Chapter 6—The Expenditure Cycle Part I
Chapter 6—The Expenditure Cycle Part II: Payroll Processing and Fixed Asset
I: Payroll Processing and Fixed Asset
Procedures
Procedures
TRUE/FA!E TRUE/FA!E
1.
1. Time caTime cards are usrds are used by cosed by cost accounting t accounting to allocate to allocate direct labodirect labor charges r charges to work to work in processin process.. A
ANNSS:: FF 2.
2. The perThe personnesonnel deparl department atment authouthorizes chrizes changeanges in employs in employee pay rateee pay rates.s. A
ANNSS:: TT .
. !ost pay!ost payroll syroll systems "ostems "or mid#sir mid#size "irms uze "irms use real#se real#time dattime data procea processingssing.. A
ANNSS:: FF $.
$. To To impro%e iimpro%e internal connternal control& paytrol& paychecks should checks should be distbe distributed by ributed by the employthe employee's super%iee's super%isor.sor. A
ANNSS:: FF (.
(. )mpl)mployee payoyee paycheckchecks shouls should be drawd be drawn againsn against a speciat a special checkil checking accong account.unt. A
ANNSS:: TT *.
*. +ecau+ecause a time clock is usese a time clock is used& no super%d& no super%ision is re,ision is re,uired whuired when employen employees enteees enter and lea%e the worr and lea%e the workk place.
place. A
ANNSS:: FF -.
-. n%enn%entory contory control pertrol per"orms th"orms the "ormal recoe "ormal record keepinrd keeping "unctig "unction "or "i/ed ason "or "i/ed assetssets.. A
ANNSS:: FF 0.
0. The depThe depreciareciation sction scheduhedule showle shows when asss when assets are "uets are "ully deplly depreciatreciated.ed. A
ANNSS:: TT .
. AuthAuthorizaorization ttion to dispoo dispose o" "i/ese o" "i/ed assetd assets shouls should be issud be issued by the used by the user o" the asser o" the asset.et. A
ANNSS:: FF 1.
1. 3o3ork#inrk#in#proc#process recoess records are updrds are updated by payated by payroll peroll personnrsonnel.el. A
ANNSS:: FF 11.
11. deallydeally& payroll & payroll checks are checks are written on written on a special a special bank account bank account used only used only "or payroll."or payroll. A
ANNSS:: TT 12.
12. The super%isThe super%isor is tor is the best phe best person to erson to determine the determine the e/istence o" e/istence o" a 4phantom a 4phantom employee5 and employee5 and shouldshould distribute paychecks.
A
ANNSS:: FF 1.
1. 6ayro6ayroll procell processinssing can be automag can be automated easited easily becauly because accounse accounting "or payting "or payroll is %ery simroll is %ery simple.ple. A
ANNSS:: FF 1$.
1$. TimTimekeepekeeping iing is pars part o" tt o" the pehe personnrsonnel "unel "unctionction.. A
ANNSS:: FF 1(.
1(. Fi/ed asset Fi/ed asset accounting accounting systems insystems include cost clude cost allocation allocation and matching and matching procedures thprocedures that are not at are not part o"part o" routine e/penditure systems.
routine e/penditure systems. A
ANNSS:: TT 1*.
1*. Asset mAsset maintenance inaintenance in%ol%es on%ol%es only the ly the recording recording o" depreciato" depreciation chargion charges. 6hysies. 6hysical impro%emcal impro%ements areents are always e/pensed.
always e/pensed. A
ANNSS:: FF 1-.
1-. Fi/ed Fi/ed Asset Asset Systems must Systems must keep track keep track o" the po" the physical lochysical location o" ation o" each asset each asset to promote to promote accountabilityaccountability.. A
ANNSS:: TT 10.
10. Time Time cards captcards capture the ure the total timtotal time an e an indi%idual indi%idual worker spworker spends on ends on each prodeach production 7uction 7ob.ob. A
ANNSS:: FF 1.
1. Accounting Accounting con%entions con%entions and 8S and 8S rules somrules sometime speci"y etime speci"y the deprecithe depreciation paramation parameters to eters to be used.be used. A
ANNSS:: TT 2.
2. The "i/ed The "i/ed asset dispasset disposal report osal report authorizes thauthorizes the user depe user department to artment to dispose odispose o" a "i/ed " a "i/ed asset.asset. A
ANNSS:: FF
"UTIPE C#$ICE "UTIPE C#$ICE
1.
1. The documenThe document that capt that captures the ttures the total amounotal amount o" time t o" time that indi%idthat indi%idual workers ual workers spend on spend on each productioneach production 7ob is called a
7ob is called a aa.. ttiimme e ccaarrdd b.
b. 7ob ticket7ob ticket c.
c. pepersrsononnenel acl actition "on "orormm d.
d. lalabobor dir diststriribubutition "on "orormm A
ANNSS:: ++ 2.
2. An impAn importanortant recot reconcilnciliatiiation in ton in the payhe payroll syroll system isstem is a.
a. genergeneral ledgeal ledger comparer compares the labos the labor distrr distributibution sumion summary "rom cmary "rom cost accost accountounting to thing to thee disbursement %oucher "rom accounts payable
disbursement %oucher "rom accounts payable b.
b. personnel compares thpersonnel compares the number o" employees authoe number o" employees authorized to recei%e a paycheck to trized to recei%e a paycheck to thehe number o" paychecks prepared
c.
c. produproduction cction comparompares the numes the number o" houber o" hours reporrs reported on 7oted on 7ob tickeb tickets to the numts to the number o" houber o" hoursrs reported on time cards
reported on time cards d.
d. payrpayroll compoll compares the laares the labor disbor distributribution sumtion summary to thmary to the hours ree hours reporteported on time cad on time cardsrds A
ANNSS:: AA .
. 3hich i3hich internnternal contal control is norol is not an import an important patant part o" the payrt o" the payroll syroll system9stem9 a.
a. SuperSuper%iso%isors %rs %eri"y eri"y the the accuraccuracy acy o" emo" employployee timee time care cards.ds. b.
b. 6aychecks are distribut6aychecks are distributed by an independent ed by an independent paymaster.paymaster. c.
c. AccouAccounts paynts payable %eriable %eri"ies the acc"ies the accuracy o" the payuracy o" the payroll regroll register beister be"ore tran"ore trans"errs"erring paying payrollroll "unds to the general
"unds to the general checking accounting.checking accounting. d.
d. enereneral ledgeal ledger reconcr reconciles the labiles the labor distror distributibution summion summary and the payary and the payroll disroll disbursembursementent %oucher.
%oucher. A
ANNSS:: ;; $.
