Inventory Valuation Decisions and Strategy - NDSU Agriculture
1 Chapter 11 production and payroll cycle including audit of inventory valuation and capital assets.
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Transcript of 1 Chapter 11 production and payroll cycle including audit of inventory valuation and capital assets.
1
Chapter 11
production and payroll cycle including audit of inventory valuation and capital assets
•
3
1. Production cycle typical activities
(1)production planning(inventory planning).
(2)produce goods and services.
(3)cost accounting(cost accounting allocations, unit cost determinations, physical cost calculations).
(4)determine cost of goods sold.
• Authorization custody
• recordingkeeping periodic reconciliation
4
Productionplanning
Inventoryplanning
Receive goodsand services
Produce goodsand services
(physical quantity)
Costaccounting
Determine costof goods sold
Start here
Reconciliation(analysis)
Authorization
Cost of goods sold
Amortizationschedule
Sales forecast
Acquisition cycle
Purchase labour,
materials, and
overhead
Inventory
Payroll cycle
Pay wages
Orders
Deliveries
Revenue andcollection cycle
Deliver tocustomers
(valuation)
Periodicphysical count
Productioncost analysis
Qualitycontrol
test reports
Productionorders
Productionreports
Accounts/RecordsInventoryCost of goods soldAmortization
Inventory plan
Production plan
Salesforecast
custody
recordkeeping
5
(1)Authorization
Sales forecast
production planning(inventory planning to production orders)
Material, labour,timing
Production orders
Managers(s,p) Sign off the approval
7
(2)custody
MOVING inventory
(materials into finished goods)
Supervisors and workers
Production order
Quality control test
Good cost accounting and analysisCompletion
of Production
8
(3)recordkeeping
Cost accounting department
Production order, record of material and labour used
Separation (inventory custodian, payroll department)
Overhead
Depreciation
amortization
Cost-per-unit
standard cost
variances
Cost of goods sold
9
(4)periodic reconciliation
• ACTUAL asset and liability TO RECORDED account
A. Physical count of inventory , perpetual inventory recordsB. vendors`s monthly statement, recorded accounts payable C.product Cost, prior experience or standard cost
• lower-of-cost-or-market
10
Productionplanning
Inventoryplanning
Receive goodsand services
Produce goodsand services
(physical quantity)
Costaccounting
Determine costof goods sold
Start here
Reconciliation(analysis)
Authorization
Cost of goods sold
Amortizationschedule
Sales forecast
Acquisition cycle
Purchase labour,
materials, and
overhead
Inventory
Payroll cycle
Pay wages
Orders
Deliveries
Revenue andcollection cycle
Deliver tocustomers
(valuation)
Periodicphysical count
Productioncost analysis
Qualitycontrol
test reports
Productionorders
Productionreports
Accounts/RecordsInventoryCost of goods soldAmortization
Inventory plan
Production plan
Salesforecast
custody
recordkeeping
11
2.audit evidence in management reports
Amortization schedule462
Sales forecast
Production plans and reports
12
3.control risk assessment
• Account balance
• (1)general control considerations
• (2)internal control questionnaire
• (3)production management--jit
• (4)detail test of controls audit procedures
• (5)direction of the test of controls procedures
• (6) summary:control risk assessment
13
Account balance
• Inventory:• raw materials• work in process• finished goods• cost of goods sold:• amortization:• amortization expense• accumulated amortization
14
(1)general control considerations
• A.Segregation of responsibility
• B.Detail control checking procedures
15
(1)general control considerations
• Segregation of responsibility
• authorization
• (pro,inv planning)
• Custody cost accounting
• reconciliation
16
Segregation of responsibility
• A.authorization
(production and inventory planning).
