Pakistan Institute of Public Summer Exam-2022

Finance Accountants [18.May.2022] [02:30 – 05:15 pm]

Additional time – 15 min for Paper Reading

Audit & Assurance (PS) (Application)

AGP | PG | Public Sector
Marks-80 Subjective Duration: 02 Hours 30 Minutes
[Instructions]
 Ensure that the question paper delivered to you is the same, in which you intend to appear.
 Read the instructions given on the title page of Answer Script.
 Start each question from fresh page.

Books Allowed:
 Financial Audit Manual with Appendices
 Audit Working Paper Kit
 Quality Management Framework

Attempt FOUR questions including Question No. 1, which is compulsory

Q.1. Orwell is a small country with a Central Government and this Central Government has offices
in its municipalities, total twenty in number. Because of its small size, the salary and the
pension data as well as other personal related data of the employees of the Government is kept
with a central agency, The Agency for Personnel Management, called the Agency. The
Government of Orwell has the policy that every Government employee, who has served for
twenty years will be given a pension upon retirement according to a pension table approved by
the Government of Orwell. This table is made while considering the last pay drawn, the
number of years served, the contribution made towards pension and cases where there are any
outstanding dues to be paid to the Government, they will be deducted either in lump sum or in
equal installments from the pension. It’s a complex formula which has to be performed to
arrive at the final pension amount. The Agency is headed by a Director General and he has
Directors responsible for various wings within the Agency, like the Salary Wing, Human
Resource Development Wing, the Pension Wing, the Career Management Wing, the Wing for
other Emoluments (like gratuity, benevolent fund, marriage grant, etc.) and the Provident Fund
Wing.

Pension Wing

In the first month of a year, every office of the Government sends a list of employees who are
to retire during the year along with their pension calculation (anticipated). The list is received at
the Pension Wing where an Auditor pre-audits the pension calculation, compiles all the claims
and starts to collect data about the employees on the list, from other Wings, called a pre-audit
checklist. The Auditor sends it to the Career Management Wing to get the date of employment
and other data. The data is obtained and without checking it and without getting it approved by
the Director, the Auditor sends it back to the Pension Wing. The Pension Wing calculates the
emoluments, using its table, sends it to his Deputy Director, who signs it and sends it back.
This data is then sent to the System Analyst in the computer lab of the Pension Wing to
calculation through the software that was designed in-house by the System Analyst who is a
Grade – 18 Officer from the IT cadre.

Contd……
 (2)

The System Analyst marks it down to the Programmer who marks it down to the KPO who
enters the data in the system. A KPO runs the software to calculate the pension and once it is
done saves the data for future use. The KPO also sends it back to the Pension Wing for the
relevant auditor to check for any errors and mistakes; if none is found, the “No Error
Certificate” is sent and then pension becomes a part of the regular pension system. This is the
procedure used for new pensioners.
For existing pensioners, the auditors in the Pension Wing prepare a roll of all the pensioners
after calculating their pension for the month. This calculation is done every month, for existing
pensioners as well as new pensioners and there is a pre-audit checklist that should be followed
for this. The Deputy Director signs the list and send it back to the relevant auditor who then
sends the pension roll to the computer lab. There a team of KPOs runs the pension software,
the Programmer approves the pension roll and sends it back to the relevant auditor for a check
if there is any error or discrepancy. Once the relevant Auditor sends a “No Error Certificate”
to the computer lab, another team of Auditors, different from the ones calculating the pension,
but accessing the same software authorizes the pension payment and this authorization is
marked to the Cheque Section who makes the payment cheques and these cheques are then
dispatched to the bank for payment of pension. As part of his duties, the System Analyst
should countersign all the pension rolls being printed as they are also sent to the respective
banks but because he has other duties, only the Programmer signs and dispatch. Every KPO
and Auditor is assigned a set of departments for which they have to run the pension roll
Someone has informed you about a significant fraud that took place in pension during the year
under audit. A number of fictitious pensioners were set up on the pension program and
pension was also paid into their bank accounts. These bank accounts belonged to the family
members of the System Analyst who had full authorization of the pension software and all the
activities taking place within the computer lab. The System Analyst has worked with the
Pension Wing for more than five years and was also instrumental in switching the pension
system from paper based to electronic form, being used today. He is also the main person who
designed the electronic system of Pension. All the staff within the computer lab work under the
System Analyst.
Required:
As an auditor, one of the tasks is to recommend appropriate controls. For the scenario given 20
above, identify TEN controls that should have been in place and followed to prevent this
fraud. You can refer to the internal control checklists provided in the Working Paper Kit for
inspiration.

Q.2. For an auditor, what is the importance of adhering to a ‘Code of Ethics’ as given in FAM? 20
Enlist TEN major points.

Q.3. (a) In light of FAM and the User’s Guide to Financial Audit, what are the FOUR types of 10
Audit Opinions that an auditor can give? Name them and give their definition.

(b) What is the importance and use of materiality in auditing? Enlist FIVE major points. 10

Q.4. Under the 2006 System of Financial Control and Budgeting, the PAO and the CFAO has been 20
given their own separate set of duties. List down TEN duties of both while bringing out the
differences between the duties of the two simultaneously.

Contd….
 (3)

Read the below mentioned scenario carefully, scenario pertains to Question 5 and 6:

Payroll Section
The Payroll Section of a department has the responsibility to pay the monthly salary to the
employees of that office. There are three kinds of employees in the office, the new ones who
have just joined the office through transfer, the new ones who are freshly recruited and the
already existing ones who have been in the office for some time now. The mode of payment
for all three is the same, i.e. a direct credit to their respective bank accounts. The Payroll uses a
sophisticated software for the purpose of fulfilling its tasks. The Payroll Section is headed by a
BPS 18 officer who is assisted by a team of three Auditors and five KPOs. The KPOs have the
responsibility to accurately enter the data of the employees and run the software. The Auditors
check the data generated by the software with the hard files on payroll and the officer signs off
the payroll sheet as accurate after which the salaries are paid. Every change is authorized by the
officer. The Payroll Section is responsible for the salary of 500 permanent employees, including
themselves, in any given month along with 50 temporary staff and daily wagers.
The Payroll Section is a typical Government office and some of its work responsibilities
include updating the bio data form of employees, receiving change and making changes to the
payroll data, checking the pay and emoluments against the relevant rules, checking for any
permanent advances and making relevant adjustments, executing the payroll, preparation of
payroll, punching of payroll, provide pay slips, maintain data on the General Provident Fund,
the Permanent loans and advances, running the payroll software, issuing personal number and
making changes as necessary and in line with the policies of the government.
The employees working in the Payroll Section are hardly ever transferred and are considered to
be the most adept in using software with extensive knowledge of the rules and regulations
related to pays and salaries. It is their duty to keep all the rules and salary rates at hand and
updated. They function as an independent section and hence time and again are approached for
advice on salary and pay rules and their interpretation. Their work hardly ever gets audited
because of their general reputation and the belief that the software is functioning accurately.

Required:

Q.5. For the Payroll Section, identify TEN key questions that you as an Auditor will ask on the 20
internal controls being followed in there. Fill out the Payroll Internal Control Questionnaire of
FAM Working Paper Kit on the scenario given above.

Use the following format:

Q. Controls Yes/No/NA Justification

Q.6. Identify TEN audit procedures for substantive testing that should be used by an Auditor for 20
the Payroll Section, its functions and working.
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