$. 3hich 3hich transtransactiaction is noon is not procet processed issed in the Fi/n the Fi/ed Aed Asset Sysset System9stem9 a.
a. pupurcrchahase ose o" b" buiuildldiningg b.
b. impro%ement o" e,uipmimpro%ement o" e,uipmentent c.
c. pupurcrchahase se o" o" raraw mw matatereriaialsls d.
d. sasale le o" o" cocommpapany ny %a%ann A
ANNSS:: ;; (
(.. <<epeprerecciaiattioionn a.
a. is cais calculalculated by ted by the dthe departmepartment tent that uhat uses tses the "ihe "i/ed a/ed assetsset b.
b. allocates the cost o" tallocates the cost o" the asset o%er its use"uhe asset o%er its use"ul li"el li"e c.
c. is is rerecocordrded ed weweekeklyly d.
d. resuresults ilts in boon book %alk %alue apue appro/ipro/imatimating "ang "air mair market %rket %aluealue A
ANNSS:: ++ *.
*. <epreciation <epreciation records irecords include all nclude all o" the o" the "ollowing "ollowing in"ormation in"ormation about "about "i/ed asseti/ed assets e/cepts e/cept a.
a. the ethe econconomiomic benec bene"it o"it o" purc" purchashasing ting the ashe assetset b.
b. the cost o" the assetthe cost o" the asset c.
c. the the depdeprecreciatiation ion metmethod hod beibeing ng useusedd d.
d. ththe loe locacatition on o" to" the he asassesett A
ANNSS:: AA -.
-. 3hich 3hich contcontrol is rol is not a pnot a part o" art o" the Fithe Fi/ed /ed AssAsset Syset System9tem9 a.
a. "or"ormal mal anaanalylysis osis o" th" the pue purchrchase ase re,re,uesuestt b.
b. re%iew o" the assumpre%iew o" the assumptions used in the capittions used in the capital budgeting modelal budgeting model c.
c. de%elde%elopmeopment ont o" an " an econoeconomic mic order order ,uan,uantity tity modemodell d.
d. estestimaimates otes o" ant" anticiicipatpated coed cost sast sa%in%ingsgs A
ANNSS:: ;; 0.
0. =b7e=b7ecti%ecti%es o" ths o" the Fi/ee Fi/ed Ad Asset Sysset System do stem do not inot includncludee a.
a. autauthorhoriziizing thng the ac,e ac,uisuisitiition o" "ion o" "i/ed a/ed assessetsts b.
b. recording depreciatirecording depreciation e/penseon e/pense c.
c. compucomputing ting gain gain and>oand>or losr loss on s on dispdisposal osal o" "io" "i/ed a/ed assetssetss d.
d. maintmaintainiaining a reng a record ocord o" the "" the "air maair market %rket %alue oalue o" all "i" all "i/ed as/ed assetssets A
.
. 3hich o3hich o" the "oll" the "ollowing iowing is not a charas not a charactericteristic o" thstic o" the Fi/ed e Fi/ed AssAsset Systet System9em9 a.
a. Ac,uAc,uisitisitions arions are routine routine transae transactioctions re,uns re,uiriniring generag general authol authorizatrization.ion. b.
b. 8etirements are reported on an 8etirements are reported on an authorized dispoauthorized disposal report "orm.sal report "orm. c.
c. Ac,uAc,uisitisition coion cost is st is allocallocated ated o%er to%er the e/phe e/pected ected li"e oli"e o" the a" the asset.sset. d.
d. TraTrans"ens"er o" "i/ed assetr o" "i/ed assets among depas among departmertments is recornts is recorded in the "i/ded in the "i/ed asset subed asset subsidisidiary ledgary ledger.er. A
ANNSS:: AA 1.
1. n the payron the payroll subsyll subsystem& whistem& which "unctch "unction shouion should distld distributribute paychece paychecks9ks9 aa.. ppeerrssoonnnneell
b.
b. timekeepingtimekeeping cc.. ppayaymmaasstteer r d
d.. ppaayyrroollll A
ANNSS:: ;; 11.
11. 3here does 3here does the responthe responsibility lsibility lie "or reconie "or reconciling the ciling the labor dislabor distribution stribution summary and tummary and the payrollhe payroll disbursement %oucher9
disbursement %oucher9 a.
a. cacash sh didisbsburursesemementntss b.
b. cost accountingcost accounting cc.. ppeerrssoonnnneell d
d.. ggenenereral lal lededgeger r A
ANNSS:: << 12.
12. 3hich 3hich o" tho" the "ole "ollowilowing stng statemeatements ints is nos not truet true99 a.
a. 8outi8outine payne payroll prroll procesocessing bsing begins wegins with thith the subme submissiission o" timon o" time cardse cards.. b.
b. 6ayroll clerks must %eri6ayroll clerks must %eri"y the hours reported on th"y the hours reported on the time cards.e time cards. c.
c. 6ayro6ayroll reconll reconciles pciles personersonnel actnel action "ormion "orms with tims with time cards and pe cards and preparrepares payches paychecks.ecks. d.
d. ;ash dis;ash disbursbursementements signs pays signs paychecks anchecks and "orward "orwards them to the payds them to the paymastemaster "or distrir "or distributibution.on. A
ANNSS:: ++ 1.
1. n a manu"acn a manu"acturing "irm& turing "irm& employees use employees use time cards time cards and 7ob and 7ob tickets. 3tickets. 3hich o" thhich o" the "ollowing e "ollowing statementsstatements is not correct9
is not correct9 a.
a. ?ob ti?ob tickets ckets are prepare prepared by emared by employployees "or eaees "or each 7ob wch 7ob worked oorked on& so an emn& so an employployee may ha%ee may ha%ee more that one 7ob ticket on a gi%en day.
more that one 7ob ticket on a gi%en day. b.
b. An indi%idual emAn indi%idual employee will ha%e only oployee will ha%e only one time card.ne time card. c.
c. The timThe time reporte reported on 7ob ticed on 7ob tickets skets should rhould reconceconcile wiile with the timth the time reporte reported on time cared on time cards.ds. d.
d. 6aych6aychecks ecks shoushould bld be pree prepared pared "rom "rom the the 7ob 7ob ticktickets.ets. A
ANNSS:: << 1$.
1$. 3hich de3hich departmpartment is respoent is responsibnsible "or approle "or appro%ing ch%ing changes in pay raanges in pay rates "or empltes "or employeesoyees99 aa.. ppaayyrroollll
b.
b. treasurer treasurer cc.. ppeerrssoonnnneell d.
d. cacash dsh disisbubursrsememenentsts A
ANNSS:: ;; 1(.
1(. 3hich o" th3hich o" the "ollowe "ollowing situing situationations represes represents a serionts a serious contus control weakrol weakness9ness9 a.
a. TimTimekeepekeeping iing is inds indepenependent dent o" tho" the paye payroll droll departmepartment.ent. b.
b. 6aychecks are distribut6aychecks are distributed by the employees immed by the employees immediate super%isorediate super%isor.. c.
c. TiTime came cards ards are recre reconconcileiled witd with 7ob th 7ob tickicketsets.. d.
new hires. new hires. A
ANNSS:: ++ 1*.
