ACCOUNTING
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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