Reference no: EM132958802

Aquamarine Co (Aquamarine) operates a chain of hotels across the country. Aquamarine employs in excess of 250 permanent employees and its year end is 31 August 2014. You are the audit supervisor of Amethyst &Co and are currently reviewing the documentation of Aquamarine's payroll system, detailed below, in preparation for the interim audit.

Aquamarine's payroll system

• Permanent employees work a standard number of hours per week as specified in their employment contract. However, when the hotels are busy, staff can be requested by management to work additional shifts as overtime. This can either be paid on a monthly basis or taken as days off.
• Employees record any overtime worked and days taken off on weekly overtime sheets which are sent to the payroll department. The standard hours per employee are automatically set up in the system and the overtime sheets are entered by clerks into the payroll package, which automatically calculates the gross and net pay along with relevant deductions. These calculations are not checked at all. Wages are increased by the rate of inflation each year and the clerks are responsible for updating the standing data in the payroll system.
• Employees are paid on a monthly basis by bank transfer for their contracted weekly hours and for any overtime worked in the previous month. If employees choose to be paid for overtime, authorisation is required by department heads of any overtime in excess of 30% of standard hours. If employees choose instead to take days off, the payroll clerks should check back to the 'overtime worked' report; however, this report is not always checked.
• The 'overtime worked' report, which details any overtime recorded by employees, is run by the payroll department weekly and emailed to department heads for authorisation. The payroll department asks department heads to only report if there are any errors recorded. Department heads are required to arrange for overtime sheets to be authorised by an alternative responsible official if they are away on annual leave; however, there are instances where this arrangement has not occurred.
• The payroll package produces a list of payments per employee; this links into the bank system to produce a list of automatic payments. The finance director reviews the total list of bank transfers and compares this to the total amount to be paid per the payroll records; if any issues arise then the automatic bank transfer can be manually changed by the finance director.

Required:

Problem a. In respect of the payroll system of Aquamarine Co, describe a test of control Amethyst & Co should perform to assess if each of these controls is operating effectively.

Problem ?b. Describe substantive procedures you should perform at the final audit to confirm the completeness and accuracy of Aquamarine Co's payroll expense.