Accounting information systems 10th edition hall test bank

Accounting Information Systems 10th Edition Hall Test Bank Visit to download the full and correct content document: https://testbankdeal.com/dow nload/accounting-information-systems-10th-edition-hall-test-bank/

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Chapter 06 The Expenditure Cycle Part II: Payroll Processing and Fixed Asset Procedures True / False 1. Time cards are used by cost accounting to allocate direct labor charges to work in process. a. True b. False ANSWER: False 2. The personnel department authorizes changes in employee pay rates. a. True b. False ANSWER: True 3. Most small organizations integrate payroll processing with the human resource management (HRM) system. a. True b. False ANSWER: False 4. To improve internal control, paychecks should be distributed by the employee’s supervisor. a. True b. False ANSWER: False 5. Employee paychecks should be drawn against a special checking account. a. True b. False ANSWER: True 6. Because a time clock is used, no supervision is required when employees enter and leave the work place. a. True b. False ANSWER: False 7. Inventory control performs the formal record keeping function for fixed assets. a. True b. False ANSWER: False 8. The depreciation schedule shows when assets are fully depreciated. a. True b. False ANSWER: True 9. Authorization to dispose of fixed assets should be issued by the user of the asset.

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Chapter 06 The Expenditure Cycle Part II: Payroll Processing and Fixed Asset Procedures a. True b. False ANSWER: False 10. Work-in-process records are updated by payroll personnel. a. True b. False ANSWER: False 11. Ideally, payroll checks are written on a special bank account used only for payroll. a. True b. False ANSWER: True 12. The supervisor is the best person to determine the existence of a “phantom employee” and should distribute

paychecks. a. True b. False ANSWER: False 13. Payroll processing can be automated easily because accounting for payroll is very simple. a. True b. False ANSWER: False 14. Timekeeping is part of the personnel function. a. True b. False ANSWER: False 15. Fixed asset accounting systems include cost allocation and matching procedures that are not part of routine

expenditure systems. a. True b. False ANSWER: True 16. Asset maintenance involves only the recording of depreciation charges. Physical improvements are always

expensed. a. True b. False ANSWER: False 17. Fixed asset systems must keep track of the physical location of each asset to promote accountability.

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Chapter 06 The Expenditure Cycle Part II: Payroll Processing and Fixed Asset Procedures a. True b. False ANSWER: True 18. Time cards capture the total time an individual worker spends on each production job. a. True b. False ANSWER: False 19. Accounting conventions and IRS rules sometime specify the depreciation parameters to be used. a. True b. False ANSWER: True 20. The fixed asset disposal report authorizes the user department to dispose of a fixed asset. a. True b. False ANSWER: False 21. Work centers provide the personnel action form, which triggers the payroll process. a. True b. False ANSWER: False 22. The payroll department is responsible for both updating the employee records and writing paychecks. a. True b. False ANSWER: True 23. The paymaster distributes paychecks to work center supervisors. a. True b. False ANSWER: False 24. Inventory control authorizes fixed asset purchases with a purchase requisition. a. True b. False ANSWER: False 25. When fixed assets are received, the receiving clerk sends copies of the receiving report to the inventory

control clerk and the AP clerk. a. True b. False Copyright Cengage Learning. Powered by Cognero.

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Chapter 06 The Expenditure Cycle Part II: Payroll Processing and Fixed Asset Procedures ANSWER: False Multiple Choice 26. The document that captures the total amount of time that individual workers spend on each production job is

called a a. time card b. job ticket c. personnel action form d. labor distribution form ANSWER: b 27. An important reconciliation in the payroll system is a. general ledger compares the labor distribution summary from cost accounting to the disbursement voucher from accounts payable b. personnel compare the number of employees authorized to receive a paycheck to the number of paychecks prepared c. production compares the number of hours reported on job tickets to the number of hours reported on time cards d. payroll compares the labor distribution summary to the hours reported on time cards

ANSWER: a 28. Which internal control is not an important part of the payroll system? a. Supervisors verify the accuracy of employee time cards. b. Paychecks are distributed by an independent paymaster. c. Accounts payable verifies the accuracy of the payroll register before transferring payroll funds to the general checking accounting.

d. General ledger reconciles the labor distribution summary and the payroll disbursement voucher.

