1
________________________________________________________________________________
This assignment is drawn from a television episode of “Mystery Diners”, a program produced by TG
Productions. The case study in this assignment has expanded on this episode by the including matters relating
to payroll as developed by Dr Bonnie Hampson.
ACC3118 Auditing
S1 2019
Team Assignment – Weighting 35%
Due Date: 14th May 2019
This Assignment is designed to give students an opportunity to:
1. develop problem solving, critical thinking, teamwork and judgement skills in relation to
the practice of auditing in contemporary business organisations
2. analyse and apply the regulatory framework that applies to auditing practice
3. effectively communicate results from the application of the auditing process.
This assignment provides students the opportunity to:
1. explore how financial statement audits are conducted in a computer-based environment
2. demonstrate authentic workplace processes or responsibilities in the auditing profession
elating to team-based projects e.g. skills in communication, negotiation, interpersonal,
conflict management , leadership, time management, etc.
Students should note that the marking criteria for the Team Assignment will include:
Team Operations (adherence to Team Contract; Minutes maintained; etc) 20
Assignment Report XXXXXXXXXX
Marks Out of XXXXXXXXXX
CASE STUDY INFORMATION
Aaron Kweskia is the owner of the Hangout chain of restaurants (Hangout Restaurant Company),
which provides full bar services as well as restaurant services. The company, which originally
commenced business in Australia, and which is registered as a business in Australia, expanded its
operations to the eastern cities of the USA, namely Boston and New York. The company recently
opened two restaurants in the Californian area of the country, namely, Seal Beach and California 2.
Seal Beach opened approximately 18 months ago, while California 2 is a recent opening.
Part A:
The business in the USA has been very profitable for Aaron. As part of his decision to open a
estaurant in Seal Beach, Aaron entered into an agreement with a Californian grocery business
whereby he agreed to pay the grocery business to advertise his Seal Beach restaurant on the back
the receipts distributed by the grocery store. Such types of marketing strategies are common and
are best described as coupon advertising. Typically, coupons come on the back of a receipt and
include discounts offered by advertised businesses for future purchase of their particular product or
services. Companies continue to use these techniques to attract consumers for their business.
2
________________________________________________________________________________
This assignment is drawn from a television episode of “Mystery Diners”, a program produced by TG
Productions. The case study in this assignment has expanded on this episode by the including matters relating
to payroll as developed by Dr Bonnie Hampson.
Customers of the grocery store may use their grocery store receipt to “redeem” the coupon that is
printed on the back of the receipt and receive a discount on their Seal Beach restaurant bill.
Aaron has found this form of advertising to be a very cost-effective marketing strategy. Sales at the
Seal Beach restaurant have grown at a fairly rapid rate over the first 12 months. However, over the
last few months, Aaron has noticed a significant fall in sales at the Seal Beach restaurant, which has
caused him great concern. He became so concerned that he hired Charles, an Undercover
Operative, to conduct covert surveillance of the operations at the restaurant (You may assume, for
the purposes of this assignment that such covert operations are not subject to any legal
impediments either in the USA or in Australia).
As a result of this surveillance, Aaron has become very concerned about the possible extent of fraud
in his business. Aaron contacts his auditors, Smart & Associates, requesting an urgent audit.
Maxwell Smart is the Audit Partner of the firm and you are a key member of the auditing team.
Aaron provides Maxwell with the video recordings of the surveillance operations. At a meeting with
the Audit Partner, Maxwell Smart, Aaron asks whether the auditors can use these recordings for
audit purposes so as to reduce the audit costs. As a key member of the audit team, you have been
assigned responsibility to report to Maxwell on all matters relating to the audit.
The following is the link you have been given by Aaron that relates to the surveillance operation at
the Seal Beach Restaurant, which is named Hangout 1:
https:
lor.usq.edu.au/usq/integ/gen/fc032c30-79b1-4abc-939d-
e7353a0f6c26/0/?attachment.uuid=e6d91a88-6bec-4f4e-8b23-dd9875f67add
Maxwell has requested that you provide a report to him that deals with the following issues at
the Seal Beach restaurant:
a. the auditor’s responsibility in relation to fraud and what the auditor must do in response
to the issues identified at the Seal Beach restaurant;
. whether it is possible for the audit team to use the video supplied by Aaron as the basis
for the audit of sales in order to reduce the audit costs to the client;
c. the importance of the control environment or “setting the tone from the top”, in
establishing a culture of honesty and integrity in the Hangout Restaurant Company;
d. the cu
ent process that Seal Beach uses for accepting and dealing with coupons as well as
the cu
ent internal controls over its sales and cash receipts that are in place at the
estaurant;
e. any weaknesses that you identified in the internal controls over sales and cash receipts;
f. the factors that should be recognized by the auditor in this case as having an effect on the
isk of fraud; and
g. recommend improvements in internal controls over sales and cash receipts that will
educe the incidence of fraud.
