Part -1:
Casual staff are paid on an hourly basis and receive no leave entitlements. Rates are as per the relevant statutory award rate. Casual staff positions are mostly filled by high-school and university students.
A press release dated October 2011 announced that US investors had purchased a huge block of land in Western Melbourne earlier that year with the intention of opening an Australian Winter Wonderland park by April 2012.
From 15 December 2011 onwards, WinterFun has consistently paid its suppliers late, well in excess of the suppliers' normal credit terms. This has resulted in some suppliers requesting cash on delivery from WinterFun. You are aware from your review of correspondence between WinterFun and its bank that the company has been experiencing cash flow problems since 2011.
In November 2011, WinterFun was fined 5150 000 for paying its casual employees below the statutory award rates. WinterFun was ordered to make shortfall payments to its employees.
Due to its elevation and related snowfall in winter, the rides at WWW are prone to rust and jamming. During the 2012 Easter school holidays, one of WWW's most popular rides experienced a major breakdown. Patrons were trapped on the ride for several hours.
resulting in several patrons being taken to hospital with minor injuries. Inspection of the ride after the incident indicated that key parts needed urgent replacement. The parts are manufactured in the US and imported by WWW. The cost of the replacement parts totalled US$1.8 million. The chief engineer at WWW has estimated that if repairs begin by 5 May 2012. they should be completed by 28 July 2012. This estimate is based on the assumption that maintenance and engineering staff at VVWW will be able to repair the rides without outside expertise.
Required
(a) Given the information provided, list four key qualitative factors that you would consider in determining preliminary materiality for the year ended 30 June 2012.
(b) For each of the factors you identified in (a). describe how it will affect your preliminary materiality level.
(c) Nominate the key account balance most at risk of material misstatement due to the factors identified in (a). If) 7.5
Part -2:
As part of its expansion plans, CFI. recently acquired Fashion Adornments, a fashion accessories company that operates in all capital cities and most major regional centres. Due to the nature of its business, most of the employees are employed on a casual basis and everyone is paid in cash.
The payroll records are kept on the in-house computer system maintained by Fashion Adornments Ltd at its Head Office in Sydney. All changes to the computer programs must be approved by the IT manager.
Fashion Adornments Ltd has two computer programmers and two computer operators. Programmers do not have access to the operating system, which is backed up daily and a copy of all computer files are stored at a separate location in a fire-proof safe. The entire computer system is protected by passwords, firewalls and the latest anti-viral software.
Fashion Adornments uses a batch processing system, with the payroll data being input directly at each store. A weekly department payroll listing is prepared by the paymaster at each store based on timesheets approved by department managers. A payroll assistant at each store totals the list, enters the details into the computer system and compares the hours worked as accepted by the system to the total calculated manually. The computer system checks that the employee number entered is a valid employee on the system. Wage rates from the employee master file are then applied to each employee's hours to determine the total payment. All changes to wage rates on the employee master file must be approved by the Human Resources Manager at Head Office in Sydney. Tests are applied during processing to ensure that the hours worked are within predefined limits.
The paymaster at each store pays all employees in cash at the end of each week. On receipt of their pay packet, each employee signs the payroll master listing.
Required
Identify six application controls present within the payroll system that you may be able to place some reliance on, and explain why each is a control.