1*. 3hy would 3hy would an organizan organization re,uire ation re,uire the paymaster the paymaster to deli%eto deli%er all unclr all unclaimed paychecks aimed paychecks to the to the internalinternal audit department9
audit department9 a.
a. to deto detect tect a 4pha 4phantom antom employemployee5 "oee5 "or whom r whom a chea check wack was pros producedduced b.
b. to pre%ent an absent emto pre%ent an absent employee@s ployee@s check "rom being lostcheck "rom being lost c.
c. to a%to a%oid oid paypaying aing absebsent emnt employployees "ees "or payor paydayday d.
d. to prto pre%ene%ent the t the paympaymaster aster "rom c"rom cashiashing unng unclaimclaimed cheed checkscks A
ANNSS:: AA 1-.
1-. 3hich o3hich o" the "oll" the "ollowing iowing is not a reasos not a reasonablnable controe control "or "i/el "or "i/ed assetd assets9s9 a.
a. 6rope6roper author authorizatrization is re,ion is re,uired "ouired "or ac,uir ac,uisitiosition and disn and disposaposal o" "i/ed asl o" "i/ed assets.sets. b.
b. Fi/ed asset records shoFi/ed asset records show the location o" each assw the location o" each asset.et. c.
c. Fully Fully depredepreciateciated asd assets sets are iare immedimmediately ately dispdisposed osed o".o". d.
d. <ep<eprecreciatiation pion polioliciecies are is are in wrin writiting.ng. A
ANNSS:: ;; 10.
10. ;ost a;ost accounccounting uting updatpdates wores work#ink#in#proc#process acess accountcounts "roms "rom aa.. ttiimme e ccaarrddss
b.
b. the labor distributhe labor distribution summarytion summary cc.. 77oob tb tiicckkeettss
d.
d. pepersrsononnenel al actctioion "n "orormsms A
ANNSS:: ;; 1.
1. 6ayro6ayroll usell uses time cas time card data trd data to do all oo do all o" the "ol" the "ollowilowing e/cng e/ceptept a.
a. prprepeparare the the paye payrolroll rel regigistster er b.
b. update employee payupdate employee payroll recordsroll records c.
c. preprepapare thre the labe labor dor dististribributiution son summummaryary d.
d. prprepeparare pe payaychchececksks A
ANNSS:: ;; 2
2.. 6ay6ayrolroll checl checks arks are type typicaically dlly drawrawn onn on a.
a. ththe rege regulular char chececkiking acng accocoununtt b.
b. a payroll imprest accouna payroll imprest accountt c.
c. a wa wagages es paypayabable le acaccocoununtt d
d.. ppeetttty y ccaasshh A
ANNSS:: ++ 21.
21. The peThe personnrsonnel actel action "orm ion "orm pro%pro%ides auides authorithorizatiozation contn control byrol by a.
a. prepre%en%entinting paycg paychechecks "or teks "or termirminatnated emped employloyeesees b.
b. %eri"ying pay rates "or empl%eri"ying pay rates "or employeesoyees c.
c. inin"o"ormrmining payg payroroll oll o" new h" new hirireses d
d.. alall ol o" t" thhe ae abobo%e%e A
ANNSS:: << 22.
22. Accounting Accounting records that records that pro%ide the pro%ide the audit trail audit trail "or payroll "or payroll include all include all o" the "oo" the "ollowing e/llowing e/ceptcept aa.. ttiimme e ccaarrddss
b.
c.
c. papayyroroll ll reregigistster er d.
d. acaccocoununts pats payyabable rele regigistster er A
ANNSS:: << 2.
2. 6erso6ersonnel annel actionctions "orms as "orms are used tre used to do all oo do all o" the "ol" the "ollowilowing e/ceng e/ceptpt a.
a. acactiti%a%ate te nenew w ememplployoyeesees b.
b. terminate employeesterminate employees c.
c. rerecocord rd hohoururs ws wororkekedd d.
d. chchanange ge papay y raratetess A
ANNSS:: ;; 2$.
2$. The payThe payroll deroll departmpartment perent per"orm"orms all o" ths all o" the "olloe "ollowing ewing e/cep/ceptt a.
a. preprepapares res the the paypayrolroll rl regiegistester r b.
b. distributes paydistributes paycheckschecks c.
c. updupdateates ems emploployeyee pe payrayroll oll recorecordsrds d.
d. prprepeparares pes payaychchececksks A
ANNSS:: ++ 2(.
2(. The docThe documenument that recot that records thrds the total ame total amount o" timount o" time spent on a pre spent on a producoduction 7otion 7ob is theb is the aa.. ttiimme e ccaarrdd
b.
b. 7ob ticket7ob ticket c.
c. lalabobor dir diststriribubutition son sumummamaryry d.
d. pepersrsononnenel al actctioion "n "orormm A
ANNSS:: ;; 2*.
2*. A conA control tectrol techni,hni,ue that can reduue that can reduce the risk o" a termice the risk o" a terminated emnated employployee being paiee being paid isd is a.
a. a sea securcurity city cameamera %ira %iewiewing tng the the time cime cloclock k b.
b. the super%isor takthe super%isor taking role during the shing role during the shi"ti"t c.
c. paychpaychecks ecks beinbeing disg distributributed by ted by an inan indepedependent ndent paympaymaster aster d.
d. reconreconciliaciliation tion o" o" time time cards cards and and 7ob 7ob ticketicketsts A
ANNSS:: ;;
2-2-.. AcAccocoununts pts payayabablele aa.. sisigngns ps payaychchececkkss b.
b. prepares the payroll %ouprepares the payroll %oucher cher c.
c. recrecononcilciles ties time came cards ards and emnd emploployeyee rece recordordss d.
d. disdistritribubutes ptes paycaychechecks to ks to empemployloyeesees A
ANNSS:: ++ 20.
20. All o" the "oAll o" the "ollowllowing are pring are processocessed by the Fied by the Fi/ed A/ed Asset Sysset System e/cstem e/ceptept a.
a. sasale ole o" un" unneneededed eed e,u,uipipmementnt b.
b. purchase o" raw materialspurchase o" raw materials c.
c. reprepair air o" o" proproducductition on e,ue,uipmipmentent d.
d. pupurcrchahase se o" o" a na new ew plplanantt A
ANNSS:: ++ 2.
2. The Fi/The Fi/ed Aed Asset Sysset System pestem per"ormr"orms all o" ts all o" the "ollhe "ollowinowing e/cepg e/ceptt a.
a. detdetermermineines ts the he neeneed "d "or nor new ew assassetsets b.
c.
c. recrecordords rets retiremirement aent and dind disposposal osal o" ass" assetsets d.
d. tracktracks ts the he physiphysical cal locatlocation ion o" "o" "i/ed i/ed asseassetsts A
ANNSS:: AA .
