Turner Chapter 10 Payroll & Fixed Assets Control Test Bank

ACCOUNTING INFORMATION SYSTEMS/3e

TURNER / WEICKGENANNT/COPELAND

Test Bank: CHAPTER 10: Expenditures Processes and Controls – Payroll and Fixed Assets

NOTE: All new or adjusted questions are in red. New questions are identified by the letter A as part of the question number; adjusted questions are identified by the letter X as part of the question number.

End of Chapter Questions:

1. Which of the following statements about payroll and fixed asset processes is ?
2. Both have only routine processes
3. Both have only non-routine processes
4. Both have routine and non-routine processes
5. Payroll has only routine processes, while fixed assets has only non-routine processes
6. For a given pay period, the complete listing of paychecks for the pay period is a:
7. Payroll register
8. Payroll ledger
9. Payroll journal
10. Paymaster
11. A payroll voucher:
12. Authorizes an employee paycheck to be written
13. Authorizes the transfer of cash from a main operating account to a payroll account
14. Authorizes the transfer of cash from a payroll account to a main operating account
15. Authorizes the paymaster to distribute paychecks
16. For proper segregation of duties, the department that should authorize new employees for payroll would be:
17. Payroll.
18. Human resources.
19. Cash disbursements.
20. General ledger.
21. Which of the following is not an independent check within payroll processes?
22. Time sheets are reconciled with production records.
23. Time sheets are reconciled with the payroll register.
24. Paychecks are prepared on prenumbered checks.
25. The payroll register is reconciled with the general ledger.
26. An integrated IT system of payroll and human resources may have extra risks above those of a manual system. Passwords and access logs are controls that should be used in these integrated systems to lessen the risk of:
27. Hardware failures.
28. Erroneous data input.
29. Payroll data that does not reconcile to time cards.
30. Unauthorized access to payroll data.
31. Internal control problems would be likely to result if a company’s payroll department supervisor was also responsible for:
32. Reviewing authorization forms for new employees.
33. Comparing the payroll register with the batch transmittal.
34. Authorizing changes in employee pay rates.
35. Hiring subordinates to work in the payroll department.
36. Which of the following procedures would be most useful in determining the effectiveness of a company’s internal controls regarding the existence or occurrence of payroll transactions?
37. Observe the segregation of duties concerning personnel responsibilities and payroll disbursement.
38. Inspect evidence of accounting for prenumbered payroll checks.
39. Recompute the payroll deductions for employee fringe benefits.
40. Verify the preparation of the monthly payroll account bank reconciliation.

1. In meeting the control objective of safeguarding of assets, which department should be responsible for distribution of paychecks ad custody of unclaimed paychecks, respectively?

Distribution of Custody of

Paychecks Unclaimed Paychecks

1. Treasurer Treasurer
2. Payroll Treasurer
3. Treasurer Payroll
4. Payroll Payroll
5. A company’s internal controls policies may mandate the distribution of paychecks by an independent paymaster in order to determine that:
6. Payroll deductions are properly authorized and computed.
7. Pay rates are properly authorized and separate from the operating functions.
8. Each employee’s paycheck is supported by an approved time sheet.
9. Employees included in the period’s payroll register actually exist and are currently employed.
10. The purpose of segregating the duties of hiring personnel and distributing payroll checks is to separate the:
11. Authorization of transactions from the custody of related assets.
12. Operational responsibility from the record keeping responsibility.
13. Human resources function from the controllership function.
14. Administrative controls from the internal accounting controls.
15. Which of the following departments or positions most likely would approve changes in pay rates and deductions from employee salaries?
16. Personnel
17. Treasurer
18. Controller
19. Payroll
20. The purchase of fixed assets is likely to require different authorization processes than the purchase of inventory. Which of the following is not likely to be part of the authorization of fixed assets?
21. Specific authorization.
22. Inclusion in the capital budget.
23. An investment analysis or feasibility analysis of the purchase.
24. Approval of the depreciation schedule.
25. Which of the following is not a part of “adequate documents and records” for fixed assets?
26. Fixed asset journal
27. Fixed asset subsidiary ledger
28. Purchase order
29. Fixed asset tags
30. Which of the following questions would be least likely to appear on an internal control questionnaire regarding the initiation and execution of new property, plant, and equipment purchases?
31. Are requests for repairs approved by someone higher than the department initiating the request?
32. Are prenumbered purchase orders used and accounted for?
33. Are purchase requisitions reviewed for consideration of soliciting competitive bids?
34. Is access to the assets restricted and monitored?
35. Which of the following reviews would be most likely to indicate that a company’s property, plant, and equipment accounts are not understated?
36. Review of the company’s repairs and maintenance expense accounts.
37. Review of supporting documentation for recent equipment purchases.
38. Review and recomputation of the company’s depreciation expense accounts.
39. Review of the company’s miscellaneous revenue account.
40. Which of the following is not an advantage of fixed asset software systems when compared with spreadsheets?
41. Better ability to handle non-financial data such as asset location.
42. Easier to apply different depreciation policies to different assets.
43. Manual processes to link to the general ledger.
44. Expanded opportunities for customized reporting.
45. The term “ghost employee” means that:
46. Hours worked has been exaggerated by an employee.
47. sales have been claimed to boost commission earned.
48. Overtime hours have been inflated.
49. Someone who does not work for the company receives a paycheck.

