AIS 14e Romney Chapter 15

Accounting Information Systems, 14e (Romney/Steinbart)
Chapter 15 The Human Resources Management and Payroll Cycle
1 Describe the major business activities, key decisions, and information needs in the
HRM/payroll cycle, the general threats to those activities, and the controls that can mitigate those
threats.
1) Which activity below is not performed by Human Resources management (HRM)?

A) Product design.
B) Training.
C) Job assignment.
D) Recruitment and hiring.
Answer: A
Concept: HRM/payroll cycle information system
Objective: Learning Objective 1
Difficulty: Easy
AACSB: Analytical Thinking
2) Which department should have the sole ability to provide information to the AIS about hiring,
terminations, and pay rate changes?
A) Accounting.
B) Benefit.
C) Production.
D) HRM.
Answer: D
Difficulty: Easy
3) Which of the following is generally not a major source of input to a payroll system?
A) Payroll rate changes.
B) Time and attendance data.
C) Checks to insurance and benefits providers.
D) Withholdings and deduction requests from employees.
Answer: C
Difficulty: Easy
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4) Who does the payroll system issue checks to?
A) Employees and to banks participating in direct deposit.
B) The company's payroll bank account.
C) Insurance companies.
D) All of the above are correct.
Answer: D
Difficulty: Easy
5) Experts estimate that, on average, the costs associated with replacing an employee are about
________ the employee's annual salary.
A) 0.5 time
B) 1 time
C) 1.5 times
D) 2 times
Answer: C
Difficulty: Moderate
6) For recording time spent on specific work projects, manufacturing companies usually use a
A) job time ticket.
B) time card.
C) time clock.
D) labor time card.
Answer: A
Difficulty: Easy
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7) Which of the following statements is false regarding the use of incentives, commissions and
bonuses in the payroll system?
A) Using incentives, commissions, and bonuses requires linking the payroll system and the
information systems of sales and other cycles in order to collect the data used to calculate
bonuses.
B) Bonus/incentive schemes must be properly designed with realistic, attainable goals that can be
objectively measured.
C) Incentive schemes can result in undesirable behavior.
D) Incentive schemes can create fraud.
Answer: D
8) Identify the item below that is not a desired result of an employee bonus system.
A) Employees may recommend unnecessary services to customers in order to exceed set sales
quotas and earn a bonus.
B) Employees may look for ways to improve service.
C) Employees may analyze their work environment and find ways to cut costs.
D) Employees may work harder and may be more motivated to exceed target goals to earn a
bonus.
Answer: A
Difficulty: Easy
9) ________ are used to transmit time and attendance data directly to the payroll processing
system.
A) Badge readers
B) Electronic time clocks
C) Magnetic cards
D) RFID tags
Answer: B
Difficulty: Easy
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10) Payroll deductions fall into the broad categories of ________ and ________.
A) payroll tax withholdings; voluntary deductions
B) unemployment; social security taxes
C) unemployment taxes; income taxes
D) voluntary deductions; income taxes
Answer: A
Difficulty: Easy
11) Which of the following is not classified as a voluntary deduction?

A) Pension plan contributions.
B) FICA.
C) Health insurance premiums .
D) Deductions for a charity organization
Answer: B
Difficulty: Easy
12) Which type of payroll report contains information such as the employees' gross pay, payroll
deductions, and net pay in a multicolumn format?
A) Payroll register.
B) Deduction register.
C) Employee earnings statement.
D) Federal W-4 form.
Answer: A
Difficulty: Easy
13) Which type of payroll report lists the voluntary deductions for each employee?
Answer: B
Difficulty: Easy
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14) Which type of payroll report includes the details of the current paycheck and deductions as
well as year-to-date totals?
Answer: C
Difficulty: Easy
15) An effective way an organization can eliminate paper paychecks while maintaining adequate
accounting records is to
A) pay in cash only.
B) pay with money orders.
C) use direct deposit.
D) use Electronic Funds Transfer.
Answer: C
Difficulty: Easy
16) Many companies offer their employees a "cafeteria" approach to voluntary benefits in which
employees can pick and choose the benefits they want. This plan is normally called a(n)
A) elective plan.
B) menu options benefit plan.
C) flexible benefit plan.
D) buffet plan.
Answer: C
Difficulty: Easy
17) Pay rate information should be stored in