. The payThe payroll deroll departmpartment perent per"orm"orms all o" ths all o" the "olloe "ollowing ewing e/cep/ceptt a.
a. prprepeparares es papayychchececksks b.
b. trans"ers ade,uate "undtrans"ers ade,uate "unds to the payroll impress to the payroll imprest accountt account c.
c. updupdateates ems emploployeyee pe payrayroll oll recorecordsrds d.
d. preprepapares res the the paypayrolroll rl regiegistester r A
ANNSS:: ++ 1
1.. <e<eprprececiaiatitionon a.
a. assuassures tres that ahat assetssets are s are reporreported ted at "aat "air mair market rket %alue%alue b.
b. is discretionary "or mis discretionary "or many "irmsany "irms c.
c. alloallocates cates the the cost cost o" an o" an asseasset o%t o%er iter its uss use"ul e"ul li"eli"e d.
d. is this the respe responsionsibilibility o" tty o" the dephe departmartment usent using ting the asshe assetet A
ANNSS:: ;; 2.
2. The Fi/The Fi/ed Aed Asset Sysset System is simstem is similar to thilar to the e/pene e/pendituditure cycle e/re cycle e/ceptcept a.
a. "i/ed as"i/ed asset transet transactisactions are nonons are non#rout#routine and re,uine and re,uire specire special authial authorizaorization and contion and controltrolss b.
b. "i/ed assets are capita"i/ed assets are capitalized& not e/pensedlized& not e/pensed cc.. bbootth h a a aannd d bb
d.
d. nonone ne o" o" ththe ae abobo%e%e A
ANNSS:: ;;
.. AssAsset et maimaintentenannance ice in%on%ol%el%ess a.
a. the rthe recoecordirding o" png o" perieriodiodic depc deprecreciatiationion b.
b. ad7usting the assead7usting the asset records to re"lect the cost t records to re"lect the cost o" physical impro%emo" physical impro%ementsents c.
c. keepikeeping tng track rack o" tho" the phye physicasical lol locatiocation o" n o" the athe assetssetss d
d.. alall ol o" t" thhe ae abobo%e%e A
ANNSS:: << $.
$. The Fi/The Fi/ed Aed Asset Sysset Systems dstems does aloes all o" the "ol o" the "ollowllowing e/ing e/ceptcept a.
a. recrecordords s ac,ac,uisuisitiition on o" o" assassetsets b.
b. records impro%ements trecords impro%ements to assetso assets c.
c. estimestimates ates the the "air "air markemarket %at %alue olue o" ass" assets iets in sen ser%icer%ice d.
d. recrecordords ts the he disdisposposal al o" o" assassetsets A
ANNSS:: ;; (
(.. AsAsseset dt disispoposasall a.
a. occoccurs aurs as sos soon as aon as an assn asset is "et is "ullully depy deprecireciateatedd b.
b. re,uires no special aure,uires no special authorizationthorization c.
c. automautomaticaatically illy initianitiates ttes the puhe purchase rchase o" a ro" a replaceplacement ement assetasset d.
d. must must "ollo"ollow "w "ormal ormal authoauthorizatrization ion proceprocedureduress A
ANNSS:: << !#$RT A%!&ER !#$RT A%!&ER
1.
1. <escribe an <escribe an internal internal control pcontrol procedure tharocedure that would t would pre%ent apre%ent an employee n employee "rom punchin"rom punching the g the time clocktime clock "or another& absent e
"or another& absent employee.mployee. ANS:
ANS:
super%ision o" the time clock at the start
super%ision o" the time clock at the start o" the shi"to" the shi"t 2.
2. 3hy sho3hy should thuld the employe employee@s ee@s supersuper%iso%isor not disr not distributribute paychte paychecks9ecks9 ANS:
ANS:
A "orm o" payroll "raud
A "orm o" payroll "raud in%ol%es a super%isor submitting "raudulent time cards "or in%ol%es a super%isor submitting "raudulent time cards "or none/istentnone/istent employees. The resulting paychecks& when returned to the super%isor are then cashed by the employees. The resulting paychecks& when returned to the super%isor are then cashed by the super%isor.
super%isor. .
. <escribe an <escribe an internal internal control pcontrol procedure tharocedure that would t would pre%ent a pre%ent a super%isor super%isor "rom steali"rom stealing the ng the unclaimedunclaimed paychecks o" employees w
paychecks o" employees who ha%e been terminated.ho ha%e been terminated. ANS:
ANS:
This type o" "raud can
This type o" "raud can be reduced or eliminated by using a be reduced or eliminated by using a paymaster to distribute paychecks topaymaster to distribute paychecks to employees in person. Any uncollected paychecks are then
employees in person. Any uncollected paychecks are then returned to payroll. Also& mail "inalreturned to payroll. Also& mail "inal paychecks to terminated
paychecks to terminated employees.employees. $.
$. 3hy sho3hy should emuld employployee paychee paychecks be draecks be drawn agaiwn against a specnst a special checial checking acking accouncount9t9 ANS:
ANS:
A separate imprest account is established "or the e/act amount o" the payroll based on the
A separate imprest account is established "or the e/act amount o" the payroll based on the payrollpayroll summary. 3h
summary. 3hen the paen the paychecks are cashed& this account ychecks are cashed& this account should clear lea%ing a should clear lea%ing a zero balance. Any errorszero balance. Any errors in checks additional checks or abnormal amountsB would result in a non#zero balance in
in checks additional checks or abnormal amountsB would result in a non#zero balance in the imprestthe imprest account and>or some paycheck would not clear. This will alert management to the problem so
account and>or some paycheck would not clear. This will alert management to the problem so correcti%e action can be taken.
correcti%e action can be taken. (.
(. 3hy sh3hy should emould employployees clocees clocking oking on and o"n and o"" the 7o" the 7ob be supb be super%iser%ised.ed. ANS:
ANS:
A "orm o" payroll "raud in%ol%es employees clocking the time cards o" absent employees. +y A "orm o" payroll "raud in%ol%es employees clocking the time cards o" absent employees. +y super%ising the clocking in and out process& this "raud can be
super%ising the clocking in and out process& this "raud can be reduced or eliminated.reduced or eliminated. *.
*. 3ha3hat is t is a pea persorsonnnnel ael actiction "on "ormorm99 ANS:
ANS:
The personnel action "orm pro%ides the payroll department with a list o"
The personnel action "orm pro%ides the payroll department with a list o" currently acti%e employees& socurrently acti%e employees& so that any submission o" time cards by super%isors "or "ictitious or e/#employees will not be
that any submission o" time cards by super%isors "or "ictitious or e/#employees will not be processed.processed. -.
-. n a n a manu"acturing manu"acturing "irm& employ"irm& employees typically ees typically "ill out "ill out two ditwo di""erent do""erent documents regacuments regarding theirding their timer time worked. 3hat are they9 3hy are there two9
worked. 3hat are they9 3hy are there two9 ANS:
ANS:
The two documents are the time card
The two documents are the time card and the 7ob ticket. Two are re,uired because the time cardand the 7ob ticket. Two are re,uired because the time card records all the time worked by an
records all the time worked by an employee during the period while the 7ob ticket details the time employee during the period while the 7ob ticket details the time byby pro7ect.
pro7ect. 0.
