ACCT 444 Week 4 Homework
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12-26 (Objective 12-4) Following are 10 key internal controls in the payroll cycle for Gilman Stores, Inc.<br />
Key Controls<br />
1. To input hours worked, payroll accounting personnel input the employee’s Social Security number. The<br />
system does not allow input of hours worked for invalid employee numbers.<br />
2. The payroll application is programmed so that only human resource personnel are able to add employee<br />
names to the employee master files.<br />
3. Input menus distinguish executive payroll, administrative payroll, and factory payroll.<br />
4. The system automatically computes pay at time and a half once hours worked exceed 80 in a 2-week<br />
pay period.<br />
5. The system accumulates totals each pay period of employee checks processed and debits the payroll<br />
expense general ledger account for the total amount.<br />
6. Each pay period, payroll accounting clerks count the number of time cards submitted by department<br />
heads for processing and compare that total with the number of checks printed by the system to ensure that each<br />
time card has a check.<br />
7. For factory personnel, the payroll system matches employee ID numbers with ID numbers listed on job<br />
costing tickets as direct labor per the cost accounting system. The purpose of the reconciliation is to verify that<br />
the amount paid to each employee matches the amount charged to production during the time period.<br />
8. The system generates a listing by employee name of checks processed. Department heads review these<br />
listings to ensure that each employee actually worked during the pay period.<br />
9. On a test basis, payroll accounting personnel obtain a listing of pay rates and withholding information<br />
for a sample of employees from human resources to recalculate gross and net pay.<br />
10. The system automatically rejects processing an employee’s pay if inputted hours exceed 160 hours for a<br />
2-week pay period.<br />
Required<br />
For each control:<br />
1. Identify whether the control is an automated application control (AC) or a manual control done<br />
by Gilman employees (MC).<br />
2. Identify the transaction-related audit objective that is affected by the control.<br />
3. Identify which controls, if tested within the last two prior year audits, would not have to be<br />
retested in the current year, assuming there are effective IT general controls and no changes to the noted<br />
control have been made since auditor testing was completed.