensive analytical procedures when assessing periodic payroll expense to check its rationality. After checking the payroll expense and considering it with the recent average employee pay raise, auditors will develop an expectation. If the payroll expense provided by the clients is out of the auditors expectation, then, substantive procedures and are tests needed to further check those differences. 2. There are several internal control weaknesses in the Dodgers payroll system: g. There are not enough enforced vacations for key personnel. h. In the payroll systems, the scope of control of one person is started with the individuals design and includes the persons involvement in the operational detail of the system. A necessary test may help to discover the fraudulent scheme. i. Auditors of the company did not do enough periodic testing on the payroll...

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