0. Cist twCist two types o" auo types o" authorithorizatiozation re,uin re,uired in the Fred in the Fi/ed Ai/ed Asset Sysset System.stem. ANS:
ANS:
authorization to purchase the asset and to dispose o" the asset authorization to purchase the asset and to dispose o" the asset
.
. Cist "oCist "our typur types o" daes o" data that ata that appeappear on a deprr on a depreciateciation scion scheduhedule.le. ANS:
ANS:
item description& depreciation method& use"ul li"e& date ac,uired& cost& sal%age %alue& accumulated item description& depreciation method& use"ul li"e& date ac,uired& cost& sal%age %alue& accumulated depreciation& depreciation e/pense per period& book %alue
depreciation& depreciation e/pense per period& book %alue 1.
1. 3hich do3hich documencuments promts prompt the "i/ed aspt the "i/ed asset depaset departmenrtment to create a "i/ed ast to create a "i/ed asset recorset record9d9 ANS:
ANS:
the recei%ing report and
the recei%ing report and the disbursement %oucher the disbursement %oucher 11.
11. <escribe an <escribe an internal coninternal control that trol that would pre%enwould pre%ent an emplt an employee "rom steoyee "rom stealing a aling a computer and computer and thenthen reporting it as scrapped.
reporting it as scrapped. ANS:
ANS:
Super%isors must authorize the disposal o"
Super%isors must authorize the disposal o" the computer. Dnless so authorized& the record will the computer. Dnless so authorized& the record will continuecontinue to show that the employee is responsible "or the
to show that the employee is responsible "or the computer.computer. 12.
12. <escribe an <escribe an internal coninternal control that trol that would pre%enwould pre%ent the payt the payment o" iment o" insurance premiumnsurance premiums on an s on an automobileautomobile that is no longer owned by the company.
that is no longer owned by the company. ANS:
ANS:
6er"orm an annual physical in%entory o" "i/ed assets and ad7ust the
6er"orm an annual physical in%entory o" "i/ed assets and ad7ust the records to re"lect assets no longerrecords to re"lect assets no longer on hand. 6repare reports about the disposal o" assets.
on hand. 6repare reports about the disposal o" assets. 1.
1. <escribe an <escribe an internal internal control tcontrol that wouhat would pre%ent ld pre%ent the chargthe charging o" ing o" depreciation depreciation e/pense to e/pense to thethe maintenance department "or a sweeper that is now located
maintenance department "or a sweeper that is now located in and used by the engineering department.in and used by the engineering department. ANS:
ANS:
6repare reports about the trans"er o" "i/ed
6repare reports about the trans"er o" "i/ed assets. 6er"orm an annual physical in%entory and note theassets. 6er"orm an annual physical in%entory and note the location o" assets. +udget and then hold each department accountable "or depreciation e/pense "or location o" assets. +udget and then hold each department accountable "or depreciation e/pense "or assets located in each department.
assets located in each department. 1$.
1$. <escribe an <escribe an internal coninternal control that trol that would pre%enwould pre%ent the ac,ut the ac,uisition o" isition o" o""ice e,uo""ice e,uipment which ipment which is notis not needed by the "irm.
needed by the "irm. ANS:
ANS:
A higher organization
A higher organizational le%el or al le%el or other appropriate person authorizes "i/ed asset ac,uisitionsE part o" other appropriate person authorizes "i/ed asset ac,uisitionsE part o" thethe authorization is showing that a need "or the asset e/ists.
authorization is showing that a need "or the asset e/ists. 1(.
1(. 3hat negati%3hat negati%e conse,uene conse,uences result wces result when "i/ed hen "i/ed asset records asset records include assinclude assets that ets that are no loare no longer ownednger owned by the "irm9
by the "irm9 ANS:
ANS:
=n the "inancial statements& assets will be o%erstated and depreciation e/pense could be o%erstated. =n the "inancial statements& assets will be o%erstated and depreciation e/pense could be o%erstated. Assets on property ta/ returns will be o%erstated and too much
Assets on property ta/ returns will be o%erstated and too much ta/ will be paid. nsurance premiumsta/ will be paid. nsurance premiums will be paid
will be paid on none/istent assets.on none/istent assets. 1*.
1*. )/pl)/plain the purpain the purpose o" each o" the "olose o" each o" the "ollowilowing documng documents useents used in the payrold in the payroll systeml system:: the personnel action "orm& the 7ob ticket& the
the personnel action "orm& the 7ob ticket& the time card.time card. ANS:
The personnel action form
The personnel action form is a is a document which identi"ies employees who should recei%e a paycheckEdocument which identi"ies employees who should recei%e a paycheckE re"lects changes in pay
re"lects changes in pay rates& payroll deductions& and 7ob rates& payroll deductions& and 7ob classi"ications.classi"ications. The job ticket
The job ticket collects in"ormation on the time collects in"ormation on the time indi%idual workers spend on each production 7ob.indi%idual workers spend on each production 7ob. The time card
The time card captures the total time that captures the total time that an employee is at work.an employee is at work. 1-.
1-. ow do "ow do "i/ed ai/ed asset sysset systems dstems di""er "i""er "rom throm the e/pene e/pendituditure cycre cycle9le9 ANS:
ANS:
The "i/ed asset system processes nonroutine transactions "or a wider group o" users in
The "i/ed asset system processes nonroutine transactions "or a wider group o" users in the organizationthe organization than the e/penditure cycle. Further& the
than the e/penditure cycle. Further& the e/penditure cycle processes routine ac,uisitions o" rawe/penditure cycle processes routine ac,uisitions o" raw materials in%entories "or the production "unction and
materials in%entories "or the production "unction and "inished goods in%entories "or the sales "inished goods in%entories "or the sales "unction."unction. The e/penditure cycle transactions are o"tentimes automatically appro%ed b
The e/penditure cycle transactions are o"tentimes automatically appro%ed b y the system& while y the system& while "i/ed"i/ed asset transaction appro%als typically demand indi%idual attention due to the
asset transaction appro%als typically demand indi%idual attention due to the uni,ueness o" theuni,ueness o" the transactions.
transactions. 10.
10. 3hat is r3hat is recordeecorded by the assd by the asset maintet maintenanenance part o" thce part o" the Fi/ed e Fi/ed AssAsset Systet System9em9 ANS:
ANS:
periodic depreciatio
periodic depreciation "ollowing an appro%n "ollowing an appro%ed depreciation scheded depreciation schedule and physical impule and physical impro%ements to thero%ements to the asset to increase the subsidiary account and to ad7ust the depreciation schedule
asset to increase the subsidiary account and to ad7ust the depreciation schedule 1.
1. ow are ow are the "ollowinthe "ollowing carried oug carried out in tt in the Fi/ed he Fi/ed Asset Asset System: authSystem: authorization& suporization& super%ision& iner%ision& independentdependent %eri"ication9
%eri"ication9 ANS:
ANS:
Independent autho
Independent authorizationrization is re,uired to ac,uire an is re,uired to ac,uire an asset and to "ormalize the depreciation schedule.asset and to "ormalize the depreciation schedule. Supervision
Supervision must be e/ercised o%er must be e/ercised o%er the physical assets.the physical assets. Independent verifica
Independent verificationtion must con"irm the location& e/istence& and condition o" the must con"irm the location& e/istence& and condition o" the assets.assets. 2.
