CHAPTER 6 companies engaged in global business

Human Resource Management System with foreign- based employees.

KEY TERMS Captures and processes a wide range of
personnel-related data, including employee Paychecks a bank check given as salaries
Asset Acquisition Obtaining a new asset benefits, labor resource planning, or wages.
or replacing an existing one. employee relations, employee skills, and
personnel actions (pay rates, deductions, Payroll Imprest Account Account into
Asset Disposal Report describing the final and so on), as well as payroll. HRM which a single check for the entire amount
disposition of the asset. systems need to provide real-time access of the payroll is deposited.
to personnel files for purposes of direct
Asset Maintenance Adjusting the fixed inquiries and recording changes in Payroll Register Document showing gross
asset subsidiary account balances as the employee status as they occur. pay, deductions,overtime pay, and net pay.
assets (excluding land) depreciate over
time or with usage. Job Tickets Mechanisms to capture the Personnel Action Forms Document
time that individual workers spend on each identifying employees authorized to receive
Biometric Time Clocks Verify the production job. a paycheck; the form is used to reflect
employees’ identities by taking fingerprint changes in pay rates, payroll deductions,
or hand-vein scan technology Labor Distribution Summary and job classification.
Summarization of labor costs in work-in-
Depreciation Schedule Record used to process accounts. Proximity Cards or prox card is a
initiate depreciation calculations. "contactless" smart card which can be read
Labor Usage File File in which the cost without inserting it into a reader device, as
Employee Payroll Records System an accounting department enters job cost data required by earlier magnetic stripe cards
employer uses to calculate, track, and (real time or daily). such as credit cards and "contact" type
report employee pay. smart cards.
Magnetic Swipe ID Cards works like a
Employee Records File Comprises the credit card. Each employee is issued an ID Time and Attendance File is the process
additions of new employees, deletions of card that has a magnetic strip containing of tracking work hours. In the past this was
terminated employees, changes in work employee information. The employee always a manual system. Employees may
dependents, changes in withholdings, and swipes the card through the time clock to have manually completed a time card and
changes in job status such as job title and record start and end time on the job. that information was used for payroll and
pay rate. Human resources clerks enter benefits. Another option for tracking time
data into the employee records file in real Mobile Remote Devices allows was a punch clock now businesses have
time from terminals. employees to clock in using the handheld the option of attendance software.
(PDA or cell phone) or web browsers from
Fixed Assets Property, plant, and laptop computers. This option is popular Time Cards is a tool to capture the time
equipment used in the operation of a among businesses with employees in the the employee is at work.
business. field who travel between clients and with
 A separate imprest account is calculates the payroll, and
Review Questions established for the exact amount of distribute the paychecks. Further,
the payroll based on the payroll the payroll clerk sends summary
1. Which document is used by the summary. When the paychecks are information to the accounts payable
cost accounting department to cashed, this account should clear clerk.
allocate direct labor charges to leaving a zero balance. Any errors
work in process? in checks (additional checks or 8. What documents are included in
Job tickets capture the time spent abnormal amounts) would result in the audit trail for payroll?
on each job during the day and are a non-zero balance in the imprest The audit trail for payroll includes
used to allocate the labor charges account and/or some paychecks the following documents:
to the WIP account. would not clear. This will alert 1. Time cards, job tickets, and
management to the problem so disbursement vouchers.
2. Which department authorizes corrective action can be taken. 2. Journal information, which
charges in employee pay rates? comes from the labor distribution
The personnel department, through 5. Why should employees clocking summary and the payroll register.
the personnel action form on and off the job be 3. Subsidiary ledger accounts,
authorizes charges to employee supervised? which contain the employee
pay rates. A form of payroll fraud involves records and various expense
employees clocking the time cards accounts.
3. Why should the employee’s of absent employees. By 4. The general ledger accounts:
supervisor not distribute supervising the clocking in and out payroll control, cash, and the
paychecks? process, this fraud can be reduced payroll clearing (imprest) account.