A) employees' personnel files.
B) employee subsidiary ledgers.
C) the payroll master file.
D) electronic time cards.
Answer: C
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18) The payroll transaction file should contain
A) entries to add new hires.
B) time card data.
C) changes in tax rates.
Answer: B
19) The document that lists each employee's gross pay, payroll deductions, and net pay in a
multicolumn format is called
A) an employee earnings statement.
B) the payroll register.
C) a deduction register.
D) an employee time sheet summary.
Answer: B
Difficulty: Easy
20) As each payroll transaction is processed, the system should also

A) allocate labor costs to appropriate general ledger accounts
B) use cumulative totals generated from a payroll to create a summary journal entry to be posted
to the general ledger
C) both A and B above
D) The HRM system should not perform either activity A or B.
Answer: C
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21) Direct deposit of employee paychecks is one way an organization can improve efficiency and
reduce payroll-processing costs. Which statement regarding direct deposit is false?
A) The cashier does not authorize the transfer of funds from the organization's checking account
to a payroll checking account.
B) The cashier does not have to sign employee paychecks.
C) Employees who are part of a direct deposit program receive a copy of their paycheck
indicating the amount deposited.
D) Employees who are part of a direct deposit program receive an earnings statement on payday
rather than a paper check.
Answer: A
22) The employer pays a portion of some payroll taxes and employee benefits. Both the
employee and employer pay which benefit or tax listed below?
A) Social security taxes.
B) Federal income taxes.
C) State income taxes.
D) Municipal taxes.
Answer: A
Difficulty: Easy
23) Identify the following item that should contribute to the efficiency of a payroll system.
A) Segregation of check distribution from payroll duties.
B) Prompt redeposit of unclaimed paychecks.
C) Use a separate payroll bank account.
D) Direct deposit of checks.
Answer: D
Difficulty: Easy
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24) Which of the following documents would be likely to yield the greatest cost saving by
converting from paper to electronic?
B) Employee's earnings statement.
C) Deduction register.
D) Time card.
Answer: D
Difficulty: Easy
25) Describe the basic activities in an HRM/payroll cycle.

Answer: The HRM/payroll cycle is a recurring set of business activities and related data
processing operations associated with effectively managing the employee work force. Important
activities in the HRM/payroll cycle include the following tasks: Recruitment and hiring of new
employees. Training. Job assignment. Compensation (payroll). Performance evaluation.
Discharge.
Difficulty: Easy
26) Identify the two types of payroll deductions and give two examples of each type.
Answer: Payroll deductions include: Payroll tax withholdings such as federal, state, and local
income taxes, social security taxes, unemployment taxes; Voluntary deductions such as
contributions to a pension plan, premium for group life, etc.
Difficulty: Easy
27) Why are accurate cumulative earnings records important?