ANSWER: c 29. Which transaction is not processed in the fixed asset system? a. purchase of building b. improvement of equipment c. purchase of raw materials d. sale of company van ANSWER: c 30. Depreciation a. is calculated by the department that uses the fixed asset b. allocates the cost of the asset over its useful life c. is recorded weekly d. results in book value approximating fair market value ANSWER: b Copyright Cengage Learning. Powered by Cognero.

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Chapter 06 The Expenditure Cycle Part II: Payroll Processing and Fixed Asset Procedures 31. Depreciation records include all of the following information about fixed assets except a. the economic benefit of purchasing the asset b. the cost of the asset c. the depreciation method being used d. the location of the asset ANSWER: a 32. Which control is not a part of the fixed asset system? a. formal analysis of the purchase request b. review of the assumptions used in the capital budgeting model c. development of an economic order quantity model d. estimates of anticipated cost savings ANSWER: c 33. Objectives of the fixed asset system do not include a. authorizing the acquisition of fixed assets b. recording depreciation expense c. computing gain and/or loss on disposal of fixed assets d. maintaining a record of the fair market value of all fixed assets ANSWER: d 34. Which of the following is not a characteristic of the fixed asset system? a. Acquisitions are routine transactions requiring general authorization. b. Retirements are reported on an authorized disposal report form. c. Acquisition cost is allocated over the expected life of the asset. d. Transfer of fixed assets among departments is recorded in the fixed asset subsidiary ledger.

ANSWER: a 35. In the payroll subsystem, which function should distribute paychecks? a. personnel b. timekeeping c. paymaster d. payroll ANSWER: c 36. Where does the responsibility lie for reconciling the labor distribution summary and the payroll

disbursement voucher? a. cash disbursements b. cost accounting c. personnel d. general ledger ANSWER: d Copyright Cengage Learning. Powered by Cognero.

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Chapter 06 The Expenditure Cycle Part II: Payroll Processing and Fixed Asset Procedures 37. Which of the following statements is not true? a. Routine payroll processing begins with the submission of time cards. b. Payroll clerks must verify the hours reported on the time cards. c. Payroll reconciles personnel action forms with time cards and prepares paychecks. d. Cash disbursements signs paychecks and forwards them to the paymaster for distribution.

ANSWER: b 38. In a manufacturing firm, employees use time cards and job tickets. Which of the following statements is not

correct? a. Job tickets are prepared by employees for each job worked on, so an employee may have more than one job ticket on a given day. b. An individual employee will have only one time card.

c. The time reported on job tickets should reconcile with the time reported on time cards. d. Paychecks should be prepared from the job tickets.

ANSWER: d 39. Which department is responsible for approving changes in pay rates for employees? a. payroll b. treasurer c. personnel d. cash disbursements ANSWER: c 40. Which of the following situations represents an internal control weakness? a. Timekeeping is independent of the payroll department. b. Paychecks are distributed by the employees’ immediate supervisor. c. Time cards are reconciled with job tickets. d. Personnel is responsible for updating employee records, including creation of records for new hires.

ANSWER: b 41. Why would an organization require the paymaster to deliver all unclaimed paychecks to the internal audit

department? a. to detect a “phantom employee” for whom a check was produced b. to prevent an absent employee’s check from being lost c. to avoid paying absent employees for payday d. to prevent the paymaster from cashing unclaimed checks ANSWER: a 42. Which of the following is not a reasonable control for fixed assets? a. Proper authorization is required for acquisition and disposal of fixed assets. b. Fixed asset records show the location of each asset. c. Fully depreciated assets are immediately disposed of.

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Chapter 06 The Expenditure Cycle Part II: Payroll Processing and Fixed Asset Procedures d. Depreciation policies are in writing.

ANSWER: c 43. Cost accounting updates work-in-process accounts from a. time cards b. the labor distribution summary c. job tickets d. personnel action forms ANSWER: c 44. Payroll uses time card data to do all of the following except a. prepare the payroll register b. update employee payroll records c. prepare the labor distribution summary d. prepare paychecks ANSWER: c 45. Payroll checks are typically drawn on a. the regular checking account b. a payroll imprest account c. a wages payable account d. petty cash ANSWER: b 46. The personnel action form provides authorization control by a. preventing paychecks for terminated employees b. verifying pay rates for employees c. informing payroll of new hires d. all of the above ANSWER: d 47. Accounting records that provide the audit trail for payroll include all of the following except a. time cards b. job tickets c. payroll register d. accounts payable register ANSWER: d 48. Personnel action forms are used to do all of the following except a. activate new employees b. terminate employees c. record hours worked Copyright Cengage Learning. Powered by Cognero.