A form of payroll fraud involves a or eliminated.
supervisor submitting fraudulent 9. What is a biometric time clock?
time cards for nonexistent 6. What is a personnel action form? Are one such invention that that are
employees. The resulting It is a document identifying used for validating and verifying the
paychecks, when given to the employees authorized to receive a individuals identity and tracking the
supervisor are then cashed by the paycheck; the form is used to on and off schedule.
supervisor. This type of fraud can reflect changes in pay rates,payroll
be reduced or eliminated by using deductions, and job classification. 10. What is a proximity card?
a paymaster to distribute They are similar to swipe cards but
paychecks to employees in person. 7. What task does a payroll clerk don’t require the user to slide the
Any uncollected paychecks are perform upon receipt of hours- card through a reader.
then returned to payroll. worked data from the production
department? 11. What are the objectives of a
4. Why should employee The payroll clerk reconciles the fixed asset system?
paychecks be drawn against a information received from The specific objectives of the fixed
special checking account? personnel and production, asset system are to :
 - process the acquisition of fixed while fixed assets are capitalized of asset, description, month,
assets as needed and in because they yield benefits for current depreciation amount,
accordance with formal multiple periods. Because accumulated depreciation
management approval and productive life of fixed assets amount, book value, and asset
procedures. extend beyond one year, its location. Also, a group code
- maintain adequate accounting acquisition cost is apportioned over may be assigned. The physical
records of asset acquisition, cost, its lifetime and depreciated in location of the asset is recorded,
description and physical location in accordance with accounting and the verification that this
the organization. conventions and statutory asset exists should be performed
- maintain accurate depreciation requirements. Therefore, fixed by physically observing the
records for the depreciable assets asset accounting systems include asset. The date and amount of
in accordance with acceptable cost allocation and matching the purchase of the asset can
methods. procedures that are not part of be verified by locating the
- provide management with routine expenditure systems. original purchase order and
information to help plan for future invoice amount for the asset.
fixed asset investments. 13. What are the three tasks of the
- properly record the retirement and fixed asset system? 15. Why is it crucial to the integrity
disposal of fixed assets. Asset acquisition, which usually of the financial statements that
begins with the user recognizing the fixed asset department be
12. How do fixed asset systems the need to obtain a new asset or informed of asset improvements
differ from purchases system? replace an existing one. and disposals?
First, the expenditure cycle Asset maintenance, which involves Because the fixed asset
processes routine acquisition of adjusting the fixed asset subsidiary department authorizes the
raw materials and finished goods account balances as the assets removal of the asset from the
inventory, while the fixed asset (excluding land) depreciate over general ledger, they must know
system processes nonroutine time or usage. when to record the authorization.
transactions for a wider group of Asset disposal, when an asset has Further, if improvements or asset
users in the organization. Because reached the end of its useful life or disposals are made and the
fixed assets are unique, they when management has decided to fixed asset department is
require specific management dispose of it, the asset must be unaware, then the depreciation
approval and explicit authorization removed from the fixed asset amounts calculated and reported
procedures. In contrast, subsidiary ledger. in the financial statements will be
organizations often automate the incorrect.
authorization procedures for 14. What information is found on the
routine acquisitions of inventories. depreciation schedule? How can 16. What is the auditor’s role with
Second, organizations usually treat this information be verified? respect to the fixed asset
inventory acquisitions as an The typical information found on system?
expense of the current period, a depreciation schedule is: type
 The auditor should review the stop record depreciation value of to specific WIP accounts. These
authorization control procedures specific fixed asset. job tickets are completed by
to determine the reasonableness production workers as they capture
of authorizations used for the total amount of time that they
acquisition of fixed assets. The 19. Who should authorize disposal spend on each production job.
auditors should also examine the of fixed assets? Upon completion, they route these
supervision controls over the The acquisition usually begins with to the cost accountants who use
physical guarding of the assets. the department manager them to post labor costs to specific
Lastly, the auditors should recognizing a need to obtain a new WIP accounts such as direct labor,
periodically verify the location, asset or replace an existing asset. indirect labor and overhead. The
condition, and fair value of the cost accountant prepares a labor
organization’s fixed assets 20. Assets used for production are distribution summary which
against the fixed asset records secured in a warehouse. Who contains information for the general
in the subsidiary ledgers. Also, has custody of the fixed assets? ledger clerk to make the necessary
the depreciation schedules Fixed asset is an objective which is entries to the general ledger
should periodically be analyzed used for operations in organization accounts.
to determine the accuracy and for many years depending on the 2. Are any time lags in recording
completeness. life of that objective. These assets economic events typically
are collectively used for denoting experienced in payroll systems?
