EA23013

SISTEM INFORMASI AKUNTANSI

Perkuliahan Ke – 20 & 21

The Expenditure Cycle Part II: Payroll

Processing and Fixed Asset Procedures

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 Learning Objectives
• Recognize the fundamental tasks that constitute the payroll and fixed asset processes.
• Be able to identify the functional departments involved in payroll and fixed asset activities,
and trace the flow of these transactions through the organization.
• Be able to specify the documents, journals, and accounts that provide audit trails, promote
the maintenance of historical records, and support internal decision making and financial
reporting.
• Understand the risks associated with payroll and fixed asset activities and recognize the
controls that reduce these risks.
• Be aware of the operational features and the control implications of technology used in
payroll and fixed asset systems.

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 The Conceptual Payroll System
• Payroll processing is actually a special-case purchases system in which the
organization purchases labor rather than raw materials or finished goods for
resale.
• The nature of payroll processing, however, creates the need for specialized
procedures for the following reasons:
• A firm can design general purchasing and disbursement procedures
that apply to all vendors and inventory items.
• General expenditure activities constitute a relatively steady stream
of purchasing and disbursing transactions.
• Writing checks to employees requires special controls.

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 PAYROLL SYSTEM GENERAL TASKS
• Personnel Department
• Personnel action forms is a document identifying employees
authorized to receive a paycheck; the form is used to reflect changes
in pay rates, payroll deductions, and job classification.
• Production Department
• Job tickets are mechanisms to capture the time that individual
workers spend on each production job.
• Time cards are a tool to capture the time the employee is at work.
• Update WIP Account
• A labor distribution summary is a summarization of labor costs in
work-in-process accounts.
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 Data Flow Diagram of Payroll Procedures

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 Personnel Action Form

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 Job Ticket

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 Time Card

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 PAYROLL SYSTEM GENERAL TASKS (continued)

• Prepare Payroll
• Employee payroll records is the system an employer uses to calculate, track, and report
employee pay.
• Paychecks are a bank check given as salary or wages.
• The payroll register is a document showing gross pay, deductions, overtime pay, and net pay.
• Distribute Paycheck
• Prepare Accounts Payable
• Prepare Cash Disbursement
• The payroll imprest account is an account into which a single check for the entire amount of the
payroll is deposited.

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 Payroll Register

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 Employee Payroll Record

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 Employee Paycheck

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 UPDATE GENERAL LEDGER
• The general ledger function receives the labor distribution summary from cost
accounting, the disbursement voucher from accounts payable, and the journal
voucher from cash disbursements.
• The debits and credits from these entries must be equal.
• When the equality has been verified, the clerk files the voucher and labor
distribution summary.

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 The Physical Payroll System
• Review of the operational features and control issues pertinent to a basic
technology system.
• Features and controls of an integrated system that uses advanced technologies.

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 BASIC TECHNOLOGY PAYROLL SYSTEM
• Key tasks of a basic technology system:
• Personnel action and time and attendance information from the personnel and production
departments, respectively, initiate the payroll process.
• The payroll department reconciles this information, calculates the payroll, and sends the
paychecks to the paymaster for distribution to employees.
• Cost accounting receives information regarding the time spent on each job from production
• Accounts payable receives payroll summary information (payroll register) from the payroll
department and authorizes the cash disbursements department to deposit a single check, in the
amount of the total payroll, in a bank imprest account on which the payroll is drawn.
• The general ledger department reconciles summary information from cost accounting and
accounts payable.

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 ADVANCED TECHNOLOGY PAYROLL SYSTEM
• The human resource management (HRM) system captures and processes a wide
range of personnel related data, including employee benefits, labor resource
planning, employee relations, employee skills, and personnel actions (pay rates,
deductions, and so on), as well as payroll. HRM systems need to provide real-time
access to personnel files for purposes of direct inquiries and recording changes in
employee status as they occur.
• Human Resources
• Cost Accounting
• The labor usage file is a file in which the cost accounting department
enters job cost data (real time or daily).

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 ADVANCED TECHNOLOGY PAYROLL SYSTEM (continued)

• Employee Timekeeping
• The time and attendance file is generated by employees directly
entering timekeeping data in real time.
• Biometric time clocks verify employees’ identities by using
fingerprint or hand-vein scan technology.
• Magnetic swipe ID cards work like a credit card. Each employee is
issued an ID card that has a magnetic strip containing employee
information. The employee swipes the card through the time clock
to record start and end time on the job.
• Proximity cards are similar to swipe cards but don’t require the user
to slide the card through a reader.

