CHAPTER 15
THE HUMAN RESOURCES MANAGEMENT/PAYROLL CYCLE
SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
15.1 Should CPA firms continue to use time sheets for their employees? Why or why
not?
This should prompt discussion about how to account for employees’ efforts. CPAs are
considered knowledge workers. A large part of the value they provide comes from
creative solutions to problems. Customers pay for the solutions, not for how much time it
took to create the solutions.
Indeed, the more expertise someone has, the less time it may take them solve a problem.
The result may be that if firms used time sheets to determine billable time (which can be
charged to clients) the most experienced CPAs would have less billable time than an
inexperienced CPA. If raises and promotions are based on billable time, this can create
undesirable morale problems.
Some experts also note that it takes time to complete time sheets and that this increases
dramatically as the units of time shrink (i.e., it takes more time and effort to track your
time in 6 minute intervals than in 1 hour intervals). Is that time and effort wasted?
15.2 Some accountants have advocated that a company’s human assets be measured and
included directly in the financial statements. For example, the costs of hiring and
training an employee would be recorded as an asset that is amortized over the
employee’s expected term of service. Do you agree or disagree? Why?
This question should generate some debate. The issue is the trade-off between
“subjectivity” in measuring the value of a company’s investment in the knowledge and
skills of its employees versus the usefulness of at least attempting to explicitly measure
those assets.
In the “information era” the value of a company’s employee knowledge base is
increasingly important. Attempting to measure it should facilitate more effective
management of this resource by focusing more attention on it.
Some companies, such as Dow Chemical and Skandia, have attempted to formally
provide stockholders with information about the company’s intellectual capital, but such
efforts have not become mainstream because of the inherent subjectivity.
Page 1 of 33
,Ch. 15: The Human Resources Management/Payroll Cycle
15.3 You are responsible for implementing a new employee performance measurement
system that will provide factory supervisors with detailed information about each of
their employees on a weekly basis. In conversation with some of these supervisors,
you are surprised to learn they do not believe these reports will be useful. They
explain that they can already obtain all the information they need to manage their
employees simply by observing the shop floor. Comment on that opinion.
Formal reports on employee performance are not intended to replace direct observation,
but to supplement it. Direct observation is important, but a manager cannot observe all
employees all the time. It is also difficult to accurately summarize detailed observations
across time.
How could formal reports supplement and enhance what the supervisors learn by
direct observation?
Well-designed reports provide quantitative summary measures of aspects of employee
performance that are believed to be important to the achievement of the organization’s
goals. Quantitative measures facilitate tracking performance trends over time. These
benefits, however, will be difficult for many managers to understand until they have had
experience in using such reports.
There are also legal issues at stake. If an employee or former employee brings suit against
the employer, supporting documentation may justify the employer’s position.
15.4 One of the threats associated with having employees telecommute is that they may
use company-provided resources (e.g., laptop, printer, etc.) for a side business. What
are some other threats?
Other threats are:
1. Not working or working less productively than if the employees were working onsite.
2. Security risks, such as the employee not proactively maintaining proper antivirus and
patch management practices or not protecting and/or backing up their data
adequately.
3. Inappropriate use of company hardware (e.g., gambling, visiting pornographic
websites, etc.).
4. An increased risk of loss of confidentiality and privacy if sensitive data is stored on
the remote computer. Such remote storage may also violate privacy regulations, such
as HIPAA.
What controls can mitigate the risk of these threats?
The solutions to these potential threats primarily involve monitoring and the use of
security controls discussed in chapter 8. For example, software exists to enable
companies to monitor employees, including what they do on the Internet.
In addition, a company could require that telecommuting employees login their
company’s network and store all work related files on the company’s network and not on
their home machines. The VPN connection could be configured to restrict what
employees can do, such as preventing local storage of sensitive data and mandatory
updates of anti-virus and security software. The VPN software should also be designed to
prevent employees from simultaneously opening a VPN connection to the corporate
network and a second connection to their ISP (i.e., disable split-tunneling).
15-2
©2018 Pearson Education, Inc.