TEST BANK - CHAPTER 10 - MULTIPLE CHOICE

1. Routine business transactions would include which of the following?
2. Purchase of merchandise inventory.
3. Payment of principal on a note.
4. Purchase of fixed asset.
5. Paying wages and salaries to employees.
6. This type of transaction is one that a business encounters on a regular, recurring basis. The volume of the transactions is so large that transactions and the related accounting activities become second nature to the employees responsible for handling them. Specific authorization for each of these transactions is not necessary. The type of transaction referred to is:
7. Non-routine transaction
8. Payroll transaction
9. Fixed asset transaction
10. Routine transaction
11. Which of the following is a characteristic of a non-routine transaction?
12. A business encounters this type of transaction on a regular, recurring basis.
13. Required to have specific authorization.
14. Volume of transactions becomes second nature to the employees responsible.
15. Specific authorization for the specific transaction is not necessary.
16. A company must have systems in place to take care of all activities related to both routine and non-routine processes. The activities would include all of the following, except:
17. Record
18. Summarize
19. Review
20. Report
21. The policies and procedures that employees following in acquiring and maintaining human resources, capturing and maintaining employee data, paying employees for time worked, and recorded the related cash payroll liabilities and expenses are collectively referred to as:
22. Payroll processes
23. Human resources
24. Salary administration
25. Administrative procedures
26. The policies and procedures involved in purchasing property; capturing and maintaining relevant data about the assets; paying for and recording the related assets; depreciation and other expenses; and gains or losses are collectively referred to as:
27. Capital resources
28. Fixed asset processes
29. Property administration
30. Capital procedures
31. There are many risks that may affect the payroll and fixed asset transactions. Which of the following is not one of those risks?
32. Recorded transactions may not be valid.
33. Expenditure transactions may be recorded in the wrong account.
34. Valid expenditures recorded properly by the wrong employee.
35. Transactions may not be recorded in a timely manner.
36. The payroll process is initiated when:
37. An employee submits his time sheet for the pay period
38. An employee is hired
39. A payroll check is released to the employee
40. A prospective employee is interviewed and given a wage estimate
41. This department is responsible for maintaining records for each job and each employee within the organization, as well as tracking job vacancies and supporting the company’s recruitment efforts.
42. Salary and Wage Administration Department
43. Vice President for Employees Department
44. Employee Services Department
45. Human Resources Department
46. The document is prepared in order to map out the jobs and reporting relationships within an organization. This may include only top branches of an organization or may include all positions within the company.
47. Employee List
48. Organization Chart
49. Hierarchy Tree
50. Human Resources Listing
51. This item would include explanations concerning the qualifications and responsibilities of each position shown on organization chart. The item is also supported by policies and procedures manuals that outline specific activities performed by each position.
52. Job profile
53. Human resources listing
54. Organization chart description
55. Position description
56. Personnel records will typically include all of the following, except:
57. Documentation related to the initial hiring
58. Personal information, such as the employee address
59. Medical history subsequent to hiring
60. Social security number
61. Each of the following items would likely be found in an employee’s personnel records related to the initial hiring, except:
62. Employment application
63. Recommendation letters
64. Background investigation results
65. Overtime and commission rates
66. It is necessary for employees to maintain adequate records of the hours worked and the projects worked on. The record of hours worked by an employee for a specific payroll period is reported on a document called:
67. Time ticket
68. Time sheet
69. Salary document
70. Wage report
71. Which of the following correctly lists activities of the Payroll Process in chronological order?
72. Time sheet submitted by employee; time sheet approved; paycheck signed by management; update General Ledger
73. Time sheet submitted by employee; paycheck signed by management; time sheet approved; update General Ledger
74. Time sheet submitted by employee; update General Ledger; paycheck signed by management; time sheet approved
75. Time sheet submitted by employee; update General Ledger; time sheet approved; paycheck signed by management
76. Which of the following types of employees are typically required to prepare very detailed (to-the-minute) time reports, identifying the types of projects worked on and the exact time spent on each?
77. Salary employees
78. Production employees
79. Accounting employees
80. Management
81. Which of the following would be a correct way to compute the gross pay for an employee?
82. Hours Worked times Authorized Pay Rate
83. Hours Worked times Authorized Pay Rate minus Withholding Taxes
84. Net Pay minus Authorized Deductions
85. Net Pay times Withholding Taxes
86. Which of the following would be a correct way to compute the net pay for an employee?