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Chapter 06 The Expenditure Cycle Part II: Payroll Processing and Fixed Asset Procedures d. change pay rates ANSWER: c 49. The payroll department performs all of the following except a. prepares the payroll register b. distributes paychecks c. updates employee payroll records d. prepares paychecks ANSWER: b 50. The document that records the total amount of time spent on a production job is the a. time card b. job ticket c. labor distribution summary d. personnel action form ANSWER: c 51. A control technique that can reduce the risk of a terminated employee being paid is a. a security camera viewing the time clock b. the supervisor taking attendance during the shift c. paychecks being distributed by an independent paymaster d. reconciliation of time cards and job tickets ANSWER: c 52. Accounts payable a. signs paychecks b. prepares the payroll voucher c. reconciles time cards and employee records d. distributes paychecks to employees ANSWER: b 53. All of the following are processed by the fixed asset system except a. sale of unneeded equipment b. purchase of raw materials c. repair of production equipment d. purchase of a new plant ANSWER: b 54. The fixed asset system performs all of the following except a. determines the need for new assets b. maintains depreciation records c. records retirement and disposal of assets Copyright Cengage Learning. Powered by Cognero.

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Chapter 06 The Expenditure Cycle Part II: Payroll Processing and Fixed Asset Procedures d. tracks the physical location of fixed assets ANSWER: a 55. The payroll department performs all of the following except a. prepares paychecks b. transfers adequate funds to the payroll imprest account c. updates employee payroll records d. prepares the payroll register ANSWER: b 56. Depreciation a. assures that assets are reported at fair market value b. is discretionary for many firms c. allocates the cost of an asset over its useful life d. is the responsibility of the department using the asset ANSWER: c 57. The fixed asset system is similar to the expenditure cycle except a. fixed asset transactions are non-routine and require special authorization and controls b. fixed assets are capitalized, not expensed c. both a and b d. none of the above ANSWER: c 58. Asset maintenance involves a. the recording of periodic depreciation b. adjusting the asset records to reflect the cost of physical improvements c. keeping track of the physical location of the assets d. all of the above ANSWER: d 59. The fixed asset systems does all of the following except a. records acquisition of assets b. records improvements to assets c. estimates the fair market value of assets in service d. records the disposal of assets ANSWER: c 60. Asset disposal a. occurs as soon as an asset is fully depreciated b. requires no special authorization c. automatically initiates the purchase of a replacement asset Copyright Cengage Learning. Powered by Cognero.

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Chapter 06 The Expenditure Cycle Part II: Payroll Processing and Fixed Asset Procedures d. must follow formal authorization procedures ANSWER: d 61. Which of the following uses fingerprint or hand-vein scan technology to produce the time and attendance

file? a. Biometric time clocks b. Magnetic swipe ID cards c. Mobile remote devices d. Proximity cards ANSWER: a 62. Which of the following works like a credit card with the time clock? a. Biometric time clocks b. Magnetic swipe ID cards c. Mobile remote devices d. Proximity cards ANSWER: b 63. Which of the following works through wallets, purses and card holders? a. Biometric time clocks b. Magnetic swipe ID cards c. Mobile remote devices d. Proximity cards ANSWER: d 64. Which of the following is popular among businesses with employees in the field who travel between clients

and companies with foreign-based employees? a. Biometric time clocks b. Magnetic swipe ID cards c. Mobile remote devices d. Proximity cards ANSWER: c 65. Which of the following is not an input control to reduce the risks of data entry errors and payroll fraud for a

company with a mobile or distributed work force? a. limit tests that detect excessive hours b. check digits that detect transcription errors in employee identification c. biometric scanners, swipe cards, and PINs d. multilevel security that achieves segregation of duties ANSWER: d Subjective Short Answer Copyright Cengage Learning. Powered by Cognero.

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Chapter 06 The Expenditure Cycle Part II: Payroll Processing and Fixed Asset Procedures 66. Describe an internal control procedure that would prevent an employee from punching the time clock for

another, absent employee.