Answer: Accurate records of cumulative earnings are necessary because social security and
other deductions have maximum earnings amounts upon which taxes are paid; and the
appropriate amount of income and payroll taxes should be remitted to the government agencies.
At the end of each calendar year, businesses must prepare and mail summary earnings statements
to every employee with earnings that year.
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28) Explain the functions of the payroll register, deduction register, and earnings statement.
Answer: The payroll register is a report that lists each employee's gross pay, payroll deductions,
and net pay for each pay period. The deduction register lists the voluntary deductions for each
employee. The earnings statement lists the amount of gross pay, deductions, and net pay for the
current period, as well as providing year-to-date totals.
Difficulty: Easy
29) Discuss the various types and sources of input into the HRM/payroll cycle.
Answer: An HRM/payroll system relies on input from various sources. Employees provide input
when they make changes in their discretionary deductions (contributions to charities or
retirement plans); various departments provide data about the actual hours employees work. The
HRM department provides information about employees who have been hired or terminated,
pay-rate changes, and promotions. Government agencies provide tax rates and various
instructions for meeting regulatory requirements. Insurance companies and other organizations
provide instructions for calculating and remitting various withholding amounts.
Difficulty: Challenging
30) A growing number of companies require some of their upper level executives to spend time
performing job duties of rank-and-file employees. When the CEO of Loews Hotels assumed the
role of bellman, he discovered
A) that the company's polyester uniform caused him to sweat a great deal.
B) evidence of fraud in several hotel locations.
C) instances where company employees fell asleep on the job.
D) situations where employees were not treating customers properly.
Answer: A
AACSB: Reflective Thinking
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31) A growing number of companies require some of their upper level executives to spend time
performing job duties of rank-and-file employees. When the vice president of DaVita Inc., a
major provider of dialysis treatment, spent three days working in one of the company's clinics,
she understood
A) that the company's polyester uniform caused her to sweat a great deal.
B) evidence of fraud in several clinic locations.
C) how the need to respond to life-threatening emergencies can result in delays in completing
corporate-mandated reports.
D) situations where employees were treating customers properly.
Answer: C
32) Executive immersion experiences are important because

A) CEOs often have no idea what rank-and-file employees do on a daily basis.
B) employees who have positive attitudes contribute to increasing company profits.
C) many employees feel upper management is out of touch.
D) it is important for organizations to take social responsibility seriously.
Answer: B
33) The HRM department should immediately delete records of employees who quit to prevent
other employees from assuming their identities.
Answer: FALSE
Difficulty: Easy
34) Involving accountants in executive compensation plans is often especially helpful

A) in keeping track of the executive compensation plan.
B) in identifying the appropriate metrics to use when linking compensation to performance.
C) in reducing the total amount of compensation paid to executives.
D) in suggesting the appropriate amount of compensation executives should be paid.
Answer: B
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35) Accountants can help executive compensation plan boards
A) comply with legal and regulatory requirements.
B) by identifying the best ways to keep the details of compensation plans out of the hands of
external parties.
C) avoid paying excessive amounts of "perks" to executives.
D) distribute information regarding how well each executive is performing their job.
Answer: A
36) Which of the following controls can minimize the threat of theft or fraudulent distribution of
paychecks?
A) Redepositing unclaimed paychecks and investigating cause.
B) Issuing earnings statements to employees.
C) Using biometric authentication.
D) Conducting criminal background investigation checks of all applicants for finance related
positions.
Answer: A
37) Which of the following controls can minimize the threat of inaccurate time and attendance
data?
positions.
Answer: C
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38) Which of the following controls can minimize the threat of hiring unqualified or larcenous
employees?
positions.
Answer: D
39) Which of the following controls can minimize the threat of errors in processing payroll?
positions.
Answer: B
2 Explain the payroll cycle activities, key decisions, and information needs, the threats to those
activities, and the controls that can mitigate those threats.
1) The sales department administrative assistant has been assigning phone order sales to her
brother-in-law, a company sales person. Company policy is to pay commissions only on orders
directly received by sales people, not on orders received over the phone. The resulting fraudulent
commission payments might best have been prevented by requiring that
A) sales commission statements be supported by sales order forms signed by the customer and
approved by the sales manager.
B) sales order forms be prenumbered and accounted for by the sales department manager.
C) sales orders and commission statements be approved by the accounting department.
D) disbursement vouchers for commission payments be reviewed by the internal audit
department and compared to sales commission statements and sales orders.
Answer: A
Concept: Payroll cycle activities
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2) Because many HRM / payroll master databases typically contain only descriptive information
(such as which employees possess which skills), many firms have deployed ________ to more
effectively leverage employees knowledge and skills.
A) relational databases
B) knowledge management systems
C) talent management systems
D) cardinality systems
Answer: B
3) Identify the firm below where employees' knowledge is likely to be more valuable than the
value of a company's tangible assets.
A) An international airline company.
B) A law firm.
C) An automobile manufacturer.
D) A grocery store.
Answer: B
4) Batch processing continues to be widely used to process payroll transactions.

