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Chapter 9

Chapter 9 discusses the key risks, control objectives, and activities related to employee costs, specifically in calculating, recording, and paying wages and salaries. It highlights the importance of internal controls to prevent issues such as fictitious payroll transactions and emphasizes the need for proper approval and reconciliation processes. The chapter also identifies deficiencies in a company's payroll system and suggests improvements for better internal controls.

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18 views2 pages

Chapter 9

Chapter 9 discusses the key risks, control objectives, and activities related to employee costs, specifically in calculating, recording, and paying wages and salaries. It highlights the importance of internal controls to prevent issues such as fictitious payroll transactions and emphasizes the need for proper approval and reconciliation processes. The chapter also identifies deficiencies in a company's payroll system and suggests improvements for better internal controls.

Uploaded by

rosiebui030499
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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:CHAPTER 9: EMPLOYEE COSTS

Question 9.1: Briefly describe the key risks, control objectives and control activities when
calculating wages and salaries?
Question 9.2: Briefly describe the control activities when calculating wages and salaries and
the related tests of control that the assurance providers carry out?
Question 9.3: Briefly describe the key risks, control objectives and control activities when
recording of wages and salaries and deductions?
Question 9.4: Briefly describe the control activities when recording of wages and salaries,
deductions and the related tests of control that the assurance providers carry out?
Question 9.5: Briefly describe the key risks, control objectives and control activities when
doing the payment of wages and salaries and deductions?
Question 9.6: Briefly describe the control activities when doing the payment and the related
tests of control that the assurance providers carry out?

Question 9.7: The best control to prevent or detect fictitious payroll transactions is:
A. Use and account for prenumbered payroll checks.
B. Obtain uthorization from human resources for hiring, pay rate, job status and termination.
C. Verify internally authorized pay rates, computations, and agreement with the payroll
register.
D. Conduct periodic independent bank reconciliations of the payroll bank account.
Question 9.8: Which of the following procedures would most likely be considered a weakness
in an entity’s internal controls over payroll?
A. A voucher for the amount of the payroll is prepared in the general accounting department
based on the payroll department’s payroll summary.
B. Payroll checks are prepared by the payroll department and signed by the treasurer.
C. The employee who distributes payroll checks returns unclaimed payroll checks to the
payroll department.
D. The personnel department sends employees’ termination notices to the payroll department.
Question 9.9: An auditor found that employee time records in one department are not properly
approved by the supervisor. Which of the following could result?
A. Duplicate paychecks might be issued
B. The wrong hourly rate could be used to calculate gross pay
C. Employees might be paid for hours they did not work
D. Payroll checks might not be distributed to the appropriate employees
Question 9.9: The following are partial descriptions of internal controls for a company
engaged in manufacturing:
The payroll department is responsible for processing employee wages. Employees record their
work hours manually on paper timecards, which are submitted weekly to their supervisors for
approval. Once approved, the timecards are sent to the payroll clerk, who manually calculates wages
and prepares the payroll for processing. The payroll clerk also enters the employees’ bank account
details into the payroll system and initiates direct deposit payments. There is no independent review
of payroll changes, and payroll registers are not reconciled with employee records before payment is
processed.
Required:
a. List the deficiencies in internal control for this situation.
b. For each deficiency, state the potential misstatement(s) that is (are) likely to result.
c. How would you improve internal controls this company?

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