87. Hours Worked times Authorized Pay Rate
88. Gross Pay minus Withholding Taxes
89. Gross Pay minus Authorized Deductions
90. Hours Worked times Withholding Tax Rate
91. This record, prepared by the payroll department, is a complete listing of salary or wage detail for all employees for a given time.
92. Payroll journal
93. General ledger
94. Employee record
95. Payroll register
96. When accounting software is used to prepare the periodic payroll, which of the following items is necessary to input for each employee?
97. Employee Name
98. Hours Worked
99. Pay Rate
100. Social Security Number
101. This document authorizes the transfer of cash from the company’s main operating account into the payroll cash account.
102. Payroll register
103. Payroll disbursements journal
104. Payroll voucher
105. Paycheck
106. This record, prepared by the cash disbursements department, provides a listing of al paychecks written, in check-number sequence, with the total supporting the amount of payroll funds to transfer to the payroll bank account.
107. Payroll Disbursements Journal
108. Payroll Register
109. Payroll Journal
110. Cash Disbursements Journal
111. This individual is responsible for distributing the signed paychecks on the designated pay day.
112. Human Resources Director
113. Department Supervisor
114. Payroll Department Manager
115. Paymaster
116. Types of fraud that may occur in the payroll function includes all of the following, except:
117. Overstated hours
118. Incorrectly computed tax withholdings
119. claims of sick leave
120. Pay claims made by ghost employees
121. Which of the following correctly states a reconciliation process to be completed related to payroll?
122. Time sheets reconciled to the payroll register.
123. Payroll register to the general ledger.
124. Time sheets to the production reports.
125. Production reports to the general ledger.
126. The internal control activity requiring that the manager approves payroll prior to signing paycheck is intended to minimize the risk of:
127. Omitted paychecks
128. Incorrect amounts
129. Fictitious employee
130. Stolen paychecks
131. The internal control process of requiring an independent paymaster, will help to minimize the risk of:
132. Fictitious employees
133. Incorrect amounts
134. Omitted paychecks
135. Timing issues
136. The internal control process of requiring the payroll register to be reconciled with the time sheets, will help to minimize the risk of:
137. Invalid payroll transactions
138. Omitted paychecks
139. Duplicate paychecks
140. Fictitious employees
141. The internal control activity requiring the preparation of a bank reconciliation will minimize the risk of all of the following EXCEPT:
142. Timing issues
143. Stolen cash
144. Fictitious employees
145. Invalid or omitted paychecks
146. Internal control activities within the payroll process, identified as adequate records and documents, would include which of the following?
147. Manager approval of payroll prior to signing checks
148. Independent paymaster
149. Physical controls in areas where cash and paychecks are held
150. Paychecks are prepared on prenumbered checks
151. Internal control activities within the payroll process, identified as authorization, would include which of the following?
152. Preparation of a bank reconciliation
153. Independent paymaster
154. Manager approval of payroll prior to signing checks
155. Physical controls in areas where cash and paychecks are held
156. Internal control activities within the payroll process, identified as segregation of duties, would include which of the following?
157. Payroll preparation, authorization of new hiring and pay rates, information systems, and general accounting should all be performed by different departments and / or different people.
158. IT controls over computer records and physical controls in records storage areas.
159. The payroll register is checked for mathematical accuracy and agreement with authorized pay rates and deductions.
160. Supervisor approval of time sheets prior to preparation of payroll documents.
161. Internal control activities within the payroll process, identified as independent checks and reconciliations, would include which of the following?
162. IT controls over computer records and physical controls in records storage area.
163. Time sheets reconciled with the payroll register.
164. The payroll register is checked for mathematical accuracy and agreement with authorized pay rates and deductions.
165. Supervisor approves time sheets prior to preparation of payroll documents.
166. When payroll is processed using batch processing, which of the following would not be part of the payroll process?
167. Human resources department would be responsible for keying employee information into the master file.
168. The timekeeper will accumulate all time sheets and enter them into the computer system in batches.
169. The timekeeper should prepare control totals and hash totals in order to check the system before the paychecks are generated.
170. Human resources should prepare control totals and hash totals in order to check the system before the paychecks are generated.
171. Conditions that warrant the need for strong controls relating to the payroll process include all of the following EXCEPT:
172. Irregular pay schedules
173. Complex withholding arrangements
174. Frequent changes in pay rates
175. Low employee turnover
176. An electronic payroll time keeping device that collects time and attendance data when employees enter their time sheets is called:
177. Timekeeper
178. Paymaster
179. Electronic time clock
180. Badge readers