17. Which department performed the the financial investment by the If so, what are they? Discuss the
formal record-keeping function organization which is the largest. accounting profession’s view on
for the fixed assets? Fixed asset management provides the matter as it pertains to
The fixed asset department control to the auditor instead of financial reporting.
provides record keeping for fixed supervisor to prevent or reduce the
asset inventory. frauds. Payroll costs such as wages to
workers accrue each minute, hour
18. What document shows when Discussion Questions or day that they work. However,
fixed assets are fully these costs are not recorded as a
depreciated? Depreciation 1. What is the importance of the job liability during the time between
schedule have information ticket? Illustrate the flow of this when the workers earn their wages
regarding when and how much document and its information and when they are paid. These
depreciation is needed to record. from inception to impact on the time lags typically average from
Depreciation schedule also shows financial statements. half a week to a week. This time
when to stop calculating lag is of no concern until the firm is
depreciation values on fully Job tickets capture the time that closing its books or preparing
depreciated or life ended assets. individual workers spend on each interim financial statements. At
Depreciation schedule shows production job. The job ticket is these points, however, estimates or
salvation state of a fixed asset and used to allocate each labor of work accruals of the amounts owed
 should be made and the books house payroll department needs to 7. What are the risks associated
should be adjusted. be up to date on an ever-changing with payroll outsourcing?
array of legal and technical 1. Loss of control
3. The management of an matters. Such training is disruptive, One of the major concerns of
organization with a remote costly, and can be avoided by companies who move from internal
workforce is concerned that outsourcing the payroll function. to outsourced payroll is the loss of
employees are clocking on for control. It is no longer possible to
others who are not actually at 5. Discuss some specific examples run downstairs and catch a payroll
work. What controls would in which information systems employee just after 5 o’clock and to
reduce this risk? can reduce time lags and how convince them to immediately input
In a mobile and/or distributed the firm is positively affected by an employee and to delay payroll
workforce environment in which such time lags. processing for 10 minutes.
employees directly enter time and One example is the reduction in Outsourced providers work toward
attendance data into the system, time it takes to record the receipt of your SLAs (service level
the organization is at risk from data inventory in the inventory records. agreements) but they depend on
entry errors and payroll fraud. Input Furthermore, the automated you to uphold your side of the
controls reduce these risks. For system will be less likely to pay an bargain in relation to timing and
example, limit tests are used to invoice early, while at the same deadlines.
detect transcription errors in time not missing the discount 2. Security and data privacy
employee identification numbers. period. Thus cash management is breaches
Finally, the use of biometric improved. Every company’s nightmare when it
scanners, swipe cards, and PINs comes to outsourcing payroll is a
reduce the risk of payroll fraud by 6. Discuss some service industries data breach and identity theft.
ensuring that the individuals that may require their workers to When you’re sending all of your
clocking into the system are valid use job tickets. sensitive employee data off-site it
employees. Law firms require their employees can cause concerns as you’re
to log the amount of time spent on depending on a third party to
4. Discuss the main advantages of each client for billing purposes. protect your data. Potentially you’re
payroll outsourcing. Accounting firms also require their putting your employees’ personal
The primary advantage of payroll employees to keep job tickets for data at risk as hackers know that
outsourcing is cost savings. By the time they spend on each client. payroll outsourcers are a rich
transferring this function to a third Car repair shops are another source of interesting data so they
party, the client organization avoids example. The mechanic must keep are often targeted. Many
the salaries and benefit costs of track of how much time they have companies choose to keep payroll
running an in-house payroll put on working on each in house as they are assured that
department. Also, the cost of automobile. they can implement stringent
continuing education for payroll protection methods.
staff is a financial burden. An in-
8. If an asset that is not fully 11. Describe an internal control that organization which can impact the
depreciated is sold or disposed, would prevent the payment of organization adversely. Auditors
but the fixed asset records are insurance premiums on an should check whether the
not adjusted, what effect will this automobile the company no departments are using all the fixed
have in the financial statements? longer owns. assets or not.
