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Chapter 10 AIS

The document discusses payroll and fixed asset processes including acquiring and maintaining employee and asset data, paying employees and recording expenses. It describes risks like invalid or inaccurate transactions and controls like authorization, segregation of duties and reconciliation.

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THOTslayer 420
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45 views

Chapter 10 AIS

The document discusses payroll and fixed asset processes including acquiring and maintaining employee and asset data, paying employees and recording expenses. It describes risks like invalid or inaccurate transactions and controls like authorization, segregation of duties and reconciliation.

Uploaded by

THOTslayer 420
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Expenditures Processes and Controls-Payroll and Fixed Assets

Introduction to Payroll and Fixed Asset Processes


Disctinction between  Human resources and Payroll (Having these as separate functions is a sign
of strength)

Payroll : process the pay based on updated information from (1) personnel files (maintained by
human resources) and (2) updated and approved time and attendance data.

HR : Support management in hiring, development of compentences/ Maintain and update personnel.

Payroll processes

 Acquiring and maintaining human resources.


 Capturing and maintaining employee data.
 Paying employees.
 Recording cash and payroll liabilities and expenses.

Fixed asset processes

 Purchasing property.
 Capturing and maintaining relevant data about assets.
 Paying for and recording the related assets.
 Recording depreciation and other expenses.
 Accounting for gains or losses.

Various risks

 Recorded expenditures may not be valid.


 Transactions may be recorded in the wrong amount.
 Valid expenditure transactions may have been omitted.
 Transactions may have been recorded in the wrong employee or vendor account.
 Transactions may not have been recorded in a timely manner.
 Transactions may not have been accumulated or transferred to the accounting
records correctly.

Payroll Processes
Terminology:

 Human resources department: The department of an organization that deals with employee
recruitment, training, compensation, and labor relations.
 Organization chart: A visual representation of an organization's structure, showing the
relationships and reporting lines between employees.
 Time sheet: A document used to record the hours an employee has worked during a
particular period.
 Payroll register: A list of employees showing their gross wages, deductions, and net pay for a
particular period.
 Payroll disbursements journal: A record of the payments made to employees for their
salaries and wages.
Payroll Processes Map

 The main document that is prepared by payroll is the Payroll Register

Risks and Controls in Payroll Processes


Common procedures associated with the payroll process:

o Authorization of transactions
o Segregation of duties
o Adequate records and documents
o Security of assets and documents
o Independent checks and reconciliation
o Cost-benefit considerations

IT Systems of Payroll Processes


Payroll requires routine mathematical calculations and storing of a large volume of data regarding

 employees, deductions,
 vacation days,
 sick days, and
 other data.

IT systems can include

 payroll and human resources software,


 automated timekeeping,
 Internet-based timekeeping, and
 electronic transfer of funds.
Fixed Assets Processes
Fixed asset life phases : (1) Acuiqistion  (2) Continuance  (3)Disposal

Fixed assets may include the following:

 vehicles,
 office equipment and computers,
 machinery and production equipment,
 furniture, and
 real estate (such as land and buildings).

Fixed Asset Acquisitions

 Initiated by user department.


 Large cash outlays sometimes required.
 Non-routine transactions that require specific authorization.
 Capital budget.
 Fixed asset subsidiary ledger.

Fixed Asset Continuance involves:

o Updating cost data for improvements


o Updating estimated figures as needed
o Adjusting for periodic depreciation
o Keeping track of physical location of assets
o Depreciation schedule

Fixed Asset Disposals (4 Basic steps):

1. Date of disposal is noted, and depreciation computations updated through this date.
2. Disposed assets are removed from fixed asset subsidiary ledger.
3. Related depreciation accounts are removed.
4. Gains or losses are computed.

Fixed Asset Disposal Process Map


Risks and Controls in Fixed Assets Processes
Common procedures associated with the fixed asset process:

 Authorization of transactions
 Segregation of duties
 Adequate records and documents
 Security of assets and documents
 Independent checks and reconciliation

Authorization of Transactions (Three Formal Steps):

1. Investment analysis
2. Comparison with the capital budget
3. Review of the proposal and specific approval

Fixed Asset Approval Levels

IT Systems of Fixed Assets Processes


The efficiency and effectiveness of accounting for fixed assets can be greatly improved through the
use of specialized asset management software. Such software simplifies the

 record keeping regarding location and description of fixed assets,


 depreciation and maintenance records,
 audit trail, and
 linkages to the general ledger.

Ethical Issues Related to Payroll and Fixed Assets Processes


Typical sources of time sheet falsifications:

 Exaggeration of hours worked


 Falsification of overtime or holiday time worked
 Falsification of sales in order to increase commission payouts
 Overstatement of job-related expenses

Ghost Employee

Clues that a ghost employee may exist:

o Payroll register identifies paychecks without adequate tax withholdings.


o Personnel files contain duplicate addresses, Social Security numbers, or bank account
numbers.
o Payroll expenses are over budget.
o Paychecks not claimed when paymaster distributes them.
o Paychecks contain dual endorsements.
 Fixed asset information is more likely to be manipulated by management to unethically
enhance the financial statements.

 Often, this occurs when management misclassifies expenses as fixed asset purchases.

Corporate Governance in Payroll and Fixed Assets Processes


In addition to the need for

 strong management oversight,


 internal controls, and
 ethical practices,
 corporate managers must recognize their responsibility to be good stewards of the assets
underlying the payroll and fixed assets processes.

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