ANSWER: supervision of the time clock at the start of the shift 67. Why should the employee’s supervisor not distribute paychecks?

ANSWER: A form of payroll fraud involves a supervisor submitting fraudulent time cards for nonexistent employees. The resulting paychecks, when returned to the supervisor, are then cashed by the supervisor.

68. Describe an internal control procedure that would prevent a supervisor from stealing the unclaimed

paychecks of employees who have been terminated.

ANSWER: This type of fraud can be reduced or eliminated by using a paymaster to distribute paychecks to employees in person. Any uncollected paychecks are then returned to payroll. Also, mail final paychecks to terminated employees.

69. Why should employee paychecks be drawn against a special checking account?

ANSWER: A separate imprest account is established for the exact amount of the payroll based on the payroll summary.

When the paychecks are cashed, this account should clear, leaving a zero balance. Any errors in checks (additional checks or abnormal amounts) would result in a non-zero balance in the imprest account and/or some paycheck would not clear. This will alert management to the problem so corrective action can be taken.

70. Why should employees clocking on and off the job be supervised?

ANSWER: A form of payroll fraud involves employees clocking the time cards of absent employees. By supervising the clocking in and out process, this fraud can be reduced or eliminated.

71. What is a personnel action form?

ANSWER: The personnel action form provides the payroll department with a list of currently active employees, so that any submission of time cards by supervisors for fictitious or ex-employees will not be processed.

72. In a manufacturing firm, employees typically fill out two different documents regarding their time worked.

What are they? Why are there two?

ANSWER: The two documents are the time card and the job ticket. Two are required because the time card records all the time worked by an employee during the period while the job ticket details the time by project or job.

73. List two types of authorization required in the fixed asset system.

ANSWER: authorization to purchase the asset and to dispose of the asset 74. List four types of data that appear on a depreciation schedule.

ANSWER: item description, depreciation method, useful life, date acquired, cost, salvage value, accumulated depreciation, depreciation expense per period, book value 75. Which documents prompt the fixed asset department to create a fixed asset record?

ANSWER: the receiving report and the cash disbursement voucher 76. Describe an internal control that would prevent an employee from stealing a computer and then reporting it

as scrapped.

ANSWER: Supervisors must authorize the disposal of the computer. Unless so authorized, the record will continue to Copyright Cengage Learning. Powered by Cognero.

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Chapter 06 The Expenditure Cycle Part II: Payroll Processing and Fixed Asset Procedures show that the employee is responsible for the computer.

77. Describe an internal control that would prevent the payment of insurance premiums on an automobile that is

no longer owned by the company.

ANSWER: Perform an annual physical inventory of fixed assets and adjust the records to reflect assets no longer on hand.

Prepare reports about the disposal of assets.

78. Describe an internal control that would prevent the charging of depreciation expense to the maintenance

department for a sweeper that is now located in and used by the engineering department.

ANSWER: Prepare reports about the transfer of fixed assets. Perform an annual physical inventory and note the location of assets. Budget and then hold each department accountable for depreciation expense for assets located in each department.

79. Describe an internal control that would prevent the acquisition of office equipment which is not needed by

the firm.

ANSWER: A higher organizational level or other appropriate person authorizes fixed asset acquisitions; part of the authorization is showing that a need for the asset exists.

80. What negative consequences can result from miscalculated depreciation?

ANSWER: Miscalculated depreciation can result in the material misstatement of operating expenses, reported earnings, and asset values. It may result in premature disposal of otherwise serviceable assets.

81. Explain the purpose of each of the following documents used in the payroll system: the personnel action form, the job ticket, the time card.

ANSWER: The personnel action form is a document that identifies employees who should receive a paycheck; reflects changes in pay rates, payroll deductions, and job classifications.

The job ticket collects information on the time individual workers spend on each production job.

The time card captures the total time that an employee is at work.

82. How do fixed asset systems differ from the expenditure cycle?

ANSWER: The fixed asset system processes non-routine transactions for a wider group of users in the organization than the expenditure cycle. Further, the expenditure cycle processes routine acquisitions of raw materials inventories for the production function and finished goods inventories for the sales function. The expenditure cycle transactions are often automatically approved by the system, while fixed asset transaction approvals typically demand individual attention due to the uniqueness of the transactions.

