What are conclusions from the analytical procedures

Reference no: EM132481303

You are auditing payroll for the Morehead Technologies company for the year ended October 31, 2018. Included next are the amounts from the client's trial balance, along with comparative audited information for the prior year.

	Audited Balance 10/31/2017			Preliminary Balance (unaudited)	10/31)2018
Sales	$51	318	234	557	474	182
Executive salaries		546	940		615	970
Factory hourly payroll	10	038	877	11	478	319
Factory supervisors' salaries		785	825		810	588
Office salaries	1	990	296	2	055	302
Sales commissions	2	018	149	2	367	962

You have obtained the following information to help you perform preliminary analytical procedures for the payroll account balances.

1. There has been a signi?cant increase in the demand for Morehead's products. The increase in sales was due to both an increase in the average selling price of 4 percent and an increase in units sold that resulted from the increased demand and an increased marketing effort.

2. Even though sales volume increased, there was no addition of executives, factory supervisors, or of?ce personnel.

3. All employees, including executives but excluding commission salespeople, received a 3 percent salary increase starting November 1, 2017. Commission salespeople receive their increased compensation through the increase in sales.

4. The increased number of factory hourly employees was accomplished by recalling employees that had been laid off. They receive the same wage rate as existing employees. Morehead does not permit overtime.

5. Commission salespeople receive a 5 percent commission on all sales on which a commission is given. Approximately 75 percent of sales earn sales commission. The other 25 percent are "call-ins for which no commission is given. Commissions are paid in the month following the month they are earned.

Required

Question a. Use the final balances for the prior year included above and the information in Items 1-5 to develop an expected value for each account, except sales.

Question b. Calculate the difference between your expectation and the client's recorded amount as a percentage using the following formula (Expected value - Recorded amount) / Expected value

Question c. What are your conclusions from the analytical procedures you performed (do the amounts appear reasonable)? What areas require additional audit work?

Reference no: EM132481303

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