• Custody, recording, reconciliation
• B. Custody of inventory (raw materials, work in process, finished goods)
• .authorize, purchase, cost accounting recordkeeping, prepare cost analyses (reconciliation)
17
Segregation of responsibility
• C.cost accounting (recording)• Authorization, Custody
• But prepare various analyses and Reconciliation
• combination of 2 or more
18
Detail control checking procedures
A.Production orders (a list of materials and the quantity, approved by planner)
B. materials requisitions( compared with the list, signed by production operator and storeskeeper)
19
Detail control checking procedures
• C.labour time record ON JOBS
(signed by production supervisor;
the cost accounting department should reconcile these cost amounts with the labour report from the payroll department)
20
Detail control checking procedures
• D.production report(signed by production supervisor and finished goods inventory custodian, to cost accounting)
computer (manual signatures and paper production orders, be imbedded in
computer-controlled systems)
22
(3)production management--jit
• Just-in-time manufacturing
• implemented in many companies
• appendix 11B
23
(4)detail test of controls audit procedures• Exhibit 10-2
• detail test of control procedure:
• A. 样本总体 (population)
• B. 取证方法( action)
• action: vouching, tracing, observing, scanning, recalculating
• Exhibit 11-2
24
(5)direction of the test of controls procedures
• Exhibit 11-3• Exhibit 11-4• Exhibit 11-5
• why?
25
Production planning department Cost accounting
Productionorders
Bill of materialsManpower needs
Issue slipsMaterial used reportProduction cost report
Labour reportsProduction cost reports
Sample
Authorized
5-a
5-b
5-c5-dTrace
Trace
Match
26
Production Cost accounting
Materialsrequisitions and bills of materials
Issue slips,Materials usedreports
Productioncost reports
Labourreports
Overheadanalysis
General ledger(inventory)
Same sample
Sample
recalculate
2-a
2-c2-e
2-e,f
2-b
2-d
Vouchmaterials
Comparematerials
Vouch overhead
Comparelabour
Vouchlabour
29
problem
• Production “sold” as finished goods before actual unit completion.
• Understated inventory
• overstated cost of goods sold
• overstated revenue
• overstated income
30
Method
• Western corporation
• assembled and sold computer system
Asystem
Productionorder
Hardware
equipment
software
contract
After finished installation
pay the price
for the entire package
31
Unbundled
•
hardwareUnbilled contractrevenue
Sales revenue
cost of goods sold
software Accounts receivableA billing statement
Other Revenue, cost
Work-in-process inventory account
32
Paper trail
• Customer
orders
contracts
Hardware and softwareproduction orders
Production cost accumulationwork-in-process inventory recordproduction reportproduction cost report
35
control
1.production planning department approval of orders as a total unit.
2.cross-referenced ,
• Can see them as same order unit
36
Test of controls
• 200-250 production orders
• vouched to the underlying customer orders and contracts, validity, proper period.
• Enquiry the standard procedures for the time of revenue and cost of goods sold recognition.
•
37
Audit of balance
• A.dual purpose test
• B.points: the dollar amounts accounts accumulated as cost of contracts and proper cutoff for recording the cost.
• C.red flag:unbilled contract revenue.
40
4.Part 2:payroll cycle
• Activities
Personnel hiring/firing
Payroll accounting
Compensationdetermination
Supervisionattendanceand work
Cash distribution
Payrolldistribution
41
Acquisition and payment cycle
Cash disbursement(reconciliation)
Cashdisbursemtent
Starthere ere Personnel
hiring/firing
Compensationdetermination
Authorization
CustodyPayrolldistribution
RecordkeepingPayrollaccounting
Supervisionl,affendance,and work
Payrollcheques
Production cycle
Cost accounting
Labour costanalyses
Payrollregister
Year-to-dateEarningsrecords
Timekeepingrecords
Governmenttax reports
Personnelfiles
Employees’T-4 forms
Employmentapplication
Terminationnotice
Union contractOther approval
DeductionauthorizationsEmployeebenefits
Accounts/Records
Wages expense and accrualPayroll tax expense and liabilityPension expense and liabilityAccrued employee benefitsExpensea and LiabilityCash disbursements
42
(1)Separate people or department
• Personnel and labour relation---hiring/firing
• supervision--approval of work time
• timekeeping and cost accounting
• payroll accounting
• payroll distribution
43
(2)authorization
Personnel or labour department• Add new employees to payroll• delete terminated employee• obtain authorization for deduction• transmit authority for pay rate changes to payr
oll department.SUPERVISOR Approve all pay base data (hours, job number, absence, time off allowed).
