CSAC 4551-Auditing Fundamentals – Accounting & Finance Assignment Help

Assignment Task

Task 

Assignment – Modern Motor Company

QUESTION 1 – PART A
MMC Company manufactures engine parts for lawnmowers, snow blowers and other types of yard care equipment. The company employs approximately 100 production employees . Production employees alternate back and forth between two shifts and are sometimes asked to work overtime.
You, CPA, are a Senior Auditor at ABC LLP and you have been assigned as the lead auditor on the financial statement audit engagement for MMC for the year-ended March 31, 2021. The Audit Partner at ABC LLP for the engagement has asked you to gather information about the controls over the company’s Human Resources and Payroll process .

Background nformation:
The Human Resources Department prepares an Employee Action Form (EAF) when an employee is either hired or terminated . Employee Action Forms (EAF) are also used to update employee details such as employee names and employee addresses . Employee Action Forms can be used to change pay rates of existing employees; however, they must be signed and approved by the Human Resources Director and the employee’s direct manager . A Human Resources Clerk will manually key the information from the Employee Action Forms (EAF) into the computer system each week to update the personnel master file.

For terminated employees or resignations, it is the responsibility of the HR Manager to notify the Technology Services Help Desk of the employee’s end date. The purpose of this process is to provide authorization to the Help Desk to deactivate the terminated employee’s access to the information systems at MMC to ensure the employee no longer has access to the internal computer systems at MMC after their last day of work.
Employees use a time clock system to record the hours they work . At the end of each week, supervisors collect the time cards, verifies the number of hours worked for each employee and documents the total number of hours worked on each employee’s time card . Each supervisor also counts the number of time cards collected and e-mails the count to MMC’s Treasury Manager.

Every Monday morning, the Payroll Clerk collects the previous week’s time cards from the supervisors, sorts them by employee number, recalculates the total hours on each time car d, keys the data from the time cards into the computer and processes the payroll. The system automatically assigns a sequential number to each payroll check produced. Employees usually verbally communicate any overtime hours worked directly to the Payroll Clerk, who then adjusts their paycheck depending on the number of additional hours indicated by the employee . Blank checks are stored in a box next to the printer for immediate and convenient access for all employees.

Controls are included in the payroll application software to detect invalid employee numbers . The Payroll Clerk will print off an error listing from the payroll application software and typically review the listing on a semi-annual basis. MMC has experienced substantial turnover during the year which has resulted in the employees within the Payroll and HR Departments to be overworked. In addition, MMC employees have not received a pay increase for the past 2 years and consequently the overall employee morale has suffered. To help alleviate some of the workload pressures, MMC have granted all Payroll Clerks and Human Resources Clerk’s to have each other access rights within the system . MMC management thought this may help in situations where either the Human Resources or Payroll Department do not have the capacity to complete all the required tasks and need additional assistance. As a result, the Human Resources Clerks often find themselves performing the key functions of entering new employee information in the computer system and also processing payroll when the need arises.

Payroll Clerks also perform the following tasks:
a. Print the payroll register and payroll checks
b. Separates the checks into a valid batch and a batch of those that were included in the error listing.
c. Uses the results of the payroll check run to update the employee earnings master file.
d. Prepares the weekly payroll journal entry and posts the entry to the general ledger.

The Payroll Manager then prepares a backup of the employee earnings master file on an encrypted USB device that is stored in a locked cabinet in the payroll manager’s offi ce. The treasurer agrees the number of valid checks received with the total number of time cards emailed by the production supervisors, signs the valid checks and stores the invalid checks in the mailroom. The treasurer stores the signed checks in the safe until they are given to the production supervisors for distribution on Fri day. Therefore, the production supervisors are responsible for distributing all checks to employees . If the respective production supervisor is absent on a paycheck distribution day, the checks are left for pickup in the mailroom.

Furthermore, an Active Payroll Listing is used which lists all of the employees who are currently listed as “Employed” in the payroll system. This listing is downloaded from the payroll system and analyzed and approved by the Human Resources Director and Payroll Manager once every 2 years. The HR Director and Payroll Manager are required to identify any individuals on the listing who are no longer valid employees at MMC.
MMC’s payroll department recently implemented a new electronic payroll system . This system was implemented to allow employees to be able to view and update their personal information, salary history and download pay statements . As MMC is currently in the process of setting all employee’s personal login details for the new system, they have provided all employees with the same generic login and password details for the interim period. Therefore, employees are required to log in to the system (using the common login username and password) and locate their name and data profile.

Requirted
Based on the information presented above, describe the following:
a) Identify 5 internal control strengths in MMC Company’s HR and Payroll process. For each control strength identified, explain WHY it is a strength.

b) Identify 5 deficiencies in MMC Company’s payroll process. For each control weakness identified, explain WHY it is a deficiency and provide a recommendation of an effective internal control to address the weakness.

QUESTION #1 – PART B
You, CPA, as the Senior Auditor for the MMC financial statement audit engagement for the year-ended March 31, 2021 met with the Audit Partner prior to beginning audit fieldwork. The Audit Partner has asked you to prepare a memo regarding materiality for the March 31, 2021 year-end audit. Specifically, the Audit Partner is interested to know who the primary users are for the financial statements , the overall materiality and performance materiality for the audit. She has requested you incorporate both quantitative and qualitative analysis supporting your assessment of materiality levels.

Background nformation:
MMC is a profit-oriented company and follows International Reporting Standards (IFRS). MMC is a privately owned business, however there is a possibility that the company may go public in the future. During the fiscal year, MMC obtained a new bank loan. MMC obtained a bank loan of $3,000,000 to help with their international expansion and to fund a new marketing campaign . The bank is concerned with the profitability of MMC and is eager to see the audited financial statements due to the new loan granted during the year. The owners of MMC, Mike and Emily, were in discussions with a competitor 3 years ago about the potential of selling the business. Mike and Emily decided not to sell at that time, however they have thought about selling sometime in the near future if the day-to-day demands of running the business become too much to handle . Based on your knowledge of the industry, businesses of this nature are typically valued based on annual profitability .
MMC Director of Finance has provided you with extracts from the draft financial statements (unaudited) for the year ended March 31, 2021.

As noted above, you CPA, have been requested by the Audit Partner to prepare specific information pertaining to materiality for the March 31, 2021 financial statement audit engagement. Provide a response to the following requests:
1. Identify 2 primary users of the financial statements. For each user identified, explain the reason why this is a relevant user and their concerns. 
2. Identify the appropriate benchmark to calculate overall for the March  31, 2021  financial  statement  audit. In your response, explain why the selected benchmark is appropriate and how it relates to the users of the financial statements. 
3. Calculate Overall Planning materiality Provide both quantitative and qualitative analysis supporting  your  assessment  of  the your assessment of the materiality level.
4.Calculate Overall Planning materiality Provide both quantitative and qualitative analysis supporting  your  assessment  of  the your assessment of the materiality level. 
Use a chart like the examples below to structure your response.

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