If depreciation is miscalculated, Perform an annual physical
it can result in a material inventory of fixed assets and 14. What negative consequences
misstatement of operating adjust the records to reflect results when fixed assets
expenses, reported earnings assets no longer on hand. records include assets that the
Prepare reports about the firm no longer owns?
and asset values.
disposal of assets. Fixed Asset Systems processes
non-routine for a wider group of
9. Discuss the fundamental risks
12. Describe an internal control that users in the organizations.
and control issues associated
would prevent the charging of Fixed asset is an objective which is
with fixed assets that are
depreciation expense to the used for operations in organization
different from raw materials and
maintenance department for a for many years depending on life of
finished goods.
sweeper that is now located in that objective. These assets are
Because they are widely distributed
and used by the engineering collectively used for denoting the
throughout the organization, fixed
department. financial investment by the
assets are more susceptible to theft
Internal control preventing the organization which is largest.
and misappropriation than
charging of depreciation expense These are also known as
inventories (raw and finished
Internal control basically involves permanent items which basically
goods) stored in a warehouse.
two types of controls as physical denote building, trees, properties,
Management supervision is an
and IT controls. Auditor in internal equipment in productive
important element in physical
control maintains records regarding department, organization furniture
security of fixed assets to ensure
the asset value, operating and machinery used for various
that they are being used in
expenses, current earnings, purposes in production department,
accordance with organization’s
depreciation and salvation values. land, organization and vehicles for
policies and business practices.
transport and operations for
13. Describe an internal control that business.
10. Describe an internal control that
would prevent the acquisition of
would prevent an employee from
an office equipment that the firm MCQ
removing a computer and then
does not need.
reporting it as scrapped.
Internal control involves the norms 1. Which one of the following
The responsible supervisors must
and rules which is followed by a functions is responsible for
authorize the disposal of the
company to protect the company submitting employee pay rate
computer.
from fraud it is done to keep a changes?
check on the internal activities of Answer: D. Personnel
Justification: the department responsible and laso provides a check for 7. All of the following controls are
for rate change is the personnel fictitious labors frauds. likely to apply to a fixed asset
department that looks into system except:
administration of the manpower 4. Who below is most likely to Answer: C. Development of an economic
distribute paychecks? order quantity model.
2. Which of the following is not a Answer: A. Paymaster Justification: Fixed Asset Controls:
payroll system internal control? Justification: Paymaster is the individual Economic order quantity model is
key who is independent in the applicable for regular purchases
Answer: B. The accounts payable payroll department that distributes such as raw material and not
department verifies the accuracy of the check; hence the possibility of applicable for fixed assets which
the payroll register before fraud can be avoided due to are not regularly purchased.
transferring payroll funds to the segregation of responsibilities.
general checking account 8. All of the following data items
Justification: Verification of the accuracy 5. Which one of the following are likely to be included in a
is done of the payroll register by documents captures the total fixed asset record except:
the accounts payable department amount of time that individual Answer: D. All are included
before payroll funds are workers spend on each Justification: Depreciation records include
transferred to the accounts and production job? the cost of asset location and the
not before transferring to general Answer: D. Non of the above depreciation method used as they
checking account. Justification: the total amount of time an are important for the purpose.
individual worker devotes on each Economic benefit of purchasing is
3. An independent verification production job is recorded by a the asset that is not recorded in the
control in the payroll system is document which is called a job depreciation records.
when ticket.
Answer: B. The general ledger department 9. The following are all
compares the labor distribution 6. Which of the following are not transactions processed in the
summary from cost accounting to fixed asset system tasks? fixed asset system except:
the disbursement voucher from Answer: D. all of the above are tasks. Answer: A. Purchase of Raw Materials
accounts payable. Justification: Fixed Asset System: Fair Justification: Purchase of raw materials is
Justification: The most significant market value is irrelevant as the the transactions relating operations
reconciliation in the payroll system depreciation is calculated on the in company and it is acquired for
is specified when department of historical cost of the fixed assets resale or for the purpose of
general ledger reconciles to the and such details change on daily manufacture of final product. Since
labor circulation summary with basis which cannot be tracked. the transactions do not relate to
disbursement of payroll voucher. It fixed assets, they are not recorded
verifies the accuracy of the costs in fixed asset system.
recorded with the actual payments
 10. Which one of the following
documents capture the total
amount of time that individual
workers spend at the work
location?
Answer: B. Job Ticket
Justification: The total amount of
time an individual worker devotes
on each production job is recorder
by a document which is called a job
ticket.