Answer: TRUE
Difficulty: Easy
5) Knowledge management systems (KMS) permit organizations to

A) store employee solutions to specific problems in a shared database.
B) learn from individuals external to the organization.
C) perform background checks on potential employees.
D) gain competitive business intelligence on competitors.
Answer: A
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6) Why is a separate payroll account used to clear payroll checks?
A) For internal control purposes, to help limit any exposure to loss by the company.
B) To make bank reconciliation easier.
C) To separate payroll and expense checks.
Answer: A
7) Which of the following control can reduce the distribution of fraudulent paychecks?
A) Have internal audit investigate unclaimed paychecks.
B) Allow department managers to investigate unclaimed paychecks.
C) Immediately mark "void" across all unclaimed paychecks.
D) Match up all paychecks with time cards.
Answer: A
8) When using electronic documents, ________ increase(s) the accuracy of data entry.
A) access controls
B) separation of duties
C) general controls
D) application controls
Answer: D
Difficulty: Easy
9) The most vital control in preventing unauthorized changes to the payroll master file is
A) segregation of duties between the preparation of paychecks and their review.
B) segregation of duties between the preparation of paychecks and their distribution.
C) segregation of duties between the authorization of changes and the physical handling of
paychecks.
D) having the controller closely review and then approve any changes to the master file.
Answer: C
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10) Which of the following is not a potential effect of inaccurate data on employee time cards?
A) Increased labor expenses.
B) Erroneous labor expense reports.
C) Damaged employee morale.
D) Inaccurate calculation of overhead costs.
Answer: D
11) Which control would be most appropriate to address the problem of inaccurate payroll
processing?
A) Segregation of duties: HRM department updates master data, but only payroll department
issues paychecks.
B) Redepositing unclaimed paychecks and investigating cause.
C) Cross-footing of the payroll register.
D) An imprest payroll checking account.
Answer: C
12) The purpose of a general ledger payroll clearing account is

A) to check the accuracy and completeness of payroll recording and its allocation to cost centers.
B) to make the bank reconciliation easier.
C) to make sure that all employees are paid correctly each week.
D) to prevent the cashier from having complete control of the payroll cycle.
Answer: A
13) A "zero balance check" refers to which of the following control procedures?
A) The ACH clearing account shows a zero balance once all entries are posted.
B) cross-footing the payroll register
C) The payroll clearing account shows a zero balance once all entries are posted.
D) trial balance showing that debits equal credits
Answer: C
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14) All of the following are controls that should be implemented in a payroll process, except
A) supervisors distribute paychecks since they should know all employees in their department.
B) someone independent of the payroll process should reconcile the payroll bank account.
C) sequential numbering of paychecks and accounting for the numbers.
D) restrict access to blank payroll checks and documents.
Answer: A
15) What is the best control to reduce the risk of losing payroll data?
A) Passwords.
B) Physical security controls.
C) Backup and disaster recovery procedures.
D) Supervisory review.
Answer: C
Difficulty: Easy
16) The threat of violation of employment laws relates directly to which activity?
A) Payroll processing.
B) The collection employee time data.
C) Hiring and recruiting.
D) Benefit processing.
Answer: C
17) What is a potential threat to the specific activity of payroll processing?

