The owner of a small snack food and potato chip manufacturer, California Crunch Company, has asked you to investigatea possible issue withthe company's payroll.They have provided you with this year and last year's income statements and two payroll files.The "HR Master" file gives you important information about each employee.The "Payroll" file details the company's payroll for the last 5 pay periods of the year. You will be conducting some audit procedures for California Crunch andanalyzingthe results.

Review the income statements given to you by the owner of California Crunch Company.Based on the AICPA Code of Professional Conduc, how would youplan to proceed to addressthe owner's concernsand what specific steps you would take to audit this company.

California Crunch Company

Statements of Income

For the year ended December 31, 2018 2017

Net Sales (less returns & allowances) $8,353,542 $7,998,832 4%

Cost of Goods Sold 3,745,623 3,621,532 3%

Gross Margin 4,607,919 4,377,300 5%

Operating Expenses:

Advertising 115,325 113,452 2%

Bad Debt Expense 65,232 62,585 4%

Depreciation and Amortization 75,210 73,565 2%

Dues & Subscriptions 600 575 4%

Insurance 60,800 60,600 0%

Licenses & Fees 300 285 5%

Marketing & Promotion 52,632 51,025 3%

Meals and Entertainment 25,030 24,345 3%

Office Expenses 14,325 14,652 -2%

Office Supplies 24,003 23,458 2%

Salaries & Wages 2,380,105 2,192,032 9%

Professional Fees 39,700 38,500 3%

Property Taxes 19,220 19,000 1%

Rent 85,230 84,360 1%

Repairs & Maintenance 1,450 1,500 -3%

ShippingDelivery 770 730 5%

Travel Expenses 75,830 73,560 3%

Utilities 35,230 34,250 3%

Leased Equipment 44,000 43,750 1%

Other 15,320 14,756 4%

Total Operating Expenses 3,130,312 2,926,980 7%

Operating Income 1,477,607 1,450,320 2%

Interest Expense 84,658 83,950 1%

Other Income (interest, royalties) 5,920 5,725 3%

Income Before Taxes 1,398,869 1,372,095 2%

Income Taxes 489,604 480,233 2%

Net Income $909,265 $891,862 2%