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During the year, Bobby's management began centralising the company's operations staff into the larger metropolitan offices.
During the year, Bobby's management began centralising the company's operations staff into the larger metropolitan offices. This has resulted in 350 employees (30% of staff) in the regional offices losing their jobs, with a further 150 terminations planned. All 350 employees who lost their jobs during the year have received all redundancy payments to which they were entitled. Employee entitlements to redundancy payments were based on years of service, base salary, accumulated leave balances, as well as any other incentives included in individually negotiated employment contracts. In order to expedite the process, a number of casuals were recruited to assist with the collation of relevant documentation and information for affected employees and to assist with the calculation of the redundancy payments. The work performed by the casuals was subsequently verified by Human Resources (HR) Team Leaders and the Group HR Manager in the Head Office prior to being finalised. Only the Group HR manager is authorised to make changes to employee details within the company's HR information system. In your assessment, the amounts associated with the employee redundancy payments during the year are material.
Required
(a) Identify the key assertion at risk and outline your assessment of inherent risk and control risk in relation to Bobby's redundancy expense account.
(b) For the assertion identified in (a) above in relation to the redundancy expense account, identify the appropriate audit approach and the nature (tests of controls, substantive tests of details, substantive analytical procedures) and extent (none, small, medium, extensive) of audit procedures to be undertaken. Justify the audit approach you have suggested.