83. What is recorded by the asset maintenance part of the fixed asset system?

ANSWER: periodic depreciation following an approved depreciation schedule and physical improvements to the asset to increase the subsidiary account and to adjust the depreciation schedule 84. How are the following carried out in the fixed asset system: authorization, supervision, independent

verification?

ANSWER: Independent authorization is required to acquire an asset and to formalize the depreciation schedule.

Supervision must be exercised over the physical assets.

Independent verification must confirm the location, existence, and condition of the assets.

85. Which department authorizes changes to employee pay rates?

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Chapter 06 The Expenditure Cycle Part II: Payroll Processing and Fixed Asset Procedures ANSWER: The personnel department via the personnel action form 86. Erroneous data in the payroll system can corrupt WIP, employee records, and the payroll register. What edit

controls will minimize this risk?

ANSWER: 1. Controls including checks for missing data, numeric-alphabetic data, and invalid data values will reduce the risk of undetected data entry errors by clerks in the cost accounting, personnel, payroll, accounts payable, and cash disbursements departments.

2. Check digit control will provide control over accessing the wrong employee records by payroll and personnel clerks.

87. Describe three process controls that pertain to payroll application logic.

ANSWER: 1. Error messages. Any mismatch when posting time card or personnel action data to employee records should produce an error message to the computer operator.

2. Passwords. Password control should be implemented on department computers to reduce the risk of unauthorized access to payroll files. The system logic should require, and prompt, users to change passwords periodically. Only strong passwords consisting of six to eight alphabetic and numeric characters should be accepted.

3. File Backup. Backup procedures need to be in place to reduce the risk of data loss due to file destruction and/or corruption.

Essay 88. The Golf Club Company makes custom golf clubs. The manufacturing supervisor interviews people who have specialized manufacturing skills, and then informs payroll when an employee is hired. The employees use a time clock to record the hours they work. The employees are also required to keep a record of the time they spend working on each order. The supervisor approves all time cards.

The accountant analyzes the job tickets and prepares a labor distribution summary. Payroll prepares the payroll register and paychecks. The supervisor distributes the paychecks to the employees. Payroll informs cash disbursement of the funds required to cover the entire payroll amount. The cash disbursements clerk ensures that there are adequate funds in the company’s regular checking account to cover the payroll.

Describe at least three internal control weaknesses; for each weakness suggest an improvement to internal control.

ANSWER: Weakness: The supervisor could be creating fictitious employees. The supervisor has too many incompatible duties; he/she hires workers, approves the time cards, and distributes the paychecks.

Improvement: Segregate duties. Personnel should hire employees and a paymaster should distribute paychecks.

Weakness: Employees could be paid for time they do not work; a co-worker could record an absent worker as present (punch the time clock).

Improvement: Supervise the time clock. Reconcile time cards and job time tickets.

Weakness: Payroll has authorization and transaction processing responsibilities. Payroll is authorizing the disbursement to fund the entire payroll. Accounts payable is not part of the system.

Improvement: Segregate duties; accounts payable should verify the accuracy of the payroll register and create a disbursement voucher.

Weakness: Payroll is funded through the general checking account.

Improvement: Paychecks should be written on a separate payroll account.

89. Explain the integration of payroll with the human resource management (HRM) system that often happens Copyright Cengage Learning. Powered by Cognero.

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Chapter 06 The Expenditure Cycle Part II: Payroll Processing and Fixed Asset Procedures in moderate- and large-sized organizations.

ANSWER: The HRM system captures and processes a wide range of personnel-related data, including employee benefits, labor resource planning, employee relations, employee skills, internal training, personnel actions (pay rates, deductions and so on), and payroll processing. HRM systems provide real-time access to personnel files for purposes of direct inquiries and making changes in employee status as they occur. Human resources clerks enter data into the employee record file in real time from terminals.

90. Three major tasks are handled by the fixed asset system. What is the purpose of each? What special control

issues affect each?

ANSWER: Asset acquisition handles the steps leading to the acquisition of new fixed assets: recognition of need, authorization and approval, possible capital investment analysis, and selection of supplier. Because of the value of fixed assets, special approvals are needed.

