M1 Unit 4 Tests Of Control

M10EFA: Auditing and Assurance
Seminar 4: Tests of Control and Audit Sampling

Tests of Controls
Game Solutions is a computer games company which has its Head Office located in Glasgow, where all administrative processes are conducted. However, all other functions are sited at four other locations in the UK in order to ensure optimum cost efficiency of the research and production functions in terms of staff, facilities, travel among others. All locations are networked together with a server placed at each location to facilitate communication and data transfer. Access to all files on the Head Office server is permitted by each of the other locations; although it is the responsibilities of the Site Managers to restrict access as he considers appropriate.

All staff members are paid on salary
basis. There are currently 11 staff members at the Head Office with five at each of the locations. The payroll is managed at Head Office by the Head of Office Services who relies on monthly input from each of the site Managers as follows.

All employees have to submit a timesheet at the end of each month showing hours worked during the month.
If they have worked less than the minimum hours of 30, then a reason for this has to be supplied by the employee and approved by the Site Manager. If such absence was not for an authorised reason, then the appropriate deduction is made from the salary amount. The timesheet should also record sicknesses, holidays or other approved absences. At the end of each month, the Site Manager has to complete a summary form detailing any sicknesses, holidays or other absences. All absences must be supported by a form explaining reasons and authorised by the Manager. All sicknesses must be accompanied by a doctor’s certificate if appropriate. The Site Manager is also responsible for recruitment and staff leavers, and must inform the Head of Office Services of all such instances so that the personnel records can be set up. Recruitment of new staff should only take place following authorisation from the Managing Director who is located at Head Office. All monthly input to the Head Office Services is through e-mail from each of the Site Managers and from the individual
employees.

You are the Audit Senior working for Wollingwoth and Partners, a small firm of Certified Accountants, on the audit of Game Solutions Ltd and have been asked by the Audit Manager to complete the audit of salaries. You have one junior auditor assisting you with the audit testing.
Required:
(a) Discuss with the junior auditors what the control objectives would be for the Salaries system. (5 marks) (b) In preparation for the audit testing, discuss what you perceive the risks to be in the Salaries system. (10 marks) (c) Document the tests of control that you would perform as part of the audit testing on the Salaries system. (10 marks)

Audit Sampling

1. Audit sampling is a technique for drawing conclusions about the characteristics of a population by testing a sample drawn there from. Internal and external auditors use it for both tests of controls and substantive testing.

Required:
Discuss the following in relation to the above statements:

a) The difference between statistical and non-statistical sampling b) Random selection c) Systematic selection d) Haphazard sampling e) Monetary unit sampling (MUS) (20 marks)

2. Explain what is meant by “Sampling risk” and “non-sampling risk”. (8 marks)

3. Explain the methodology and logic of “directional testing”. (7 marks)