181. An electronic payroll time keeping device that collects data when employee identification badges are swiped through an electronic reader are called:
182. Timekeeper
183. Badge reader
184. Paymaster
185. Electronic time clock
186. In order to smooth out the payroll process and avoid the heavy workload that falls at the end of the payroll period, many companies will use this type of system – one that integrates their human resources and payroll functions. This system makes real-time personnel data available and the general ledger and production system can be automatically updated at the end of the payroll period.
187. Online Software Systems
188. Batch Processing
189. Electronic Timekeeping
190. Outsourcing of Payroll Services
191. Many companies use independent, internet-based service providers to handle their payroll processing. These payroll providers specialize in offering solutions and constant access to payroll information.
192. Online Software Systems
193. Batch Processing
194. Electronic Timekeeping
195. Outsourcing of Payroll Services
196. Payroll outsourcing has become popular due to all of the following reasons EXCEPT:
197. It offers increased convenience.
198. It offers full protection from internet fraud
199. It offers protection from the risk of liability for failure to submit tax withholdings
200. It offers increased confidentiality.
201. There are many uses of electronic funds transfer related to the payroll process. Which of the following is not one of those uses?
202. Payments to the employees.
203. Payments to the federal taxing agencies.
204. Transfers to the payroll checking account.
205. All of the above are uses of electronic funds transfer.
206. Which of the following is NOT a benefit of the electronic transfer of payroll funds?
207. Ensures the timely deposit of funds into employee bank accounts
208. Eliminates the need for an independent paymaster
209. Removes the need for bank statement reconciliations
210. Saves time and check-cashing fees for employees
211. Assets to be included in the fixed asset pool would include all of the following, except:
212. Vehicles
213. Furniture
214. Office Supplies
215. Real Estate
216. The fixed assets owned by a company are considered to be long-term because:
217. The high cost of the fixed assets demands that they not be considered short term.
218. They are purchased with the intent of benefitting the company for a long period of time.
219. The assets will last for a long period of time.
220. All of the above are reasons the fixed assets are considered to be long-term.
221. The three phases of fixed assets processes, that span the entire useful life of the assets, include all of the following, except:
222. Depreciation
223. Acquisition
224. Disposal
225. Continuance
226. Notable differences between the acquisition of fixed assets and the acquisition of inventory includes:
227. The placement of the acquired assets - user department for fixed assets, warehouse for inventory.
228. The inclusion of a fixed asset department instead of the inventory control department.
229. Both of the above.
230. None of the above.
231. Which of the following correctly lists the correct chronological order of data flow in the fixed asset acquisitions process?
232. Prepare requisition; approve purchase; receive goods; prepare purchase order
233. Prepare purchase order; prepare requisition; receive goods; approve purchase
234. Prepare purchase order; prepare requisition; approve purchase; receive goods
235. Prepare requisition; approve purchase; prepare purchase order; receive goods
236. This document is a financial plan detailing all of the company’s investments in fixed assets and other investments.
237. Investment Analysis
238. Feasibility Study
239. Operating Budget
240. Capital Budget
241. A detailed listing of the company’s fixed assets, divided into categories consistent with the general ledger accounts is called a:
242. Fixed Asset Journal
243. Fixed Asset Subsidiary Ledger
244. Fixed Asset Schedule
245. Fixed Asset Budget
246. Which of the following is NOT a piece of relevant information that should be entered into the fixed asset subsidiary ledger upon the acquisition of a fixed asset?
247. Acquisition date
248. Cost
249. Useful life
250. The seller of the fixed asset
251. This phase of the fixed asset processes relates to those required to maintain accurate and up-to-data records regarding all fixed assets throughout their useful lives.
252. Depreciation
253. Acquisition
254. Disposal
255. Continuance
256. Activities involved with the fixed assets continuance phase of the fixed assets processes include all of the following, except:
257. Updating depreciation prior to the disposal of fixed assets
258. Updating cost data for improvements to assets
259. Adjusting for periodic depreciation
260. Keeping track of the physical location of the assets
261. The record detailing the amounts and timing of depreciation for all fixed asset categories, except land and any construction-in-progress accounts, is called:
262. Fixed asset subsidiary ledger
263. Capital budget
264. Depreciation schedule
265. Depreciation method
266. This phase of the fixed asset processes relates to discarding fixed assets when they become old, outdated, inefficient, or damaged.
267. Depreciation
268. Acquisition
269. Disposal
270. Continuance
271. Activities involved with the fixed assets disposal phase of the fixed assets processes include all of the following, except:
272. Adjusting periodic depreciation
273. Disposed assets are removed from the fixed asset subsidiary ledger
274. Gains or losses resulting from disposal are computed