https:
lor.usq.edu.au/usq/integ/gen/fc032c30-79b1-4abc-939d-e7353a0f6c26/0/?attachment.uuid=e6d91a88-6bec-4f4e-8b23-dd9875f67add
https:
lor.usq.edu.au/usq/integ/gen/fc032c30-79b1-4abc-939d-e7353a0f6c26/0/?attachment.uuid=e6d91a88-6bec-4f4e-8b23-dd9875f67add
3
________________________________________________________________________________
This assignment is drawn from a television episode of “Mystery Diners”, a program produced by TG
Productions. The case study in this assignment has expanded on this episode by the including matters relating
to payroll as developed by Dr Bonnie Hampson.
Part B:
The company has more than 30 employees across the five (5) restaurants. Susan Kweskia, who is
ma
ied to Aaron, maintains the employee and payroll records and calculates the fortnightly pays.
All employees are paid at a standard wage for the hours that they work to a maximum of 80 hours
per fortnight. As there are only a small number of employees at each Restaurant, the Restaurant
Manager records all employee hours per day and emails them to Susan at the end of each fortnight.
Each Manager has a secure password to send employee information to Susan’s email account.
Aaron has now become wo
ied that there may be e
ors occu
ing in the payroll, especially when all
of the payroll functions in each Restaurant are handled by one person, namely the respective
Manager of the restaurant. The issues highlighted with respects to the operations of the Seal Beach
Restaurant raises concerns for him about potential payroll fraud and/or e
ors in the restaurants.
Aaron requests your auditing firm to also investigate the possibility of fraud and/or e
or in the
company’s payroll. As part of this payroll audit, Aaron would also like to know what could be done to
decrease the likelihood of payroll fraud and/or e
or at the Hangout Restaurant Company. Because
of Aaron’s recent findings in relation to the operations of the Seal Beach Hangout Restaurant, he
does not want the Restaurant Managers to know that he is having the payroll records checked.
Susan has access to all the files and she provides you with the master files and the latest fortnightly
payroll information for the week ending 15 September 2017. Once again, you have been assigned
esponsibility for reporting the audit findings to the Audit Partner, Maxwell Smart.
A computer-based payroll system is used by the company. Susan provides you with three data files
(access using Excel):
EMPMAST Employee Master File as at 15 September 2017.
PAYROLL Payroll data file for the pay period 15 September 2017.
WORK_DEPTS Work Departments Master File as at 15 September 2017.
According to the Hangout Restaurant Company system documentation, the employee master file
(EMPMAST), payroll master file (PAYROLL) and work departments master file (WORK_DEPTS) have the
following fields:
EMPMAST
Field No. Field Description Field Name
1 Employee number EMPNO
2 Employee name NAME
3 Work department DEPT
4 Job description JOB
5 Hourly rate of pay HRLY_RATE
6 Hours worked per fortnight HRS_PER_FNT
7 Pay per period PAY_PER_PERIOD
4
________________________________________________________________________________
This assignment is drawn from a television episode of “Mystery Diners”, a program produced by TG
Productions. The case study in this assignment has expanded on this episode by the including matters relating
to payroll as developed by Dr Bonnie Hampson.
PAYROLL
Field No. Field Description Field Name
1 Employee number EMPNO
2 Employee Name NAME
3 Work department DEPT
4 Pay date PAY_DATE
5 Pay paid PAY_AMT
6 Cheque number CHEQUE_NO
WORK_DEPTS
Field No. Field Description Field Name
1 Work department WORK_DEPT
2 Department name DEPT_NAME
In planning your audit of the payroll for the period ending 15 September 2017, you have
established the following audit objectives:
1. Produce a report showing the employee number, full name, work department, pay date, pay per
period, and cheque number for each paid employee. Sort and subtotal this report by work
department.
2. Produce a report, using the pay details in the employee master file and the payroll file, to check
the totals for both files.
3. Produce a report that determines if any employees are being paid more than $3,000 pay per
fortnight. The report will detail these employees with full details including their name, work
department and job description and pay per period. Sort this report by work department.
4. Produce a report showing the details of any employee that was not paid.
5. Produce a report showing the pay details for any paid employee who is not on the employee
master file.
6. Using ALL the issues that any report reveals, identify and