and creditors.

$$12\mathrm{.}25$

$12\mathrm{.}25$ Analytical review procedures

You are an audit senior gathering audit evidence on the audit of Glenelg Pty Ltd$,$ a large proprietary company. Your manager has asked you to consider the use of analytical procedures in relation to the prepayments and depreciation. Materiality for the audit has been set at $$100000.$

Prepayments $-$ $$90\mathrm{.}000$

Six insurance contracts are each paid in advance for $12$ months. Payments are made at various times during the year.

Rent on factory premises is paid quarterly in advance.

Control risk is high and inherent risk is low.

Depreciation expense $-$ $$755000$

This expense represents depreciation on furniture, fittings, motor vehicles and computer equipment.

Assets are divided into five categories for depreciation purposes.

For the sake of simplicity, tax rates are used to calculate depreciation.

There were no additions or disposals of fixed assets during the year.

Control risk is medium and inherent risk is low.

Required

$($a$)$ Explain how you would verify each balance using analytical procedures. What verification work do 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.