Reference no: EM132678145

During the pre-audit conference for Quicky, Inc., the senior auditor described for the new staff people assigned to this year's audit the essential characteristics of Quicky's internal control system. In the payroll cycle, controls have been found to be severely lacking; however, the auditors have been reasonably satisfied with the controls within the other cycles. In the past, the controls over cash receipts have been evaluated as excellent. Within the payroll area, material errors and irregularities can occur readily. Supervisors do not review time cards prepared by employees; pay rates, hours extensions and withholdings are not reviewed independently. Paychecks, after being signed, are returned to department supervisors for distribution.

Required:

Problem a. What alternatives are available to auditors for dealing with weak financial control subsets? What possible effects might the absence of payroll controls have on the financial statements in this case?

Problem b. What steps should the auditor take if, based on the initial review, controls are thought to be adequate?

Problem c. Although the control procedures relating to cash receipts have been excellent in the past, they should be re-evaluated again this year.

1) Why is it necessary for the auditors to study and evaluate internal control each year?
2) Why is a minimum audit necessary notwithstanding excellent controls?