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 ADVANCED TECHNOLOGY PAYROLL SYSTEM (continued)

• Employee Timekeeping (continued)

• Mobile remote devices allow employees to clock in using handheld
devices (PDA or cell phone) or web browsers from laptop computers.
This option is popular among businesses with employees in the field
who travel between clients and with companies engaged in global
business with foreign-based employees.
• Data Processing
• The employee records file comprises the additions of new
employees, deletions of terminated employees, changes in work
dependents, changes in withholdings, and changes in job status such
as job title and pay rate. Human resources clerks enter data into the
employee records file in real time from terminals.
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 Basic Technology Payroll System

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 Basic Technology Payroll System
(continued)

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 Integrated Payroll and HRM System

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 PAYROLL SYSTEM RISKS AND INTERNAL CONTROLS
• Risk of Inaccurately Recording Transactions
• Physical Controls
• ACCOUNTING RECORDS
• INDEPENDENT VERIFICATION
• IT Controls
• DATA INPUT EDITS
• ERROR MESSAGES
• FILE BACKUP
• AUTOMATED POSTING TO ACCOUNTS

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 PAYROLL SYSTEM RISKS AND INTERNAL CONTROLS (continued)

• Risk of Misappropriation of Cash through Payroll Fraud

• Physical Controls
• TRANSACTION AUTHORIZATION
• SEGREGATION OF DUTIES
• SUPERVISION
• ACCESS CONTROL
• IT Controls
• Limit tests to detect excessive hours reported per period.
• Biometric scanners, swipe cards, and PINs reduce the risk of payroll fraud by ensuring that
individuals clocking into the system are valid employees.
• Automated tests to validate employee time cards against a valid and up-to-date employee file.
• Paycheck direct deposit options for employees.

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 PAYROLL SYSTEM RISKS AND INTERNAL CONTROLS (continued)

• Risk of Unauthorized Access to Payroll Records and Confidential Employee Data

• Payroll information is at risk to unauthorized access from outsiders as well as
employees of the organization.
• IT Controls
• PASSWORDS
• MULTILEVEL SECURITY
• Outsourcing the Payroll Function
• Advantages and Risks Associated with Payroll Outsourcing

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 Summary of Payroll System Risks and Controls

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 The Conceptual Fixed Asset System
• Fixed assets are the property, plant, and equipment used in the operation of a
business.
• The specific objectives of the fixed asset system are to:
• Process the acquisition of fixed assets as needed and in accordance
with formal management approval and procedures.
• Maintain adequate accounting records of asset acquisition, cost,
description, and physical location in the organization.
• Maintain accurate depreciation records for depreciable assets in
accordance with acceptable methods.
• Provide management with information to help plan for future fixed
asset investments.
• Properly record the retirement and disposal of fixed assets.
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 THE LOGIC OF A FIXED ASSET SYSTEM
• Asset Acquisition
• Asset acquisition is obtaining a new asset or replacing an existing
one.
• Asset Maintenance
• A depreciation schedule is a record used to initiate depreciation
calculations.
• Asset Disposal
• Asset disposal is when an asset has reached the end of its useful life
or when management decides to dispose of it, the asset must be
removed from the fixed asset subsidiary ledger.

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 Data Flow Diagram for Fixed Asset System

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 Depreciation Schedule

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 THE PHYSICAL FIXED ASSET SYSTEM
• Acquisition Procedures
• When the fixed asset accounting clerk receives a receiving report
and a cash disbursement voucher. These documents provide
evidence that the firm has physically received the asset and show its
cost.
• Asset Maintenance
• The fixed asset system uses the depreciation schedules to record
end-of-period depreciation transactions automatically.
• Disposal Procedures
• The disposal report formally authorizes the fixed asset department
to remove from the ledger an asset disposed of by the user
department.
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 Computer-Based Fixed Asset System

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 Fixed Assed Record Structure

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 Asset Status Report

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 Fixed Asset Depreciation Report

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 FIXED ASSET SYSTEM RISKS AND CONTROLS
• Authorization Controls
• Fixed asset acquisitions should be formal and explicitly authorized.
• Supervision Controls
• Management supervision is an important element in the physical
security of fixed assets.
• Independent Verification Controls
• Periodically, the internal auditor should review the asset acquisition
and approval procedures to determine the reasonableness of factors
used in such decisions.

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 References
 Hall, J.A. (2019). Accounting information system. 10th
edition. Cengage. (Ch. 6)

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