275. The depreciation amounts related to the disposed assets are removed from the depreciation schedule and the fixed asset subsidiary ledger
276. Disposing of a fixed asset could include all of the following methods, except:
277. Throwing it away.
278. Sending it to another department.
279. Exchanging it for another asset.
280. Donating it to another party.
281. When high-dollar fixed assets are purchased, there should be a strict approval process which would include three formal steps. Which of the following is not one of those steps?
282. Review of the proposal and specific approval by the appropriate level of management.
283. Investment analysis.
284. Comparison with the capital budget.
285. Feasibility study.
286. The first part of the strict approval process for high-dollar fixed assets is the investment analysis. Which of the following is part of that analysis?
287. Capital budget comparison
288. Review of the proposal
289. Financial justification
290. Written requisition
291. Which of the following is a correct statement related to segregation of duties related to fixed assets?
292. Custody of fixed assets is to be separate from the related record keeping
293. Custody of fixed assets need not be separate from the purchasing of fixed assets
294. The IT function of programming need not be separated from the accounting for fixed assets.
295. All of the above are correct statements related to the segregation of duties.
296. The security of assets and documents would include all of the following, except:
297. Supervisors need to make certain that the assets are being used for their intended purpose.
298. Designated members of management should be assigned responsibility for the disposal of any assets
299. Maintaining adequate insurance coverage
300. Electronic controls are needed to control access to automated records
301. Which of the following independent checks would be part of the internal controls for fixed assets?
302. Comparing actual fixed asset expenditures with the capital budget.
303. Periodic counts of fixed assets should be made by someone not otherwise responsible for fixed asset related activities.
304. Physical counts should be reconciled with the accounting records.
305. Book value of the assets should be compared to the insurance records.
306. The internal control process of requiring management approval of fixed asset changes prior to recording the transaction, will help to minimize the risk of:
307. Incorrect amounts
308. Lost or stolen assets
309. Duplicate transactions
310. Omitted transactions
311. The internal control process of computing and recording the gains/losses for all fixed asset disposals will minimize the risk of:
312. Omitted transactions
313. Stolen goods
314. Fraudulent acquisitions
315. Invalid vendors
316. The internal control process of requiring physical controls in place in areas where fixed assets are held, will help to minimize the risk of:
317. Incorrect amounts
318. Lost or stolen assets
319. Duplicate transactions
320. Omitted transactions
321. The internal control process of requiring the check of the fixed asset subsidiary ledger and depreciation schedule for mathematical accuracy and agreement with authorized documentation, will help to minimize the risk of:
322. Incorrect amounts
323. Lost or stolen assets
324. Duplicate transactions
325. Omitted transactions
326. Factors that indicate the need for internal controls over fixed assets processes include all of the following, except:
327. General nature of fixed assets makes the susceptible to theft because they are distributed throughout the business and are in the hands of many
328. Large quantities of fixed assets
329. High likelihood of obsolescence due to technological changes
330. The high cost of assets
331. Most companies can justify the use of specialized asset management software programs instead of the spreadsheets or traditional manual systems for all of the following reasons, except:
332. The abundance of fixed asset data
333. The time-consuming and tedious requirements for tracking changes
334. The number of different methods of accounting for depreciation
335. The intricacy of the tax laws
336. The shortcomings of a spreadsheet-based system include all of the following, except:
337. The design of spreadsheets is very time consuming
338. The abundance of fixed asset data
339. It is difficult to apply varying depreciation policies within spreadsheets
340. It is difficult to establish an audit trail with spreadsheets
341. The control environment related to the fixed asset processes can be enhanced through the implementation of various access controls, such as:
342. Passwords
343. Number of employees who have access to the system
344. Limits on the number of computer workstations where information may be entered
345. All of the above
346. An entity who receives a paycheck, but who does not actually work for the company is called:
347. Ghost employee
348. Shell employee
349. Abundant employee
350. Absent employee
351. There are a number of ways that frauds may be carried out to try to receive excess compensation. Which of the following is not one of those methods?
352. Exaggeration of hours worked
353. Falsification of overtime or holiday time worked, payable at a higher rate
354. Understatement of job related expenses
355. Falsification of sales in order to increase commission payouts
356. Clues that a ghost employee may exist in the company would include all of the following, except:
357. Payroll register identifies paychecks without adequate tax withholdings
358. The personnel file contains no duplicate addresses
359. Payroll expenses are over budget
360. Paychecks were not claimed when the paymaster distributed them

