You are an audit senior currently gathering audit evidence on the audit of Regens Ltd, a large listed company. Your manager has asked you to consider the use of analytical procedures in relation to the salaries expense and interest revenue. Materiality for the audit has been set at \($250,000\) .

Salaries expense — \($2,210,000\)

• Salaries are paid monthly to the 40 salaried staff.

• There are three levels of seniority and each level is paid a different rate. There are no pay variations within levels.

• Promotions occur annually at 1 July.

• Turnover is relatively high. Fifteen new staff started work during the year.

• All salaried staff received an increase of 5% on 1 January. There were no other salary increases during the year.

• Both control risk and inherent risk are medium.

Interest revenue — \($315,500\)

• This revenue represents interest earned on bank bills.

• A maximum of five bills are in place at any one time. Bills are always placed for 4-monthly terms and rolled over at maturity.

• Rates vary according to the market.

• Control risk is high and inherent risk is medium.

Required

a. Explain how you would verify each balance using analytical procedures. Describe the verification work you need to perform on the data used in these procedures.

b. Using the information given, determine how much reliance you would place on the analytical procedures designed in (a). Explain your decision.