Big Ben's Toy (BBT)Company Has Recently Outsourced Its Payroll Operation

question 17

Essay

Big Ben's Toy (BBT)Company has recently outsourced its payroll operation to Mary's Payroll Service (MPS).MPS receives the changes to the payroll data base (hirings,firings,rate increases,etc.)and the number of hours worked for all hourly employees.MPS calculates the payroll and sends BBT printed payroll checks,a payroll register,and a list of payments to be made to third parties (IRS,insurance,pension plan,etc.).BBT transfers an appropriate amount into its payroll bank account and distributes the checks.Accounts payable uses the list of third-party payments to make appropriate payments.
You have been hired to perform an audit of BBT Company.During your opening meeting with BBT management you state that your audit plan includes inquiries of Mary's Payroll Service and a review of the AT 801 report on internal controls at MPS.BBT's management is confused and states that BBT should not have to pay you to review controls at another organization.
Prepare a brief explanation to BBT's management as to why it is necessary to review the controls at MPS and the importance of this review to BBT Company.

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Definitions:

Marginal Cost

The added cost incurred from the production of an extra unit of output.

Total Revenue

The total amount of money generated by a business from the sale of goods or services before any expenses are subtracted.

Life Expectancy

The average number of years a person is expected to live based on demographic factors such as current age, gender, and geographic location, calculated from statistical data.

U.S. Business

Business enterprises operating within the United States, covering a wide range of industries and contributing to the economic activity of the country.