Question

Company XYZ had wages expenses of $400,000 for their 2011 financial year. You are
auditing XYZ’s financial statements for the 2012 financial period which show payroll
expense for the year as being $415,000. You learn that for 2012, the number of
employees has remained unchanged compared to the previous year 2011, but all the
employees had received a 10% wage increase. You wish to audit the payroll account
using analytical procedures.
a. Determine an expectation for wages employees for the year 2012

b. Determine a tolerable misstatement difference (use 5% of your expected amounts)

c. Compare the expected amount with the recorded amount and state your conclusion
about the client’s recorded amount

Answer 1