2. 3hich 3hich depardepartment tment authoauthorizes crizes changehanges to emps to employee ployee pay rateay rates9s9 ANS:
ANS:
The personnel department %ia the personnel action "orm The personnel department %ia the personnel action "orm E!!A'
E!!A' 1.
1. The ol" The ol" ;lub ;om;lub ;ompany makes pany makes custom gocustom gol" clubsl" clubs. The . The manu"acturing manu"acturing super%isor super%isor inter%iews inter%iews peoplepeople who ha%e specialized manu"acturing skills& and he in"orms payroll when an employee is hired. The who ha%e specialized manu"acturing skills& and he in"orms payroll when an employee is hired. The employees use a time clock to
employees use a time clock to record the hours they work. The employees are record the hours they work. The employees are also re,uired to keep aalso re,uired to keep a record o" the time they
record o" the time they spend working on each order. The super%isor appro%espend working on each order. The super%isor appro%es all time cards.s all time cards. The accountant analyzes the 7ob
The accountant analyzes the 7ob tickets and prepares a tickets and prepares a labor distribution summarylabor distribution summary. 6ayroll prepares the. 6ayroll prepares the payroll register and p
payroll register and paychecks. The super%aychecks. The super%isor distributes tisor distributes the paychecks to the emphe paychecks to the employees. 6ayrollloyees. 6ayroll in"orms cash disbursement o" the "unds re,uired to co%er the
in"orms cash disbursement o" the "unds re,uired to co%er the entire payroll amount. The cashentire payroll amount. The cash
disbursements clerk ensures that there are ade,uate "unds in the company's regular checking account to disbursements clerk ensures that there are ade,uate "unds in the company's regular checking account to co%er the payroll.
co%er the payroll.
<escribe at least three internal control weaknessesE "or each weakness suggest an impro%ement to <escribe at least three internal control weaknessesE "or each weakness suggest an impro%ement to internal control.
internal control. ANS:
ANS:
3)AGN)SS:
3)AGN)SS: The super%isor coulThe super%isor could be creating "ictitious employees. The supd be creating "ictitious employees. The super%isor has too manyer%isor has too many incompatible dutiesE he hires workers& appro%es the time cards& and distributes the paychecks. incompatible dutiesE he hires workers& appro%es the time cards& and distributes the paychecks.
!68=H)!)NT:
!68=H)!)NT: Segregate duties. 6ersonnel should hiSegregate duties. 6ersonnel should hire employees and a paymaster shouldre employees and a paymaster should distribute paychecks.
distribute paychecks. 3)AGN)SS:
3)AGN)SS: )mployees could be paid "or time they do not workE a co#worker could record an)mployees could be paid "or time they do not workE a co#worker could record an absent worker as present punch the time clockB.
absent worker as present punch the time clockB. !68=H)!)NT:
!68=H)!)NT: Super%ise the time clock. 8econcile time cards and 7ob time tickets.Super%ise the time clock. 8econcile time cards and 7ob time tickets. 3)AGN)SS:
3)AGN)SS: 6ayroll has authorization and trans6ayroll has authorization and transaction processing responsaction processing responsibilities. 6ayroll isibilities. 6ayroll is authorizing the disbursement to "und the
authorizing the disbursement to "und the entire payroll. Accounts payable is not part entire payroll. Accounts payable is not part o" the system.o" the system. !68=H)!)NT:
!68=H)!)NT: Segregate dutiesE accounts paySegregate dutiesE accounts payable should %eri"y the accuracy o" the payrollable should %eri"y the accuracy o" the payroll register and create a
register and create a disbursement %oucherdisbursement %oucher.. 3)AGN)SS:
3)AGN)SS: 6ayroll is "unded th6ayroll is "unded through the general checkinrough the general checking account.g account. !68=H)!)NT:
!68=H)!)NT: 6aychecks should be written on a separate payroll accoun6aychecks should be written on a separate payroll account.t. 2.
2. <escr<escribe how thibe how the Fi/ed Ae Fi/ed Asset Sysset System di"stem di""ers "ro"ers "rom the e/pem the e/penditnditure cycure cycle.le. ANS:
ANS:
The Fi/ed Asset System processes nonroutine transactions which are recorded
The Fi/ed Asset System processes nonroutine transactions which are recorded as capital assets. Theas capital assets. The recei%ing department deli%ers "i/ed assets to
recei%ing department deli%ers "i/ed assets to the user>manager. The "i/ed asset department per"ormsthe user>manager. The "i/ed asset department per"orms the record keeping "unction.
the record keeping "unction.
The e/penditure cycle processes routine transactions which are
The e/penditure cycle processes routine transactions which are o"ten debited to in%entory or o"ten debited to in%entory or e/pensed.e/pensed. The recei%ing department deli%ers routine purchases to a central store or warehouse. n%entory ;ontrol The recei%ing department deli%ers routine purchases to a central store or warehouse. n%entory ;ontrol per"orms the record keeping
per"orms the record keeping "unction "or in%en"unction "or in%entory purchases.tory purchases. .
. Three ma7or Three ma7or tasks are tasks are handled by handled by the Fi/ed the Fi/ed Asset Asset System. 3haSystem. 3hat is the t is the purpose o" purpose o" each9 3heach9 3hat specialat special control issues a""ect each9
control issues a""ect each9 ANS:
ANS:
Asset ac,uisition handles the steps leading to the ac,uisition o" new "i/ed assets: recognition o" need& Asset ac,uisition handles the steps leading to the ac,uisition o" new "i/ed assets: recognition o" need& authorization and appro%al& possible capital in%estment analysis& and selection o"
authorization and appro%al& possible capital in%estment analysis& and selection o" suppliersupplier. +ecause o". +ecause o" the %alue o" "i/ed assets& special appro%als are
the %alue o" "i/ed assets& special appro%als are needed.needed.
Asset maintenance in%ol%es ad7usting the subsidiary account balances "or
Asset maintenance in%ol%es ad7usting the subsidiary account balances "or depreciation& anddepreciation& and impro%ements and tracking location. ;ontrol in%ol%es accountability by keeping track
impro%ements and tracking location. ;ontrol in%ol%es accountability by keeping track o" the physicalo" the physical location o" each asset.
location o" each asset.
Asset disposal handles the remo%al o" assets "rom the subsidiary ledger when the
Asset disposal handles the remo%al o" assets "rom the subsidiary ledger when the asset is taken out o"asset is taken out o" ser%ice. This re,uires special appro%al and
ser%ice. This re,uires special appro%al and preparation o" a preparation o" a disposal report.disposal report. $.
