perform preliminary analytical procedures for the payroll account balances.

Auditing P 8-32 You are auditing payroll for the Goodview Manufacturing
company for the year ended September 30, 2009. Included next are
amounts from the clients trial balance, along with comparative audited
information for the prior year.
AND SO ON
You
have obtained the following information to help you perform preliminary
analytical procedures for the payroll account balances.
1. There
has been a significant increase in the demand for Goodview’s products.
The increase in sales was due to both an increase in the average selling
price of 10% 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 office personnel.
3.
All employees including executives, but excluding commission
salespeople, received a 3% salary increase starting October 1, 2008.
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. Goodview
does not permit overtime.
5. Commission salespeople receive a 6%
commission on all sales on which a commission is given. Approximately
78% of sales earn sales commission. The other 25% are “call-ins”, for
which no commission is given. Commissions are paid in the month
following the month they are earned.
Required:
a. Use the
final balances for the prior year and the information in items 1 thru 5
to develop an expected value for each account included on the preceding
page, except sales.
b. Calculate the difference between your
expectation and the client’s recorded amount a percentage using the
formula (expected value-recorded amount)/expected value.

 

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