TEST BANK - CHAPTER 10 - TRUE /

1. It is not necessary to get specific authorization for each individual routine transactions.
2. Routine transactions refer to common business transactions such as payroll and fixed asset transactions.
3. Accounting for a fixed asset over the life of the asset would have features of non-routine transactions only.
4. The payroll process starts when an employee is hired by the organization.
5. Members of management are not required to specifically approve an employee hired by the company when the new employee has been screened by an employment office.
6. The hiring of employees is considered to be a routine process.
7. A hiring decision normally occurs as the result of an interview or interviews and is documented on a signed letter and / or signed employment contract.
8. Amounts withheld from an employee paycheck will ultimately be paid to another vendor.
9. Most of the records found in an employee’s personnel file are accounting related.
10. A unique feature of the information contained in an individual personnel file is that it is accessed infrequently but is changed relatively frequently.
11. It is common that personnel related expenses are one of the largest expenses reported on the company’s income statement.
12. A challenging area of payroll computation is computing the amount of deductions related to each employee’s pay.
13. Accounting software is available to assist with payroll but it is not very efficient because of all the changes that occur to all payroll variables during the period.
14. Preparing payroll manually is extremely time consuming due to the process of extracting all these inputs from the records and performing the mathematical computations.
15. Overtime hours are paid at a rate different from the regular hours, usually one and one-half times the standard rate.
16. Before the paychecks are sent to management for authorization, the human resources department should compare the hours reported on the time sheets with the hours shown on the payroll register.
17. Although it is uncommon, some companies maintain separate checking accounts that are used for payroll transactions.
18. When an organization uses a separate checking account to handle payroll transactions, it is easier to account for the payroll transactions and to distinguish them from cash disbursements for other business purposes.
19. It is the responsibility of the payroll department to make certain that all time sheets represent actual time worked by currently active employees.
20. Payroll disbursements are to be authorized by the accounts payable department on the basis of the company’s need to satisfy its obligation to its employees.
21. The human resources department should be responsible for the record keeping function related to payroll.
22. The cash disbursements department should have the responsibility of signing and essentially approving all paychecks.
23. The paymaster should be independent from the departmental supervision responsibilities, so that it can be determined that the paychecks are being distributed to active employees.
24. Payroll information includes personal information about employees, such as their pay rate and performance, and must be kept confidential.
25. Strong internal controls are just as important for small organizations with few employees paid once per month as it is for large organizations with numerous employees being paid weekly.
26. Because of the infrequency of payroll processing and the sequential nature of the payroll process, many companies find that real-time processing is well-suited for payroll activities.
27. An alternative to batch processing is the use of electronic timekeeping devices, such as time clocks or badge readers.
28. The electronic timekeeping devices accumulated data throughout the period and automatically calculate batch totals. At this time, the data batches are not able to prepare the paychecks or the payroll register.