A) Hiring unqualified employees.
B) Poor system performance.
C) Violations of employment laws.
D) Unauthorized changes to the payroll master file.
Answer: D
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18) The results of an internal audit finds that there is a problem with inaccurate time data being
entered into the payroll system. What is an applicable control that can help prevent this event
from occurring in the future?
A) Proper segregation of duties.
B) Automation of data collection.
C) Sound hiring procedures.
D) Review of appropriate performance metrics.
Answer: B
Difficulty: Easy
19) Which of the following is a control that can be implemented to help prevent paychecks being
issued to a "phantom" or "ghost" employee?
A) The cashier should sign all payroll checks.
B) Sequentially prenumber all payroll checks.
C) Use an imprest account to clear payroll checks.
D) Paychecks should be physically distributed by someone who does not authorize time data or
record payroll.
Answer: D
20) The average annual management salary at Iyov Management is $100,000. If the average
turnover rate for employees is six per year, what is the approximate average annual cost of
turnover?
A) $100,000.
B) $400,000
C) $600,000.
D) $900,000.
Answer: D
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21) Which of the following will limit a firm's potential loss exposure from paycheck forgery?
A) Segregation of check distribution from payroll duties.
B) Prompt redeposit of unclaimed paychecks.
C) A separate payroll bank account.
D) Direct deposit of checks.
Answer: C
Difficulty: Easy
22) Which of the following is a control that addresses the threat of unauthorized changes to the
payroll master file?
A) Restriction of access to the EFT system.
B) Biometric authentication.
C) Segregation of duties.
D) Sound hiring procedures.
Answer: C
Difficulty: Easy
23) For the payroll register below, all the following data entry controls would be useful except
A) Validity check on Fed. Tax.

B) Sequence check on Employee No.
C) Limit check on Hours.
D) Field check on Pay Rate.
Answer: A
Difficulty: Easy
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24) For the payroll register below, all the following processing controls would be useful except
A) Concurrent update control.

B) Cross-footing balance test.
C) Mathematical accuracy test.
D) Hash total on Employee No.
Answer: A
Difficulty: Easy
25) Describe benefits and threats of incentive and bonus programs.

Answer: Sales staffs are often paid either on a straight commission basis or a combination of a
salary plus commissions. This is done to keep sales at a certain level or to increase sales. The
HRM/payroll system will need input from the sales and other cycles to properly calculate
commissions and bonuses for such employees. It is important that an incentive and bonus system
sets realistic, attainable goals that are congruent with corporate objectives. It is also important
that managers monitor incentive and bonus goals and ensure that the attainment of such goals is
appropriate for the organization and does not lead to undesirable behavior, which can result from
poorly designed incentive schemes.
26) Explain benefits to companies and to employees using electronic direct deposit for payroll.
Answer: Direct deposit of paychecks provide a savings to employers because the costs of
purchasing, processing, and distributing paper checks is eliminated. Using direct deposit also
reduces postage and bank fees. The cashier's time can be better spent because paychecks do not
have to be signed. Employees save time as well as they do not have to make a physical trip to the
bank to cash their checks. Direct deposit is safer as it eliminates misplaced paychecks and
reduces the possibility of the theft of checks.
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27) What factors should be considered in outsourcing payroll to a payroll service bureau?
Discuss the advantages and disadvantages of using a payroll service bureau to process a payroll.
Answer: The following questions should be considered: How much does the service cost? How
would the data be submitted—online or hand carried? What kind of reports and documents could
be obtained from the service bureau? How would the service interface with the existing general
ledger system? What resources are now being devoted to payroll and how could these resources
be re-deployed into other areas? Could security and control be improved by the outsourcing?
What would be the time length of a contract for outsourcing services? Could the service bureau
system be integrated so that an online query could be made by the organization? What kind of
track record does the service bureau have with other clients? Are there new technologies and
approaches that would become available to the company via the service bureau? Advantages: No
need to deal with complexity and changes in tax codes. No need to worry about what to do if
equipment crashes. Less chance of employees accessing the payroll files (confidentiality).
Possible efficiency and cost reductions. Wider range of benefits. Freed-up computer resources.
Disadvantages: Less control over the payroll files because they are stored off-site. Extra costs for
any special reports. Slower response to ad hoc queries.
28) Discuss the threat of unauthorized changes to the payroll master file and its consequences.
Answer: Many problems may result when there are unauthorized changes to the payroll master
file. Unauthorized changes may be made to employee pay rates, resulting in the company paying
too much in wages. "Ghost" or "phantom" employees may be added to the payroll master to
divert funds to dishonest employees through the issuance of paychecks to such "employees."
Likewise, terminated employees may still be paid, resulting in the fraudulent diversion of payroll
funds. Two controls that should be implemented and maintained to provide overall control of the
payroll master file: proper segregation of duties and controlling access to the file. Good internal
control dictates that only authorized HRM personnel be allowed to update the payroll master file
for any hiring, termination, pay raise, and promotion. HRM personnel, who have such access to
the payroll master file, should never be allowed to directly participate in actual payroll
processing or paycheck distribution. This way an adequate control is created to match actual
paychecks (or earnings statements when direct deposit is in place) with employees when a
manager, supervisor, or other third party hand out the checks (or earnings statements). Also, a
different individual should approve all changes to the payroll master file in writing other than the
individual who recommends or initiates the changes. User IDs and passwords should always be
used to control access to the payroll master file, and an access control matrix should be
established to define what actions each authorized employee is allowed to make and confirms the
files the employee may access.
Difficulty: Difficult
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29) What controls are available to address the threat of payroll errors?
Answer: Three types of controls can be used to circumvent payroll errors in an HRM/payroll
system. Batch totals are used to verify totals entered into the system both at the time of data entry
and at each stage in the processing. Hash totals are particularly useful in this regard, since hash
totals calculated at the time of original data entry and again at each stage in the process can be
compared. When the comparisons match throughout the process, three conclusions can be made:
1) all payroll records have been processed; 2) the data input was accurate; and 3) no bogus time
cards were entered at any point after initial input. Upon completion of a payroll, the payroll
register should be cross-footed to verify that the totals of the net pay column and other deduction
columns equal the total of the gross pay column. A third control is the use of a payroll clearing
account. This is a general ledger account that can be used as part of a two-step accuracy and
completeness process. First, the payroll control account will be debited for the amount of the
gross pay for the pay period; cash and other various withholding liability accounts are credited.
Second, the cost accounting process distributes labor costs to various expense categories and
credits the payroll control account for the total amount of the debits made to the other accounts.
The result is that the payroll control account will have a zero balance. This becomes an internal
check known as a zero balance check, indicating that the proper postings have been made to all
of the accounts associated with payroll for a given pay period.
30) Using financial incentives requires organizations to

