Reference no: EM132867179

Question - The auditors of Kettle industries, a calendar-year corporation, recently obtained the following information for year 1 & 2:

A) Average salaries increased 3.5% effective Jan 1, Year 2. Number of employees in year 1 was 225, for year 2 it was 240. The total salary expense in year 1 was $13,500,000.

B) An entity leases two buildings. The lease for Building 1 expired on June 30, 2018. Lease payments under that lease were $40,000 per month. On July 1, 2018 Kettle industries entered into a new 5 year lease agreement for the same building; the monthly rent expense became 3.5% higher. Kettle began renting another facility on March 1, 2018 for $55,000 a month, on a month to month basis.

C) The average annual rate of interest of IMG's debt is 6.5%. The balance owed on December 31, year 1 was 60k. A 15k payment was made toward the principle balance on May 31, year 2.

The auditors on the engagement are performing analytical procedures relative to the projection of expenses for year 2. For each of the expenses presented, consider any additional notes and the auditor's expectation for year 2 expenses. Also what are some procedures that an auditor might perform to be comfortable with the completeness and accuracy of the data used in setting the initial expectation.

Required -

For "A)" What is an appropriate expectation of year 2 salary expense? What procedures were performed to be comfortable with the completeness and accuracy of the data used in setting the initial expectation?

For "B)" What is an appropriate expectation of 2018 total rent expense for both buildings? What procedures were performed to be comfortable with the completeness and accuracy of the data used in setting the initial expectation?

For "C)" What is an appropriate expectation of year 2 interest expense? What procedures were performed to be comfortable with the completeness and accuracy of the data used in setting the initial expectation?