Joan Has Been the Payroll Supervisor at York Distribution Company

question 57

Essay

Joan has been the payroll supervisor at York Distribution Company (YDC)for ten years.She has never missed a payroll and Farah,the owner of the company,is delighted with her conscientiousness and knowledge.This is particularly important,as Farah spends a lot of time on the road drumming up new business,and needs competent personnel back at the office.
There are two accounting personnel at the office,a receptionist,five shipping and receiving personnel,and thirty sales people employed by YDC.Office and shipping/receiving personnel are paid a salary,while the sales people are paid a monthly base salary plus a percentage of their sales,calculated quarterly.The base salary is low,at $20 000,with a 2% commission,calculated based on sales less any bad debts written off related to their customers.
Joan prints off the sales by customer every month and uses this information to calculate commissions.She then prepares the payroll cheques and gives them to Farah,who signs them and gives them to the sales staff at the monthly sales meeting.The cheques are written against a payroll imprest bank account,kept at a balance of $1000.This account is not reconciled,as the staff are very overworked with the increasing volume of business handled by the company.
Required:A)Identify control weaknesses and their impact,and provide recommendations for improvement.B)What is the impact of the control weaknesses upon your audit approach?

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Definitions:

Extraordinary Items

Events and transactions that are distinguished by their unusual nature and by the infrequency of their occurrence.

Cumulative Effect

The total impact of a change in accounting principle on the net income reported in prior periods, if that change had been applied retrospectively.

Accounting Principle

A fundamental guideline or rule that underpins the financial reporting and accounting practices.

Common Shares Outstanding

The total number of shares of a corporation's stock that are currently owned by investors, including those held by institutional investors and company officers.