Asset maintenance involves adjusting the subsidiary account balances for depreciation, improvements, and tracking location. Control involves accountability by keeping track of the physical location of each asset.

Asset disposal handles the removal of assets from the subsidiary ledger when the asset is taken out of service. This requires special approval and preparation of a disposal report.

91. The Baccus Corp. manufactures medical equipment. This is a capital-intensive industry and investments in fixed assets exceed $5 million a year. The minimum cost for production equipment is $75,000. When supervisors want new production machinery, they contact the plant manager. The plant manager approves or denies the request based on discussions with the production supervisor, the repair and maintenance supervisor, and the quality control supervisor.

A purchase order is prepared by the purchasing department and sent to one of the three major suppliers of production machinery for medical equipment. The equipment is delivered immediately to the production floor and put into service. At the end of the month, the production supervisor informs the general ledger clerk about the receipt of the machinery. The general ledger clerk establishes an asset record for the machine. At the end of the year, the general ledger clerk computes straight-line depreciation based on a 10-year life with a 10 percent salvage value. Depreciation expense is recorded as a direct reduction of the asset cost.

The repair department performs routine maintenance on all of the production equipment. Occasionally the repair department rebuilds a machine to extend its useful life. All of the costs associated with the repair department are charged to manufacturing overhead. When a machine becomes obsolete, production employees move it to a corner of the factory floor and break it down so that parts can be used in other machines. Production employees routinely remove parts for personal use. Some smaller machines have disappeared completely from the factory floor.

The general ledger clerk takes a physical inventory every three years. About 75 percent of the fixed assets can be located and identified. Other assets have serial numbers that are inaccessible, so the item cannot be matched to a fixed asset record. Some fixed asset records cannot be traced to an actual item. Several machines that have been scrapped and are being used for spare parts were matched to fixed asset records. At the last inventory, the general ledger clerk did not make any adjustments to the fixed asset records, explaining that 75 percent accuracy in the fixed asset physical inventory was excellent.

Describe five internal control weaknesses and explain how to correct them.

ANSWER: Weakness: There is no written documentation of the approval for purchase.

Improvement: Fixed asset acquisitions should be formal and explicitly authorized. Each transaction should be initiated by a written request from the user or department. For high-value items, the authorization process should include a formal cost-benefit analysis and the solicitation of bids from suppliers.

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Chapter 06 The Expenditure Cycle Part II: Payroll Processing and Fixed Asset Procedures Weakness: Fixed assets are delivered directly to the factory floor.

Improvement: All purchases should go through the receiving department before delivery.

Weakness: The production supervisor notifies the general ledger clerk about the receipt of fixed assets.

Improvement: The receiving department should send a copy of the receiving report to the fixed asset department.

Weakness: The general ledger clerk is maintaining fixed asset records.

Improvement: The fixed asset department should maintain fixed asset records.

Weakness: Depreciation is computed using a standard method, asset life, and salvage value.

Improvement: The method of depreciation used should reflect, as closely as possible, the asset’s actual decline in utility. The internal auditor should also review and verify the depreciation periodically.

Weakness: Depreciation is recorded as a direct reduction of the asset cost.

Improvement: Depreciation should be recorded in an accumulated depreciation account for each asset.

Weakness: Costs to rebuild a machine is charged to manufacturing overhead.

Improvement: Physical improvements that increase an asset’s value or extend its useful life should be treated as new asset acquisitions (an adjustment to the asset account).

Weakness: There is no authorization to scrap an obsolete machine.

Improvement: Obtain written authorization from management before a machine is scrapped.

Weakness: Employees remove equipment and equipment parts from the premises without authorization.

Improvement: Employees should receive explicit approval from a supervisor before removing parts or equipment from the factory.

Weakness: The general ledger clerk is conducting the physical inventory and maintaining the record keeping.

Improvement: The internal auditor, not the general ledger clerk, should be taking the physical inventory count.

Also, the physical count should occur more frequently.

Weakness: Fixed assets cannot be matched with records.

Improvement: Apply easily accessible labels to identify fixed assets.

Weakness: Fixed assets cannot be located and are not removed from the books.

Improvement: Fixed assets that cannot be located must be removed from the fixed asset records.

Weakness: Fixed assets that are scrapped remain on the books.

Improvement: Assets that are scrapped should be removed from the fixed asset records.