$. The +accuThe +accus ;orp. manus ;orp. manu"actu"actures medicres medical e,uipal e,uipmentment. This is a capit. This is a capital intenal intensi%e indsi%e industry anustry andd in%estments in "i/ed assets e/ceed
in%estments in "i/ed assets e/ceed I( million a year. The minimum cost I( million a year. The minimum cost "or production e,uipment is"or production e,uipment is I-(&. 3hen super%isors want new production machinery& they contact the plant manager. The plant I-(&. 3hen super%isors want new production machinery& they contact the plant manager. The plant manager appro%es or denies
manager appro%es or denies the re,uest based on the re,uest based on discussions with the production super%isordiscussions with the production super%isor& the repair & the repair and maintenance super%isor& and the
and maintenance super%isor& and the ,uality control super%isor.,uality control super%isor.
A purchase order is prepared by the purchasing department and sent to one o"
A purchase order is prepared by the purchasing department and sent to one o" the three ma7or suppliersthe three ma7or suppliers o" production machinery "or medical e,uipment. The e,uipment is deli%ered immediately to the
o" production machinery "or medical e,uipment. The e,uipment is deli%ered immediately to the production "loo
production "loor and put into ser%ice. r and put into ser%ice. At the end oAt the end o" the month& the product" the month& the production super%isor in"oion super%isor in"orms therms the general ledger clerk about the receipt o" the
general ledger clerk about the receipt o" the machinery. Tmachinery. The general ledger clerk establishes an assethe general ledger clerk establishes an asset record "or the machine. At the end o" the
record "or the machine. At the end o" the year& the general ledger clerk computes straight#lineyear& the general ledger clerk computes straight#line depreciation based on a 1#year li"e with a
depreciation based on a 1#year li"e with a 1 percent sal%age %alue. <epreciation e/pense is recorded1 percent sal%age %alue. <epreciation e/pense is recorded as a direct reduction o" the
The repair department per"orms routine maintenance on all o" the
The repair department per"orms routine maintenance on all o" the production e,uipmenproduction e,uipment. =ccasionallyt. =ccasionally the repair department rebuilds a machine to e/tend its use"ul
the repair department rebuilds a machine to e/tend its use"ul li"e. All o" the costs associated with theli"e. All o" the costs associated with the repair department are charged to manu"acturing o%erhead. 3hen a machine becomes obsolete& repair department are charged to manu"acturing o%erhead. 3hen a machine becomes obsolete& production employ
production employees mo%e it to a corner o" the "actory "loees mo%e it to a corner o" the "actory "loor and break it down so thor and break it down so that parts can beat parts can be used in other machines. 6roduction employees routinely remo%e parts "or personal use. Some
used in other machines. 6roduction employees routinely remo%e parts "or personal use. Some smallersmaller machines ha%e disappeared completely "rom the
machines ha%e disappeared completely "rom the "actory "loor."actory "loor. The general ledger clerk takes a
The general ledger clerk takes a physical in%entory e%ery three years. Abouphysical in%entory e%ery three years. About -( percent o" t -( percent o" the "i/edthe "i/ed assets can be located and identi"ied. =ther assets ha%e serial
assets can be located and identi"ied. =ther assets ha%e serial numbers that are inaccessible& so the itemnumbers that are inaccessible& so the item cannot be matched to a
cannot be matched to a "i/ed asset record. Some "i/ed asset records cannot be "i/ed asset record. Some "i/ed asset records cannot be traced to an actual item.traced to an actual item. Se%eral machines that ha%e been scrapped and are
Se%eral machines that ha%e been scrapped and are being used "or spare parts were being used "or spare parts were matched to "i/edmatched to "i/ed asset records. At the last in%entory& the general ledger clerk
asset records. At the last in%entory& the general ledger clerk did not make did not make any ad7ustments to the "i/edany ad7ustments to the "i/ed asset records e/plaining that -( percent accuracy in the "i/ed asset
asset records e/plaining that -( percent accuracy in the "i/ed asset physical in%entory was e/cellent.physical in%entory was e/cellent. <escribe "i%e internal control weaknesses and e/plain how to correct them.
<escribe "i%e internal control weaknesses and e/plain how to correct them. ANS:
ANS:
3)AGN)SS:
3)AGN)SS: There is no written documentaThere is no written documentation o" the appro%al "or purchase.tion o" the appro%al "or purchase. !68=H)!)NT:
!68=H)!)NT: A "oA "ormal capital in%estment analysis should be per"ormed "or purchases o" "i/edrmal capital in%estment analysis should be per"ormed "or purchases o" "i/ed assetsE the analysis should e%aluate cost and bene"its o" the re,uest.
assetsE the analysis should e%aluate cost and bene"its o" the re,uest. 3)AGN)SS:
3)AGN)SS: There is no procesThere is no process "or obtaining comps "or obtaining competiti%e bids.etiti%e bids. !68=H)!)NT:
!68=H)!)NT: 6rice bids should be obtained "rom the three supplie6rice bids should be obtained "rom the three suppliers be"ore a purchase order isrs be"ore a purchase order is issued.
issued.
3)AGN)SS:
3)AGN)SS: Fi/ed assets are deli%eFi/ed assets are deli%ered directly to the "actory "red directly to the "actory "loor.loor. !68=H)!)NT:
!68=H)!)NT: All purchases should go through the recei%ing departmentE the e,uipment shouldAll purchases should go through the recei%ing departmentE the e,uipment should be inspected and a recei%in
be inspected and a recei%ing report should be pg report should be prepared.repared. 3)AGN)SS:
3)AGN)SS: The production supThe production super%isor noti"ies the general ledger clerk about the receiper%isor noti"ies the general ledger clerk about the receipt o" "i/edt o" "i/ed assets.
assets.
!68=H)!)NT:
!68=H)!)NT: The recei%ing department shThe recei%ing department should send a copy o" the recei%ing report to the "i/edould send a copy o" the recei%ing report to the "i/ed asset department so that "i/ed asset records can be
asset department so that "i/ed asset records can be updated and accountability "or the asset established.updated and accountability "or the asset established. 3)AGN)SS:
3)AGN)SS: The general ledgeThe general ledger clerk is maintaining "ir clerk is maintaining "i/ed asset records./ed asset records. !68=H)!)NT:
!68=H)!)NT: The "i/ed asset department shouThe "i/ed asset department should maintain "i/ed asset records.ld maintain "i/ed asset records. 3)AGN)SS:
3)AGN)SS: <epreciation is computed usin<epreciation is computed using a standard method& asset li"e& and sal%age %alue.g a standard method& asset li"e& and sal%age %alue. !68=H)!)NT:
!68=H)!)NT: !anagement should ensure that the depreciat!anagement should ensure that the depreciation method is appropriate. The assetion method is appropriate. The asset li"e and sal%age %alue
li"e and sal%age %alue should be determined indi%idually "or each should be determined indi%idually "or each "i/ed asset ac,uisition."i/ed asset ac,uisition. 3)AGN)SS:
3)AGN)SS: <epreciation is reco<epreciation is recorded as a direct reduction orded as a direct reduction o" the asset cost." the asset cost. !68=H)!)NT:
!68=H)!)NT: <epreciation should be recorded in an A<epreciation should be recorded in an Accumulated <epreciation accouccumulated <epreciation account "or eachnt "or each asset.
asset.
