EBK AUDITING+ASSURANCE SERVICES
EBK AUDITING+ASSURANCE SERVICES
17th Edition
ISBN: 9780135171219
Author: ARENS
Publisher: PEARSON CO
Question
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Chapter 7, Problem 37DQP

a.

To determine

Determine the expected value from the given information.

a.

Expert Solution
Check Mark

Explanation of Solution

Audit Evidence: The piece of evidence provided by the audit team to prove their opinion with respect to the audit is known as audit evidence. It includes accounting information related to the evidence and their source.

Determine the expected value.

AccountExpected value
Executive salaries=(Sales of adjusted balance×103%)=$546,940×103%=$563,348
Factory hourly payroll

Increase due to 3% pay rate increase:

=((Factory hourly payroll in audit balance)×Increase in pay rate )=($10,038,877×3%)=$301,166

Increase due to 8% increased production:

=((Factory hourly payroll in audit balance)+Increase due to pay rate  )×108%=($10,038,877+$301,166)×108%=$10,340,043×1085=$11,167,246

Factory supervisors’ salaries=((Factory supervisors' salariesin audited balance)×103%)=$785,825×103%=$809,400
Office salaries=((Office salariesin audited balance)×103%)=$1,990,296×103%=$2,050,005
Sales commissions

Increase in commissions due to increased sales:

=(Sales commission ×Sales earned)=(3%×$4,618,461)=$230,923

=((Sales commission in audited balance)+Increase in commission)=$2,018,149+$230,923=$2,249,072

Table (1)

b.

To determine

Compute the difference between the own expectation and client’s recorded amounts as percentage.

b.

Expert Solution
Check Mark

Explanation of Solution

Compute the difference between the expectation and client’s recorded amounts as percentage.

AccountDIFFERENCEIN EXPECTEDAND RECORDED
Executive salaries=((Expected value of executive salaries)Executive salariesin preliminary balance)(Expected value of executive salaries)=($563,348$615,970)$563,348=9.34%
Factory hourly payroll=((Expected value of factory hourly payroll)Factory hourly payrollin preliminary balance)(Expected value of factory hourly payroll)=($11,167,246$11,476,319)$11,167,246=2.77%
Factory supervisors’ salaries=((Expected value of factory supervisors'salaries)Factory supervisors'salaries in preliminary balance)(Expected value of factory supervisors'salaries)=($809,400$810,588)$809,400=0.15%
Office salaries=((Expected value of office salaries)Office salaries in preliminary balance)(Expected value of office salaries)=($2,050,005$2,055,302)$2,050,005=0.26%
Sales commissions=((Expected value of Sales commission)Sales commission in preliminary balance)(Expected value of Sales commission)=($2,249,072$2,367,962)$2,249,072=5.3%

Table (2)

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