The audit senior on the audit of Frankel Factors is preparingthe audit plan for the year ended June 30, 2023. The followingnotes relate to the payroll application system that went live onJanuary 1, 2023:
1. The new payroll application is more complex than the oldsystem, but its reporting function provides more detail. Forexample, the new application calculates leave, pension, payrolltax, and employee benefit expenses, as well as the correspondingaccruals.
2. Due to the brief time available to implement the new system, theprevious application ceased operation on December 31, 2022, and thenew application went live on January 1, 2023, without runningparallel with the previous application. Staff training and testingof the new application was limited.
3. Access to the master files is restricted to the payrollsupervisor and her assistant. Access to transaction files isrestricted to payroll staff who are responsible for the processingof bi-weekly and monthly pay.
Prior to the introduction of the new payroll application system,the payroll master file and transaction files were kept in aseparate database from the general ledger application. At the endof each month, the IT staff imported transaction data from thedatabase into the general ledger. Management decided to upgrade theexisting accounting system due to the frequent problems encounteredby IT staff when importing data into the general ledger.
Payroll controls
1. a.Analysis: Based on the information above, explain two concernsabout the payroll application's integration with the general ledgerapplication.
2. b.Analysis: Describe (don't just list) one IT applicationcontrol to ensure the accuracy of the salaries and wages expensestransaction.
3. c.Analysis: Describe (don't just list) one IT applicationcontrol to ensure the occurrence of the salaries and wages expensestransaction.
4. d. Evaluation: design and describe in details appropriate testsof controls you would use to satisfy yourself about theeffectiveness of these internal controls.
