It is 1 July 20X5. Quirky Quadbike Co manufactures ready mixed concrete which it supplies to a wide range of customers throughout the country. The company's year end is 31 July 20X5. You are an audit supervisor at Aeroball & Co reviewing the systems documentation in preparation for the interim audit. Although payroll and inventory are stand-alone systems, the sales and purchases modules are fully integrated into the computerised accounting system.
The human resources department is responsible for setting up new permanent employees. An authorised joiner form, containing all relevant details including a unique employee number, is sent to the payroll department so that new employees can be added to the payroll. During busy periods, the company recruits temporary employees and joiner forms are not completed — instead, these appointments are processed by the production director who informs the payroll department by email.
(c) Describe substantive procedures the auditor should perform to obtain sufficient and appropriate audit evidence in relation to Quirky Quadbike Co's payroll expense. (5 marks)
The auditor should obtain the payroll summary for the year and agree the total payroll expense to the figure in the income statement to confirm completeness and accuracy of the recorded expense1. A sample of employee records should be selected from the payroll and the employee details, including name, employee number and pay rate, agreed back to the authorised joiner forms held by HR to confirm that employees on the payroll are valid and authorised2. For a sample of payroll periods, gross pay should be recalculated by multiplying hours worked by the agreed pay rate and compared to the payroll records to check arithmetical accuracy3. For temporary employees, the emails sent by the production director to the payroll department should be reviewed and agreed to the payroll records to confirm that temporary staff added to payroll have been properly authorised4. Finally, a sample of payslips should be obtained and the net pay amounts agreed to the bank transfer listings and bank statements to confirm that payroll payments have been made to real employees5.
Clear source (payroll summary) and clear purpose (confirm completeness) — exactly the structure AA examiners award marks for.
Sampling employee records and agreeing them back to authorised joiner forms directly tests whether payroll additions are valid and properly authorised.
Recalculating gross pay tests arithmetical accuracy — a strong, specific substantive procedure and a common AA payroll mark point.
Directly addresses the control weakness in the scenario — using the production director's emails as the basis for testing shows you applied the scenario, not a generic list.
Agreeing net pay to bank statements confirms payments went to real employees — directly addresses the ghost employee risk examiners expect you to spot.
An excellent answer that clearly demonstrates understanding of substantive procedures in the context of this specific scenario. Every procedure has a clear source and a clear purpose, and the point about temporary employees and the email-based authorisation process shows strong scenario awareness — full marks achieved, keep using this approach in your next answer.
DCS Company recently conducted a company-wide staff satisfaction survey. Staff were assured that responses would be anonymous, but the survey required personal information including employee number and department. Following analysis of the results, it emerged that certain employees who gave negative feedback were identified and called in for individual interviews with senior managers. Some of these employees felt intimidated during the meetings. The results were presented to the board using graphs that emphasised positive findings. It later emerged that questions about confidence in senior management had been omitted from the survey, reportedly based on informal feedback obtained through the grapevine.
(b) Criticise the CEO's and HR director's ethical and professional behaviour relating to the design, conduct, and reporting of the staff satisfaction survey. (5 marks)
There are a number of ethical issues with the design and conduct of the staff satisfaction survey at DCS Company. The survey lacks integrity as staff were told their responses would be anonymous, yet the personal information collected means management could identify individual respondents.1 This is misleading and undermines trust in the process. The survey also lacks objectivity as questions appear to have been designed to discourage negative feedback, particularly about confidence in management, and key questions were omitted entirely.2 This means the results do not give a true picture of staff opinion. The results were then presented using graph styles that focused on positive aspects, which misrepresents the true findings to the board and is unprofessional.3 Finally, confidentiality has been breached as employees who gave negative responses were identified and called in for interviews with senior managers, which was never disclosed to staff when they completed the survey.4
Correctly identifies the integrity breach and applies it specifically to DCS Company rather than stating it generically.
Objectivity point is well made — the omitted questions and leading question design are both linked back to the scenario.
Spots the misrepresentation, but doesn't name which principle it breaches or explain why selective graphs specifically misled the board — needed a bit more development to earn the mark.
Confidentiality breach correctly identified — ties back to the anonymity promise given at the start of the survey.
Double standards: staff were told the survey was anonymous, but those called in for interview were themselves told to keep the meetings confidential — a separate ethical issue worth a mark in its own right.
Professional behaviour: calling in identified employees and conducting meetings where some felt intimidated is itself unprofessional by the CEO and HR director. The question specifically asks you to criticise their professional behaviour, so this is a clear missed mark.
When a question asks you to criticise ethical AND professional behaviour, treat these as separate requirements that can each earn marks independently — don't conflate them into a single point.
Look for contradictions within the scenario — when DCS Company told staff the survey was anonymous but then told interviewees to keep the meetings secret, that contradiction is itself an examinable point.
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