• Internal Code :
  • Subject Code : ACTY7209
  • University : Unitec
  • Subject Name : AUDITNG

Advanced Auditing – Individual Assignment Part B

Section 01: Wages

1. Identification of the deficiencies in Brown Co.’s wages system:

In Brown Co. the working hours of the employees are recorded using the finger print system which could falter at times. The finger print system is high in maintenance and since the mechanism is used to record the hours worked by the employees, a more sophisticated equipment would be ideal. Again, the employees are required to enter their unique employee ID on the keypad which further severs the machine and be more sensitive might lead to wrong recording of arrival time. 

The supervisor being authoriser of the payroll could issue temporary numbers and keeps record of the employee numbers as per his job responsibility. This is definitely an issue to contain with as the supervisor on his discretion could create ghost employees. Since the supervisor has the all the employee numbers handy, he could himself create for ghost employees and update the employee number on the keypad of the system (Diouf & Boiral, 2017). This kind of risk is very much prevalent in Brown Co. as the supervisor shoulders the responsibility of authorising the payroll and updates the changes in the system regarding the working hours of the employees. 

The computerised system in Brown Co. takes care of the overtime determination and other wages calculation. Since the workers are paid as per the hours dedicated for the task, the hours need to be converted into gross wages in accordance to the hourly payroll and deductions of the concerned staff to come up with his net payroll. It is because the gross wages are based on the standardised working week say for 40 hours and takes account of the overtime contributed by the employee (Boiral, Heras-Saizarbitoria, & Brotherton, 2019). 

The staff at the wages department of Brown Co. rectifies the wages in terms of the leaves and holidays allotted to the employee and post in in his employment records. It might happen that the staff at the wages department does not have the requisite expertise to calculate the leaves which might lead to errors and discrimination in the net pay of the staff arising confusion. 

It is good to see that the organisation arranges for direct credit to the bank account of each employees as commissioned by a staff. But it is not subjected to any sort of approval from the senior or double check to ensure its reliability.

2. Internal control to overcome the deficiency:

The finger print system could be replaced by the electronic card reader which has the facility to swipe the employee identity card recording his arrival time. It would definitely be an easy solution to record the number of hours worked by the employee at Brown Co. for determining his wages properly (Messier & Schmidt, 2018). The relevant internal control system would be organization of the proper functioning of the system by an efficient IT executive and report the data to the concerned authority on a daily basis for its proper documentation and reference in future. 

To do away with the issue of ghost employees, it would be effective to have a strong supervision process in place by segregating the duties of supervision and distributing the wages to the staff among different persons. And the internal control system demands that the allocation of the wages to the employees before passing over to the payroll department need to be authorised by a senior personnel. It would be effective for the HR department at Brown Co. to keep a track of its employees via their identity cards leaving limited scope for generation of ghost employees (Hay, Stewart, & Redmayne, 2017). 

The computerised system used in Brown Co. are used to determine the net pay of the employees. But the system would be more effective provided the overtime listings could be reviewed and authorised by the payroll managers before feeding the data into system (Smith & Stephens, 2020). The internal control mechanism also strives for validation of the data as software control measures to run a check on the data transactions. Accordingly a payroll sample need to be checked by the senior personnel before processing the final payroll.     

The HR department generally takes up the task to calculate the leaves as it forms a crucial part of wage determination. So the internal control system tends the payroll as calculated by the staff of the wages department need to be verified and counter-checked by a senior responsible authority in the department especially the HR department having an expertise in that matter. 

The staff responsible to credit the wages to the bank account of the staff need to keep a proper record of the amount being credited to specified individuals (Chiu, Brown-Liburd, & Vasarhelyi, 2019). He should receive a proper authorisation from the wages department or HR department sanctioning the pay as determined using the computerised system of Brown Co.  

Section 02: Accounts payables

1. Substantive audit procedures undertaken in auditing of accounts payables:

The accounts payable comes up with sorts of risks like unrecorded liabilities, duplicate payments, fraud expenditure and no definite categorisation of duties among others. If these things go undetected it has the potentiality to create havoc in the business scope of Metco, so a thorough audit is to be conducted to keep the accounts payable on track (Moroney, Campbell, & Hamilton, 2017). Auditing the accounts payable would be a deliberate effort to detect fraudulent measures in the business, the following procedures are to be followed –

  1. Proper disclosure of records

  2. Comprehensive payable auditing

  3. Verification of transactions

  4. Accessibility of data and information 

2. Purpose of the audit procedure:

  1. Proper disclosure of records – The historical financial statement of Metco need to be properly disclosed for the purpose of appropriate financial reporting, tactical projections and sourcing. So the unusual transactions are to be recorded contextualised and clarified as per the requirement (Ulrich & Blouch, 2018). So the Metco management needs to comply with the necessary records to ensure that the financial statement of the business are complete and has gone through all the purchasing and accounts payable items. 