, Accounting Information Systems
15.5 How would you respond to the treasurer of a small charity who tells you that the
organization does not use a separate checking account for payroll because the
benefits are not worth the extra monthly service fee?
A separate payroll account limits the organization’s exposure to only the amount of cash
deposited into the payroll account.
A separate account is also easier to reconcile and to detect any errors or irregularities.
15.6 This chapter discussed how the HR department should have responsibility for
updating the HRM/payroll database for hiring, firing, and promotions. What other
kinds of changes may need to be made?
Other types of changes include name changes (usually due to change in marital status),
number of dependents, voluntary extra withholdings, and address changes.
What controls should be implemented to ensure the accuracy and validity of such
changes?
Allow employees to make these changes through a web-based application available on
the organization’s intranet. The application should include processing integrity checks to
prevent invalid entries.
Closed loop verification (displaying all changes to the employee) should also be used.
To ensure validity, multi-factor authentication should be required to enter such changes
Strict access controls should be implemented to protect the master database.
A detective control is to separately notify the employee of changes that were made and
ask for confirmation that they are valid.
15-3
©2018 Pearson Education, Inc.
, Ch. 15: The Human Resources Management/Payroll Cycle
SUGGESTED ANSWERS TO THE PROBLEMS
15.1 Match the terms in the left column with the appropriate definition from the right
column.
1. _e__ Payroll service bureau a. A list of each employee’s gross pay, payroll deductions,
and net pay in a multicolumn format.
2. _h__ Payroll clearing account b. Used to record the activities performed by a salaried
professional for various clients.
3. _g__ Earnings statement c. Used to record time worked by an hourly-wage
employee.
4. _a__ Payroll register d. An organization that processes payroll and provides
other HRM services.
5. _c__ Time card e. An organization that processes payroll.
6. _b__ Time sheet f. A list of all the deductions for each employee.
g. A document given to each employee that shows gross
pay, net pay, and itemizes all deductions both for the
current pay period and for the year-to-date.
h. Special general ledger account used for payroll
processing.
15-4
©2018 Pearson Education, Inc.
THE HUMAN RESOURCES MANAGEMENT/PAYROLL CYCLE
SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
15.1 Should CPA firms continue to use time sheets for their employees? Why or why
not?
This should prompt discussion about how to account for employees’ efforts. CPAs are
considered knowledge workers. A large part of the value they provide comes from
creative solutions to problems. Customers pay for the solutions, not for how much time it
took to create the solutions.
Indeed, the more expertise someone has, the less time it may take them solve a problem.
The result may be that if firms used time sheets to determine billable time (which can be
charged to clients) the most experienced CPAs would have less billable time than an
inexperienced CPA. If raises and promotions are based on billable time, this can create
undesirable morale problems.
Some experts also note that it takes time to complete time sheets and that this increases
dramatically as the units of time shrink (i.e., it takes more time and effort to track your
time in 6 minute intervals than in 1 hour intervals). Is that time and effort wasted?
15.2 Some accountants have advocated that a company’s human assets be measured and
included directly in the financial statements. For example, the costs of hiring and
training an employee would be recorded as an asset that is amortized over the
employee’s expected term of service. Do you agree or disagree? Why?
This question should generate some debate. The issue is the trade-off between
“subjectivity” in measuring the value of a company’s investment in the knowledge and
skills of its employees versus the usefulness of at least attempting to explicitly measure
those assets.
In the “information era” the value of a company’s employee knowledge base is
increasingly important. Attempting to measure it should facilitate more effective
management of this resource by focusing more attention on it.
Some companies, such as Dow Chemical and Skandia, have attempted to formally
provide stockholders with information about the company’s intellectual capital, but such
efforts have not become mainstream because of the inherent subjectivity.
Page 1 of 33
,Ch. 15: The Human Resources Management/Payroll Cycle
15.3 You are responsible for implementing a new employee performance measurement
system that will provide factory supervisors with detailed information about each of
their employees on a weekly basis. In conversation with some of these supervisors,
you are surprised to learn they do not believe these reports will be useful. They
explain that they can already obtain all the information they need to manage their
employees simply by observing the shop floor. Comment on that opinion.