29. Payroll outsourcing has become popular (and prevalent) become is offers increased convenience and confidentiality.
30. The investment in fixed assets is often the largest asset reported on the income statement.
31. The acquisition of fixed assets is normally initiated by a user department when they identify a need for a new asset, either to replace an existing asset or to enhance its current pool.
32. When a new asset is requested, and the cost is below a preestablished amount, it is necessary for specific authorization of the purchase.
33. Many companies use a tracking system for their fixed assets that would include applying a fixed asset tag, number, or label to the asset.
34. Organizations should have written procedures in place to identify when the costs related to fixed assets are capitalized (recorded to repair and maintenance expense).
35. If a new cost is incurred related to an asset that is considered to enhance that, either by extending the useful life or increasing the efficiency, the fixed asset accountant must make sure the appropriate adjustments are made to the fixed asset subsidiary ledger.
36. Accounting for fixed assets requires the use of estimates - specifically the cost and the salvage value.
37. The use of estimates when accounting for fixed assets requires that the estimates may need to be changed as time passes and new information is discovered.
38. For any company, and any asset, the method of depreciation and the related estimates (salvage value and useful life) are the same for financial statements and income taxes.
39. In order to compute the book value of any asset, start with the cost of the asset and add the accumulated depreciation.
40. In the case of high-dollar assets, there should be a strict approval process that requires the authorization of top management or the initiation of the capital budgeting procedures.
41. For most companies, fixed asset acquisitions are considered to be routine processes.
42. Fixed assets are one area where earnings management may be prevalent due to the judgmental nature of the underlying data.
43. Earnings management related to fixed assets would occur when reducing expenses by decreasing the useful life of the fixed assets.
44. A method of earnings management is to misclassify capitalized costs as repair and maintenance expenses.
45. Although there is no direct benefit, in terms of cash received, when a fraudster engages in earnings management, it is still unethical because it results in the falsification of the company’s financial statements.
46. Historically, there have been a large number of cases of fraud, theft, manipulation, and misuse of funds in the areas of payroll and fixed assets.
47. Corporate governance policies and procedures must be in place to ensure that funds are expended to benefit managers and employees.
48. The controls discussed in the chapter, related to safeguarding assets within the expenditures process and ensuring the accuracy and completeness of expenditure processes, help to enhance corporate governance structure.
49. SO3 Controls in the Payroll Process

For each transaction cycle and each type of transaction, there are internal controls that help to minimize certain risk to the company. Using the terminology and framework developed in the text, describe the following for the Payroll Process cycle.

1. (SO 3) Segregation of duties in payroll

Explain why and how duties are segregated in the payroll process

1. (SO 3) Reconciliation procedures in payroll

Explain the various reconciliation procedures that should occur in payroll.

1. (SO 4) Electronic transfer of funds in payroll

Explain the ways in which electronic transfer of funds and direct deposit can improve payroll processes.

1. SO6 Risks and controls in the Fixed Asset Process

For each transaction cycle and each type of transaction, there are internal controls that help to minimize certain risk to the company. Using the terminology and framework developed in the text, describe the following for the fixed asset process.