  2. Comprehensive payable auditing – A thorough auditing of the financial statements would be effective to ensure that the business is complying with the accounting rule of the land say Australian GAAP. It is necessary to go through the income statement, cash flow statement and balance sheet of Metco to trace the general ledger entries right from its beginning to understand the generation of the accounts payable (Boiral, Heras-Saizarbitoria, & Brotherton, 2019). This kind of trail is very effective in finding out any kind of weaknesses in the internal control system and means to improvise it. 

  3. Verification of transactions – It is the responsibility of the auditor to check on the suppliers’ record regarding outstanding to Metco to verify the data as recorded in the financial statement (Chiu, Brown-Liburd, & Vasarhelyi, 2019). The phenomenon would be helpful in doing away with the risks of material misstatement bringing out the genuine facts about the company. 

  4. Accessibility of data and information – It is the duty of the auditor to run tests like the cut-off tests to determine whether the concerned accounts payable transaction has been recorded properly and tallies with the general ledger system.  

Section 03: Inventory

1. Control test and substantive procedure:

It is seen that pre-numbered count sheets were issued to client’s staff but this process could be rectified by running a test of control. It would be better to number those materials before handing those to the external parties as some items might be missing and in case of a proper numbering and recording, South City. A sampling could be done to number the sheets and release it to the client for carrying out the construction after proper documentation say signing the sheets (Messier & Schmidt, 2018).  

The substantive procedure would be to obtain the list and number of sheets procured for the construction, selecting a sample to evaluate its worth at par with the suppliers’ invoice. The materials would be disposed only if the count sheets are properly numbered and recorded to hand it over to the client. It would be better to run a proper internal check and set forth a procedure for release of these materials. 

2. Audit procedures regarding inventory count:

  1. Reviewing last year’s inventory records

  2. Obtain stockholding instruction from clients

  3. Auditing during inventory counts

  4. Ascertain if there is any outstanding inventory with a third party

3. Deficiencies and means to overcome it:

The count sheets were not signed by the South City staff during the count and it is a deficiency owing to lack of records. So to overcome it, the counting of the materials would be in actual terms taking help of the staff or better a computerised system.

Another deficiency is that the information on the count sheets were recorded in pencil which could be easily wiped out. So the markings need to be done in ink for a better visibility and most importantly proper sequencing and recording. 


Boiral, O., Heras-Saizarbitoria, I., & Brotherton, M. (2019). Assessing and improving the quality of sustainability reports: The auditors’ perspective. Journal of Business Ethics, 155(3), 703-721.

Chiu, T., Brown-Liburd, H., & Vasarhelyi, M. (2019). Performing Tests of Internal Controls Using Process Mining: What Could Go Wrong? The CPA Journal, 89(6), 54-57.

Diouf, D., & Boiral, O. (2017). The quality of sustainability reports and impression management: A stakeholder perspective. Accounting, Auditing & Accountability Journal, 30(3), 643-667.

Hay, D., Stewart, J., & Redmayne, N. B. (2017). The Role of Auditing in Corporate Governance in Australia and New Zealand: A Research Synthesis. Australian Accounting Review, 27(4), 457-479.

Messier, W., & Schmidt, M. (2018). Offsetting misstatements: the effect of misstatement distribution, quantitative materiality, and client pressure on auditors’ judgments. Accounting review, 93(4), 335-357.

Moroney, R., Campbell, F., & Hamilton, J. (2017). Auditing: A Practical Approach (Australia ed.). Sydney: John Wiley & Sons Limited.

Smith, J., & Stephens, N. (2020). The Reel Wheel: Using Analytical Procedures as Substantive Tests of Account Balances. Issues in Accounting Education Teaching Notes, 35(1), 1-8.

Ulrich, T., & Blouch, W. (2018). CPA PRACTITIONERS'FEEDBACK ON AUDITING CURRICULUM. Journal of Business and Accounting, 11(1), 68-81.

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