Reference no: EM132759620

You are the auditor of F45 Limited. Division A of F45 employs 90-130 factory personnel, depending upon production requirements. The division has its own payroll department which processes the payroll using a popular commercial payroll package. Employees work two shifts, Monday to Friday, and are paid award wages each week. The division employs one factory manager and two factory supervisors, one for each shift. Procedures are as follows.

New Employees

• The personnel department prepares a duplicate Personnel History Form for each new employee from written information supplied by the factory manager. The original of the form is authorised by the factory manager and then the department assigns an employee number to the employee and inserts this number, together with the employee's award and pay as you earn (PAYE) categories, on the form. The original is filed, and a duplicate forwarded to the payroll department.

Retirements

• A Personnel Retirement Form is initiated, in duplicate, by the personnel department based on a memo written by one of the two factory supervisors. The factory manager authorises each retirement by signing the original of the form. After authorisation, the duplicate is filed, and the original forwarded to the payroll department.

Required:

Problem (a) From the information above, identity FIVE internal control issues/weaknesses.

Problem (b) Provide a brief explanation of the effect of each weakness identified in (a) on the risk of material misstatement in the financial statements.