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Auditing problems

16-38) In connection with an audit of the financial statements of Olympia Company, the auditors are reviewing procedures for accumulating direct labor-hours. They learn that all production is by job order and that all employees are paid hourly wages, with time and a half for overtime hours.
Olympia's direct labor-hour input process for payroll and job-cost determination is summarized in the flowchart that is illustrated below. Steps A and C are performed in timekeeping, step B in the factory operating departments, step D in payroll audit and control, step E in data input, and step F in computer operation.

Required: For each input processing step A through F:
a. List the possible errors or discrepancies that may occur.
b) Cite the corresponding control that should be in effect for each error or discrepancy.
Note: Your discussion of Olympia's procedures should be limited to the input for direct labor hours, as shown in steps A through F in the flowchart. Do not discuss human resources procedures for hiring, promotion, termination, and pay-rate authorization. In step F do not discuss equipment, computer program, and general computer controls

Text Book Problem:
Principles of Auditing & Other Assurance Service, by Whittington/Pany (15e)
Chapter 16 -> Auditing Operations and Completing the Audit

See attached file for full problem description.


Solution Preview

Incorrect recording of the number of hours from the Time Card;
Incorrect entry of the materials required.
? The entries for the materials required are incorrectly entered.
? The entries for the recording of the number of hours are incorrectly entered.
Payroll audit and control does not spot excessive requirements and use of material. ...

Solution Summary

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