44
(3)custody
• Paycheques ,cash, electronic transfer codes
• payroll distribution function:
control the delivery of pay to employees,
not be returned to persons involved in other-fun.
• timekeeping function:
• supervisors access to time cards or time sheets.
• the timekeeping devices, the employee.
45
(4)recordkeeping
Prepare individual paycheques, pay envelopes.
• Year-to-date earnings records
• tax reports
• payroll tax returns
• federal T-4 summary.
Authorization and custody //prepare the payroll
46
(5)Periodic reconciliation
• Payroll bank account ,bank statement
• Comparing “real payroll” to recorded wages.
• Sent supervisor a copy of the payroll register, showing the employees paid under the authority and responsibility.
Reapprove the payroll after it is completed.
Notice whether any persons not approved.
• Payroll report, the labour records used.
48
5.audit evidence in management reports and file
• Personnel files
• timekeeping records
• payroll register
• labour cost analysis
• governmental and tax reports
• year-to-date earnings records
• employee T-4 reports.
49
6.control risk assessment
• THE MAJOR RISKS
• PAYING fictitious “employees”
• overpaying for time or production
• incorrect accounting for costs and expenses.
50
6.control risk assessment
• (1)general control considerations
• (2)computer-based payroll
• (3)internal control questionnaire
• (4)detail test of control audit procedures
• (5)direction of the test of controls procedures
• (6)computerized payroll processing
• (7)summary:control risk assessment
51
(1)general control considerations
• Segregation of responsibility
• authorization
• Custody cost accounting
• reconciliation
52
Segregation of responsibility
• A.authorization//payroll preparation, paycheque distribution, reconciliation.
• B. payroll preparation// authorization, payroll cheques
• C.recordkeeping// // authorization,distribute pay.
53
Detail control checking procedures
• (1)periodic comparison of the payroll register to the personnel department files to check hiring and terminated employees not deleted.
• (2)periodic rechecking of wage rate and deduction authorizations
54
Detail control checking procedures
• (3) reconciliation of time and production paid to cost accounting calculations
• (4) reconciliation of YTD earning records with tax returns
• (5)payroll bank account reconciliation .
55
(2)computer-based payroll
• Various paper records and approval signatures may not exist.
• they may all be imbedded in computerized.
• 嵌入• chapter 19
57
(4)detail test of control audit procedures
• A. 样本总体 (population)
• B. 取证方法( action)
• action: vouching, tracing, observing, scanning, recalculating
• Exhibit 11-7
58
(5)direction of the test of controls procedures
• 2 directions:completeness, validity
• understand
• why?• E11-9
E11-8
59
Personnel files Payroll department
Authorization files Payroll registers
Sample
Review, traceto authorization
A-1-aA-1-b
A-1-c
B-1-a B-1-a SampleVouch rates,
deductions
or
Trace rates, deductions
60
(6)computerized payroll processing
• Reference files
• dynamic files
• the test of controls procedures
62
Casstte 11.3time card forgeries
Mhospital
Nursejane
Leasingagency
Time card
shift supervisor
bills
paidwork
63
method
• Agency time card showed approval signatures of a county nursing shift supervisor.
• The shift supervisor had been terminated.
• 1-2 days, 40-hour work week.
• Claim payroll hours on the false time card.
64
Paper trail
• (1)ward shift logs.
• (2)personnel records( the own nurses, supervisors, and other employees).
67
control
• Authorization: contract for nursing time,rate
• ward shift log
• supervisors approve time card.
• Agency billings( contract, time card)
• prepare paycheques.
68
Test of control
• weakness
• Nobody compared the card shift logs to time card.
• Nobody examined the supervisory signatures for their validity.
• Auditor
• Enquiry about error-checking procedures, follow.
69
Audit of balance• (1)Vouch rates billed to the contract.
• (2)vouch time claimed to the ward shift logs
• (3)compare handwriting example to the approval signatures on the time cards.
• (4)using personnel records to determine the supervisors were actually employed.
• (5)using the work attendance records to determine the supervisors were on duty.
70
discovery
• (1)Had not signed in on the ward shift logs.
• (2) supervisors were not employed at the time.
• (3) signatures were not written by the supervisors.
• $32,900 WAS REFUNDED.