3)AGN)SS:
3)AGN)SS: ;osts to rebuild a m;osts to rebuild a machine is charged to machine is charged to manu"acturing o%erhead.anu"acturing o%erhead. !68=H)!)NT:
!68=H)!)NT: ;osts to rebuild machines should be record;osts to rebuild machines should be recorded as an increase to the cost o" theed as an increase to the cost o" the asset.
asset.
3)AGN)SS:
3)AGN)SS: There is no authThere is no authorization to scrap an oborization to scrap an obsolete machine.solete machine. !68=H)!)NT:
3)AGN)SS:
3)AGN)SS: )mployees remo%e e,uipment and e,uipm)mployees remo%e e,uipment and e,uipment parts "rom the premises withoutent parts "rom the premises without authorization.
authorization. !68=H)!)NT:
!68=H)!)NT: )mployees should recei%e writ)mployees should recei%e written authorization be"ore remo%ing parts orten authorization be"ore remo%ing parts or e,uipment "rom the "actory.
e,uipment "rom the "actory. 3)AGN)SS:
3)AGN)SS: The general ledger clerk is conductinThe general ledger clerk is conducting the physical in%entory and maintaing the physical in%entory and maintaining theing the record keeping.
record keeping. !68=H)!)NT:
!68=H)!)NT: The general ledger clerk should not be taking the physical in%entory count. Also&The general ledger clerk should not be taking the physical in%entory count. Also& the physical count should occur
the physical count should occur more "re,uently.more "re,uently. 3)AGN)SS:
3)AGN)SS: Fi/ed assets cannot be Fi/ed assets cannot be matched with records.matched with records. !68=H)!)NT:
!68=H)!)NT: Apply easily accessApply easily accessible labels to identi"y "i/ed assets.ible labels to identi"y "i/ed assets. 3)AGN)SS:
3)AGN)SS: Fi/ed assets cannot be Fi/ed assets cannot be located and are not remo%ed "located and are not remo%ed "rom the books.rom the books. !68=H)!)NT:
!68=H)!)NT: Fi/ed assets that cannot be located must be remo%ed "rom the "i/ed asset records.Fi/ed assets that cannot be located must be remo%ed "rom the "i/ed asset records. 3)AGN)SS:
3)AGN)SS: Fi/ed assets that are scrFi/ed assets that are scrapped remain on the booksapped remain on the books.. !68=H)!)NT:
!68=H)!)NT: Assets that are scrapped shoAssets that are scrapped should be remo%ed "rom the "i/ed asset records.uld be remo%ed "rom the "i/ed asset records. 3)AGN)SS:
3)AGN)SS: The clerk regards -(The clerk regards -(J accuracy as e/cellent.J accuracy as e/cellent. !68=H)!)NT:
!68=H)!)NT: Acceptance o" -(J accuracy is poor. AAcceptance o" -(J accuracy is poor. Any %ariation should be in%estigated andny %ariation should be in%estigated and records updated.
records updated. (.
(. 3hy do3hy does the pes the payrolayroll procel process lenss lend itsed itsel" to batl" to batch proch processicessing9ng9 ANS:
ANS:
6ayroll lends itsel" to batch computerization because it is processed at "i/ed time
6ayroll lends itsel" to batch computerization because it is processed at "i/ed time inter%als whichinter%als which permits some time lag. 6rocess
permits some time lag. 6rocessing the payroll "ile uing the payroll "ile usually in%ol%es msually in%ol%es most employees each time it isost employees each time it is processed& which is an e
processed& which is an e""icient use o" compu""icient use o" computer resources and can be accomter resources and can be accomplished with a singlplished with a single passe pass through the "ile.
through the "ile. *.
*. <iscuss th<iscuss the "undamental e "undamental risk and risk and control isscontrol issues associated ues associated with "i/ed with "i/ed assets that assets that are di""erent are di""erent "rom raw"rom raw materials and "inished goods.
materials and "inished goods. ANS:
ANS:
ADT=8KA
ADT=8KAT=N ;=T=N ;=NT8=CS. NT8=CS. +ecause "i/ed assets are re,uested and employ+ecause "i/ed assets are re,uested and employed by end#usersed by end#users asset ac,uisitions should be "ormal and
asset ac,uisitions should be "ormal and e/plicitly authorized. )ach material transaction should bee/plicitly authorized. )ach material transaction should be initiated by a written re,uest "rom the user
initiated by a written re,uest "rom the user or department. n the case o" or department. n the case o" high#%alue items& there shouldhigh#%alue items& there should be an independent app
be an independent appro%al process that e%alro%al process that e%aluates the merits o" the re,uates the merits o" the re,uest on a cost#bene"it basuest on a cost#bene"it basis.is. SD6)8H
SD6)8HS=N ;=NT8=CS. S=N ;=NT8=CS. +ecause capital assets are widely distrib+ecause capital assets are widely distributed around the organizatiouted around the organization&n& they are more susceptible to the"t and misappropriation than in%entories that are secured in a
they are more susceptible to the"t and misappropriation than in%entories that are secured in a
warehouse. There"ore& management super%ision is an important element in the physical security o" warehouse. There"ore& management super%ision is an important element in the physical security o" "i/ed assets. Super%isors must ensure that "i/ed assets are being used in
"i/ed assets. Super%isors must ensure that "i/ed assets are being used in accordance with theaccordance with the organization@s policies and business practices.
organization@s policies and business practices. N<)6)N<)NT H)8F;AT=N ;=NT8=CS. N<)6)N<)NT H)8F;AT=N ;=NT8=CS. 1.
1. 6eriodically6eriodically& the & the internal internal auditor shauditor should re%iould re%iew the ew the asset ac,uiasset ac,uisition ansition and appro%ad appro%al procedurel procedures tos to determine the reasonableness o" key "actors including: the use"ul li"e o" the asset&
determine the reasonableness o" key "actors including: the use"ul li"e o" the asset& the originalthe original "inancial cost& proposed cost sa%ings as a result o" ac,uiring the asset&
"inancial cost& proposed cost sa%ings as a result o" ac,uiring the asset& the discount rate used& andthe discount rate used& and the capital budgeting method used in 7usti"ying decisions to buy or dispose o" assets.
the capital budgeting method used in 7usti"ying decisions to buy or dispose o" assets. 2.
2. The internThe internal auditor al auditor should %erishould %eri"y the lo"y the location& condication& condition& and tion& and "air %alue "air %alue o" the oo" the organization@rganization@s "i/eds "i/ed assets against the "i/ed asset
.
. The autoThe automatimatic deprecic depreciation chation chargarges calcues calculated by the "ilated by the "i/ed asse/ed asset system shot system should be re%iuld be re%iewed andewed and %eri"ied "or accuracy and completeness. System errors that miscalculate depreciation can result in %eri"ied "or accuracy and completeness. System errors that miscalculate depreciation can result in the material misstatement o" operating e/penses&
