The owner of a small snack food and potato chip manufacturer, California Crunch Company, has asked you to investigate a possible issue with the 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 and analyzing the results.

Review the income statements given to you by the owner of California Crunch Company. Based on the AICPA Code of Professional Conduct prepare a 2-3 page summary of how you plan to proceed to address the owner's concerns and what specific steps you would take to audit this company.

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1 2 3 4 A B C For the year ended December 31, 5 6 7 Cost of Goods Sold 8 Gross Margin 9 Operating Expenses: 10 11 12 Depreciation and Amortization 13 Dues & Subscriptions 14 Insurance 15 Licenses & Fees 16 Marketing & Promotion 17 Meals and Entertainment 18 Office Expenses 19 Office Supplies 20 Salaries & Wages 21 Professional Fees 22 Property Taxes 23 Rent 24 Repairs & Maintenance 25 Shipping Delivery 26 Travel Expenses 27 Utilities 28 Leased Equipment 29 Other 30 Total Operating Expenses 31 Operating Income 32 Interest Expense 33 Other Income (interest, royalties) 34 Income Before Taxes 35 Income Taxes 36 Net Income 37 Advertising Bad Debt Expense D E F California Crunch Company Statements of Income Net Sales (less returns & allowances) 2018 $ 8,353,542 $ 3,745,623 4,607,919 115,325 65,232 75,210 600 60,800 300 52,632 25,030 14,325 24,003 2,380,105 39,700 19,220 85,230 1,450 770 75,830 35,230 44,000 15,320 3,130,312 1,477,607 84,658 5,920 1,398,869 489,604 $ 909,265 $ H 2017 7,998,832 3,621,532 4,377,300 113,452 62,585 73,565 575 60,600 285 51,025 24,345 14,652 23,458 2,192,032 38,500 19,000 84,360 1,500 730 73,560 34,250 43,750 14,756 2,926,980 1,450,320 83,950 5,725 1,372,095 480,233 891,862 I J 4% 3% 5% 2% 4% 2% 4% 0% 5% 3% 3% -2% 2% 9% 3% 1% 1% -3% 5% 3% 3% 1% 4% 7% 2% 1% 3% 2% 2% 2% 1 2 3 4 A B C For the year ended December 31, 5 6 7 Cost of Goods Sold 8 Gross Margin 9 Operating Expenses: 10 11 12 Depreciation and Amortization 13 Dues & Subscriptions 14 Insurance 15 Licenses & Fees 16 Marketing & Promotion 17 Meals and Entertainment 18 Office Expenses 19 Office Supplies 20 Salaries & Wages 21 Professional Fees 22 Property Taxes 23 Rent 24 Repairs & Maintenance 25 Shipping Delivery 26 Travel Expenses 27 Utilities 28 Leased Equipment 29 Other 30 Total Operating Expenses 31 Operating Income 32 Interest Expense 33 Other Income (interest, royalties) 34 Income Before Taxes 35 Income Taxes 36 Net Income 37 Advertising Bad Debt Expense D E F California Crunch Company Statements of Income Net Sales (less returns & allowances) 2018 $ 8,353,542 $ 3,745,623 4,607,919 115,325 65,232 75,210 600 60,800 300 52,632 25,030 14,325 24,003 2,380,105 39,700 19,220 85,230 1,450 770 75,830 35,230 44,000 15,320 3,130,312 1,477,607 84,658 5,920 1,398,869 489,604 $ 909,265 $ H 2017 7,998,832 3,621,532 4,377,300 113,452 62,585 73,565 575 60,600 285 51,025 24,345 14,652 23,458 2,192,032 38,500 19,000 84,360 1,500 730 73,560 34,250 43,750 14,756 2,926,980 1,450,320 83,950 5,725 1,372,095 480,233 891,862 I J 4% 3% 5% 2% 4% 2% 4% 0% 5% 3% 3% -2% 2% 9% 3% 1% 1% -3% 5% 3% 3% 1% 4% 7% 2% 1% 3% 2% 2% 2%

Answer rating: 100% (QA)

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