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CHAPTER 6
THE EXPENDITURE CYCLE PART II:
PAYROLL PROCESSING AND
FIXED ASSETS PROCEDURES
Chapter 1 Page 2
REVIEW QUESTIONS
1. Job tickets capture the time spent on each job during the day and are
3. A form of payroll fraud involves a supervisor submitting fraudulent time
cards for nonexistent employees. The resulting paychecks, when given to
4. A separate imprest account is established for the exact amount of the
payroll based on the payroll summary. When the paychecks are cashed,
5.A form of payroll fraud involves employees clocking the time cards of
Chapter 1 Page 3
6. The Personnel Action Form is prepared by the Personnel Department for
the authorization of new employees and changes in job class and pay
7. The payroll clerk reconciles the information received from personnel and
8.
9. Biometric time clocks verify employees’ identities by using fingerprint or
hand-vein scan technology. To protect employee privacy, these devices
Chapter 1 Page 4
10. Proximity cards are similar to swipe cards but don’t require the user to
11. 1. Process the acquisition of fixed assets as needed and in
2. Maintain adequate accounting records of asset acquisition, cost
3. Maintain accurate depreciation records for depreciable assets in
4. Provide management with information to help them plan future
Chapter 1 Page 5
12. The fixed asset system processes nonroutine transactions for a wider
group of users in the organization than the expenditure cycle. Further,
the expenditure cycle processes routine acquisitions of raw materials
14. The typical information found on a depreciation schedule is: type of
asset, description, month, current depreciation amount, accumulated
depreciation amount, book value, and asset location. Also, a group code
Chapter 1 Page 6
15. Because the fixed asset department authorizes the removal of the asset
from the general ledger, they must know when to record the
16. The auditor should review the authorization control procedures to
determine the reasonableness of authorizations used for acquisition of
fixed assets. The auditors should also examine the supervision controls
18. The fixed asset depreciation schedule shows when and how much
depreciation to record. It also shows when to stop taking depreciation on
Chapter 1 Page 7
19. When an asset is taken out of service, the responsible manager issues a
request to dispose of it. Like any other transaction, the disposal of an
asset requires proper approval that will be determined by its nature and
20.Unlike production assets, fixed asset inventory is distributed widely
1. DISCUSSION QUESTIONS
Chapter 1 Page 8
1. The job ticket is used to allocate each labor hour of work to specific WIP
accounts. These job tickets are very important for cost accounting. The
job tickets are completed by production workers as they capture the total
amount of time that they spend on each production job. Upon
2. Payroll costs such as wages to workers accrue each minute, hour or day
that they work. However, these costs are not recorded as a liability during
the time between when the workers earn their wages and when they are
Chapter 1 Page 9
3. In a mobile and/or distributed workforce environment in which employees
directly enter time and attendance data into the system, the organization
is at risk from data entry errors and payroll fraud. Input controls reduce
4. The primary advantage of payroll outsourcing is cost savings. By
transferring this function to a third party, the client organization avoids
the salaries and benefit costs of running an in-house payroll department.
5. One example is the reduction in the time it takes to record the receipt of
inventory into the inventory records. Further, the automated system will
Chapter 1 Page 10
6. Law firms require their employees to log the amount of time spent on
each client for billing purposes. Accounting firms also require that their
7. The risks associated with outsourcing are nontrivial. One is that an
outside organization will have access to extremely confidential employee
data and to the client firm’s financial resources. Another risk is that the
8. Since the asset remains on the books, depreciation on it will continue to
be calculated. Fixed assets will be overstated, the depreciation amount
Chapter 1 Page 11
9. AUTHORIZATION CONTROLS. Because fixed assets are requested and
employed by end-users asset acquisitions should be formal and explicitly
SUPERVISION CONTROLS.
Because capital assets are widely distributed around the organization, they
are more susceptible to theft and misappropriation than inventories that are
INDEPENDENT VERIFICATION CONTROLS.
1. Periodically, the internal auditor should review the asset acquisition
and approval procedures to determine the reasonableness of key
factors including: the useful life of the asset, the original financial
2. The internal auditor should verify the location, condition, and fair
3. The automatic depreciation charges calculated by the fixed asset
system should be reviewed and verified for accuracy and
11. Perform an annual physical inventory of fixed assets and adjust the
12. Prepare reports about the transfer of fixed assets. Perform an annual
physical inventory and note the location of assets. Budget and then hold
14. On the financial statements, assets will be overstated and depreciation
expense could be overstated. Assets on property tax returns will be
2. MULTIPLE CHOICE
1. C
2. C
3. B