A) pay employees less than they would have to if pay was a fixed salary.
B) better monitor employee attendance.
C) link the payroll system to other cycles to calculate incentive payments.
D) better monitor employee effort.
Answer: C
31) Source data automation is often effective in reducing

A) unintentional errors.
B) intentional errors.
C) accuracy.
D) theft.
Answer: C
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32) A payroll clearing account is used to
A) check the accuracy of payroll costs.
B) speed up payroll transaction processing.
C) reduce the transaction costs associated with payroll transaction processing.
D) eliminate the need to manually record payroll transactions.
Answer: A
33) All of the following regarding payroll checks is correct except

A) access to payroll checks should be restricted.
B) payroll checks should be sequentially pre-numbered.
C) payroll checks should be drawn on the organization's regular bank account(s).
D) the cashier should sign payroll checks.
Answer: C
34) Falk Noam is the internal auditor for Matan Incorporated. Before investigating the HRM /
payroll cycle at Matan, Falk decided to read up on the proper segregation of duties regarding
payroll disbursement processes. For strongest segregation of duties, the ________ should
distribute paychecks.
A) accounts payable department
B) cashier
C) internal audit department
D) external auditor
Answer: B
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payroll disbursement processes. For strongest segregation of duties, the ________ should record
payroll.
B) cashier
D) external auditor
Answer: A
payroll disbursement processes. For strongest segregation of duties, the ________ should
periodically observe the paycheck distribution process.
B) cashier
D) external auditor
Answer: C
37) Form 941

A) is filed each quarter to reconcile monthly tax payments with total tax liability for the quarter.
B) is used in preparing labor-related reports for government agencies.
C) is used for employee information and annual payroll reports.
D) is used to document compliance with applicable regulations.
Answer: A
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38) A report of income paid to independent contractors is called
A) form W-2.
B) form W-3.
C) form 1099-Misc.
D) form 941.
Answer: C
39) A report of wages and withholdings for each employee is called