Weakness: The clerk regards 75% accuracy as excellent.

Improvement: Acceptance of 75% accuracy is poor. Any variation should be investigated and records updated.

This should be done by the internal auditor.

92. Discuss outsourcing the payroll function. What are the advantages and risks?

ANSWER: Many organizations outsource their payroll function by transferring all payroll processing tasks to a third-party provider. The service provider performs all the payroll functions and may receive data either from the firm or directly from the workers. The service provider must have access to sensitive internal information such as Social Security numbers and bank account information.

The primary advantage of outsourcing is cost savings. The client organization avoids the salaries and benefit cost of an in-house payroll department, as well as continuing education required to keep up with everCopyright Cengage Learning. Powered by Cognero.

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Chapter 06 The Expenditure Cycle Part II: Payroll Processing and Fixed Asset Procedures changing payroll laws.

The risks are significant. An outside organization will have access to confidential employee data and the client firm’s financial resources. The service provider may have poor internal controls or act incompetently, which could result in material errors or fraud. Outsourcing payroll does not relieve the client organization of its responsibility for implementing adequate internal controls.

93. Discuss the fundamental risk and control issues associated with fixed assets that are different from raw materials and finished goods.

ANSWER: Authorization Controls. Because fixed assets are requested and employed by end-users, asset acquisitions should be formal and explicitly authorized. Each transaction should be initiated by a written request from the user or department. In the case of high-value items, there should be an independent approval process that evaluates the merits of the request.

Supervision Controls. Because capital assets are widely distributed around the organization, they are more susceptible to theft and misappropriation than inventories that are secured in a warehouse. Therefore, management supervision is an important element in the physical security of fixed assets. Supervisors must ensure that fixed assets are being used in accordance with the organization’s policies and business practices.

Assets should not be removed from company premises without explicit approval.

Independent Verification Controls.

1. Periodically, the internal auditor should review the asset acquisition and approval procedures to determine the reasonableness of factors including: the useful life of the asset, the original financial cost, proposed cost savings as a result of acquiring the asset, the discount rate used, and the capital budgeting method used in the analysis.

2. The internal auditor should verify the location, condition, and fair value of the organization’s fixed assets against the fixed asset records in the subsidiary ledger.

3. The depreciation charges calculated by the fixed asset system should be reviewed and verified for accuracy and completeness. Miscalculated depreciation can result in the material misstatement of operating expenses, reported earnings, and asset values, and may result in the premature disposal of otherwise serviceable assets.

94. Outline the key steps taken in a basic technology payroll system when preparing the weekly payroll for a

manufacturing firm.

ANSWER: Personnel action and time and attendance information from the personnel and production departments respectively, initiate the payroll process.

The payroll department reconciles this information, calculates the payroll, and sends the paychecks to the paymaster for distribution to employees.

Cost accounting receives information regarding the time spent on each job from production. This is used for posting to accounts in the WIP subsidiary ledger.

AP receives payroll summary information (payroll register) from the payroll department and authorizes the cash disbursements department to deposit a single check, in the amount of the total payroll, in a bank imprest account on which the payroll is drawn.

The general ledger department reconciles summary information from cost accounting and AP. GL accounts are updated to reflect these transactions.

95. Describe several technologies developed for producing the time and attendance file in a modern business

with telecommuting employees working from multiple locations.

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Chapter 06 The Expenditure Cycle Part II: Payroll Processing and Fixed Asset Procedures ANSWER: Biometric time clocks verify employees’ identities by using fingerprint or hand-vein scan technology. To protect employee privacy, these devices use a mathematical algorithm for verification rather than storing actual fingerprints in a database.

Magnetic swipe ID cards work like a credit card. Each employee is issued an ID card that has a magnetic strip containing employee information. The employee swipes the card through the time clock to record start and end time on the job. For additional verification, the employee may be asked to enter a password or PIN. Proximity cards are similar to swipe cards but don’t require the user to slide the card through a reader.

Instead, the employee places the card in front of the reader to record attendance time. The advantage is that these cards can be read through wallets, purses, and card holders.

Mobile remote devices allow employees to clock in using handheld devices (PDA or cell phone) or web browsers from laptop computers. This option is popular among businesses with employees in the field who travel between clients and with companies engaged in global business with foreign-based employees.

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