Week 6 Coursework

Question 16-39

Weakness Recommendation for Improvement

The pay rates are set verbally by the supervisor . There is no recorded evidence and thus there is greater scope for error and fraud Authorization of pay rates should be properly noted in writing and signed by the person in-charge . This will serve as evidence when pursuing other checking controls on the wage rate computation (ACCA Study Text 2000 ,

203

Time cards entailing the hours worked are filled by employees and forwarded to the payroll section at the end of week . There is a

high risk of overstatement of hours worked leading to understated profit figure in the financial statements . The time cards ought to be checked and duly authorized by the supervisor before being forwarded for computation and payment of wage . This will reach a fundamental aim of wages control , which is that employees are only paid for work they actually did (ACCA Study Text 2000 ,

203

Even though there are two payroll clerks , there is lack of segregation of duties because they perform a particular section of the payroll There is the risk of collusion between employees and clerks directing to overpayments of wages . Appropriate segregation of duties should be installed in the wages system in to adhere with the objective stated in the previous weakness . This can be attained by applying job rotation between the two staff Question 16-45

b ) Statement on Auditing Standard 220 states that an item is material when its omission or misstatement would affect the decisions taken by the users of financial statements . This auditing standard also preclude that the setting of materiality depends on the auditor 's judgment in line with the size of the company and its materiality factors , like assets , turnover and more (Woolf E . 1997 ,

42-43

In this respect , misstatements noted in part a , hold a significant effect on the financial statements , namely the current assets and income before taxes , which hold a cumulative effect of 24 .94 and 22 .32 . Such uncorrected /projected material misstatements shall affect the audit opinion on the truth and fairness of the financial statement of Keystone Computers and Networks Incorporation . Since the material misstatement is only on one section of the financial statements , that is the current assets , there is no need to issue a qualified audit report . An adverse opinion is normally issued when significant errors are noted in a number of sections that lead to a negative opinion on the truth and fairness of the financial statements . In this respect , an unqualified opinion is issued with an emphasis of matter paragraph , in which the material misstatement on current assets is noted together with its effect on the profitability of the firm (Millichamp H . A . 1997 ,

292-295

Question 13-36

JOURNAL ENTRIES

Question No . Details Debit Credit

1 Liability under finance lease (see note 1

Provision for depreciation on buildings

Machinery and Equipment

Retained Earnings

Being reversal of finance lease entries 40 ,400

2 ,020

40 ,400

2 ,020

2 Materials (see...