Formal reports on employee performance are not intended to replace direct observation,
but to supplement it. Direct observation is important, but a manager cannot observe all
employees all the time. It is also difficult to accurately summarize detailed observations
across time.
How could formal reports supplement and enhance what the supervisors learn by
direct observation?
Well-designed reports provide quantitative summary measures of aspects of employee
performance that are believed to be important to the achievement of the organization’s
goals. Quantitative measures facilitate tracking performance trends over time. These
benefits, however, will be difficult for many managers to understand until they have had
experience in using such reports.
There are also legal issues at stake. If an employee or former employee brings suit against
the employer, supporting documentation may justify the employer’s position.
15.4 One of the threats associated with having employees telecommute is that they may
use company-provided resources (e.g., laptop, printer, etc.) for a side business. What
are some other threats?
Other threats are:
1. Not working or working less productively than if the employees were working onsite.
2. Security risks, such as the employee not proactively maintaining proper antivirus and
patch management practices or not protecting and/or backing up their data
adequately.
3. Inappropriate use of company hardware (e.g., gambling, visiting pornographic
websites, etc.).
4. An increased risk of loss of confidentiality and privacy if sensitive data is stored on
the remote computer. Such remote storage may also violate privacy regulations, such
as HIPAA.
What controls can mitigate the risk of these threats?
The solutions to these potential threats primarily involve monitoring and the use of
security controls discussed in chapter 8. For example, software exists to enable
companies to monitor employees, including what they do on the Internet.
In addition, a company could require that telecommuting employees login their
company’s network and store all work related files on the company’s network and not on
their home machines. The VPN connection could be configured to restrict what
employees can do, such as preventing local storage of sensitive data and mandatory
updates of anti-virus and security software. The VPN software should also be designed to
prevent employees from simultaneously opening a VPN connection to the corporate
network and a second connection to their ISP (i.e., disable split-tunneling).
15-2
©2018 Pearson Education, Inc.
, Accounting Information Systems
15.5 How would you respond to the treasurer of a small charity who tells you that the
organization does not use a separate checking account for payroll because the
benefits are not worth the extra monthly service fee?
A separate payroll account limits the organization’s exposure to only the amount of cash
deposited into the payroll account.
A separate account is also easier to reconcile and to detect any errors or irregularities.
15.6 This chapter discussed how the HR department should have responsibility for
updating the HRM/payroll database for hiring, firing, and promotions. What other
kinds of changes may need to be made?
Other types of changes include name changes (usually due to change in marital status),
number of dependents, voluntary extra withholdings, and address changes.
What controls should be implemented to ensure the accuracy and validity of such
changes?
Allow employees to make these changes through a web-based application available on
the organization’s intranet. The application should include processing integrity checks to
prevent invalid entries.
Closed loop verification (displaying all changes to the employee) should also be used.
To ensure validity, multi-factor authentication should be required to enter such changes
Strict access controls should be implemented to protect the master database.
A detective control is to separately notify the employee of changes that were made and
ask for confirmation that they are valid.
15-3
©2018 Pearson Education, Inc.
, Ch. 15: The Human Resources Management/Payroll Cycle
SUGGESTED ANSWERS TO THE PROBLEMS
15.1 Match the terms in the left column with the appropriate definition from the right
column.
1. _e__ Payroll service bureau a. A list of each employee’s gross pay, payroll deductions,
and net pay in a multicolumn format.
2. _h__ Payroll clearing account b. Used to record the activities performed by a salaried
professional for various clients.
3. _g__ Earnings statement c. Used to record time worked by an hourly-wage
employee.
4. _a__ Payroll register d. An organization that processes payroll and provides
other HRM services.
5. _c__ Time card e. An organization that processes payroll.
6. _b__ Time sheet f. A list of all the deductions for each employee.
g. A document given to each employee that shows gross
pay, net pay, and itemizes all deductions both for the
current pay period and for the year-to-date.
h. Special general ledger account used for payroll
processing.
15-4
©2018 Pearson Education, Inc.
