SIM 09 Roger CPA Review UWorld: Auditing Analytical Procedures, Chapter 17

The auditors of STA, Incorporated, a calendar-year corporation, obtained the selected information for years 1 and 2 located in the exhibit below.

Selected information	Year 2	Year 1
Gross revenue	$ 63,000,000	$ 60,000,000
Net income before taxes	11,650,000	11,000,000
Salary expense	12,500,000	8,000,000
Rent expense	1,920,000	1,200,000
Utilities expense	155,000	120,000
Depreciation expense	705,000	675,000
Repairs and maintenance	375,000	300,000
Interest expense	523,000	338,100
Miscellaneous	151,000	135,000
Tax expense	4,325,150	3,850,000

Additionally, the auditors noted the following information:

• STA rents space in an office building:
  • Space in Building 1: 25,000 sq. ft.
• On January 1, year 2, the company added a second space:
  • Space in Building 2: 11,000 sq. ft.
• The balance of interest-bearing debt outstanding:
  • January 1, year 2: $4,830,000
  • December 31, year 2: $10,262,000
  • The company issued additional debt on July 1, year 2

The auditors are performing analytical procedures relative to the expectations of expenses for year 2 and have established a materiality threshold of 5% of the auditor's expected year 2 amount. For each of the expenses in column A below, consider the additional notes in column B, and complete the following:

1. In "Auditor's expectation" column, enter the auditor's expectation of year 2 expense. (Round all amounts to the nearest dollar.)
2. In "Auditor's decision" column, select the auditor's decision as to whether further testing is needed. (Consider each account independently - an option may be used once, more than once, or not at all.)

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