A) form W-2.
B) form W-3.
C) form 1099-Misc.
D) form 941.
Answer: A
40) A report of employer's quarterly federal tax return (showing all wages subject to tax and
amounts withheld for income tax and FICA) is called
A) form W-2.
B) form W-3.
C) form 1099-Misc.
D) form 941.
Answer: D
41) A workforce inventory report

A) is filed each quarter to reconcile monthly tax payments with total tax liability for the quarter.
B) is used in preparing labor-related reports for government agencies.
C) is used for employee information and annual payroll reports.
D) is used to document compliance with applicable regulations.
Answer: B
Difficulty: Difficult
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3 Discuss and evaluate the options for outsourcing HRM/payroll cycle activities.
1) Companies that specialize in processing payroll are known as

A) paycheck distribution companies.
B) payroll service bureaus.
C) professional employer organizations.
D) semi-governmental organizations.
Answer: B
Concept: HRM/payroll outsourcing options
Difficulty: Easy
2) Which organization provides payroll processing as well as other HRM services, like employee
benefit design and administration?
A) title companies
B) payroll service bureau
C) professional employer organization
D) paycheck distribution companies
Answer: C
Difficulty: Easy
3) Which of the following is not a benefit of using a payroll service bureau or a professional
employer organization?
A) freeing up of computer resources
B) increased internal control
C) reduced costs
D) wider range of benefits
Answer: B
Difficulty: Easy
4) What is the difference between a payroll service bureau and a professional employer
organization?
Answer: A payroll service bureau is a company that can be hired as an independent contractor to
maintain the payroll master file and perform the payroll processing activities for an organization.
A professional employer organization is a company that provides not only full payroll services
but also provides HRM services such as employee benefit design and administration.
Difficulty: Easy
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5) Professional employer organizations (PEOs) are especially attractive to small and mid-sized
businesses for all of the following reasons except
A) reduced costs.
B) wider range of benefits.
C) freeing up computer resources.
D) improved service quality.
Answer: D
6) Discuss the reasons small and midsized businesses are attracted to payroll service bureaus and
PEOs.
Answer: Payroll service bureaus and PEOs are especially attractive to small and midsized
businesses
for the following reasons: (1) Reduced costs. Payroll service bureaus and PEOs benefit from the
economies of scale associated with preparing paychecks for a large number of companies. They
can charge fees that are typically less than the cost of doing payroll in-house. A payroll service
bureau or PEO also saves money by eliminating the need to develop and maintain the expertise
required to comply with the constantly changing tax laws. (2) Wider range of benefits. PEOs
pool the costs of administering benefits across all their clients. Consequently, a PEO enables
smaller companies to offer the same wide range of benefits that large companies typically
provide. (3) Freeing up of computer resources. A payroll service bureau or PEO eliminates one
or more accounting information system (AIS) applications (payroll and benefits management).
The freed-up computing resources can then be used to improve service in other areas, such as
sales order entry.
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Accounting Information Systems, 14e (Romney/Steinbart)

Chapter 15 The Human Resources Management and Payroll Cycle

1) Which activity below is not performed by Human Resources management (HRM)?

11) Which of the following is not classified as a voluntary deduction?

17) Pay rate information should be stored in

20) As each payroll transaction is processed, the system should also

25) Describe the basic activities in an HRM/payroll cycle.

27) Why are accurate cumulative earnings records important?

32) Executive immersion experiences are important because

34) Involving accountants in executive compensation plans is often especially helpful

4) Batch processing continues to be widely used to process payroll transactions.

5) Knowledge management systems (KMS) permit organizations to

12) The purpose of a general ledger payroll clearing account is

17) What is a potential threat to the specific activity of payroll processing?

A) Validity check on Fed. Tax.

A) Concurrent update control.

25) Describe benefits and threats of incentive and bonus programs.

30) Using financial incentives requires organizations to

31) Source data automation is often effective in reducing

33) All of the following regarding payroll checks is correct except

37) Form 941

39) A report of wages and withholdings for each employee is called

41) A workforce inventory report

1) Companies that specialize in processing payroll are known as

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