Birmingham Bees Essay Example for Free

Birmingham Bees Essay The expectation should be precise enough to provide the desired level of assurance that differences that may be potential material misstatements, individually or when aggregated with other misstatements, would be identified for the auditor to investigate. As expectations become more precise, the range of expected differences becomes narrower and, accordingly, the likelihood increases that significant differences from the expectations are due to misstatements. The precision of the expectation depends on, among other things, the auditors identification and consideration of factors that significantly affect the amount being audited and the level of detail of data used to develop the expectation. Documentation of Substantive Analytical Procedures When an analytical procedure is used as the principal substantive test of a significant financial statement assertion, the auditor should document all of the following: The expectation, where that expectation is not otherwise readily determinable from the documentation of the work performed, and factors considered in its development Results of the comparison of the expectation to the recorded amounts or ratios developed from recorded amounts. Any additional auditing procedures performed in response to significant unexpected differences arising from the analytical procedure and the results of such additional procedures Expectations developed at a detailed level generally have a greater chance of detecting misstatement of a given amount than do broad comparisons. Monthly amounts will generally be more effective than annual amounts and comparisons by location or line of business usually will be more effective than company-wide comparisons. The level of detail that is appropriate will be influenced by the nature of the client, its size and its complexity. Generally, the risk that material misstatement could be obscured by offsetting factors increases as a clients operations become more complex and more diversified. Disaggregation helps reduce this risk. Expected ticket revenues for 2008 based on given assumptions and the predictability of results of events is $2,297,218. a. In planning the analytical procedures as a substantive test, the auditor should consider the amount of difference from the expectation that can be accepted without further investigation. This consideration is influenced primarily by materiality and should be consistent with the level of assurance desired from the procedures. Determination of this amount involves considering the possibility that a combination of misstatements in the specific account balances, or class of transactions, or other balances or classes could aggregate to an unacceptable amount. If Bee’s reported venues were outside the auditor’s reasonable range, the difference can be due to specific unusual transactions or events, accounting changes, business changes, random fluctuations, or misstatements. This is because the basic premise underlying the application of analytical procedures is that plausible relationships among data may reasonably be expected to exist and continue in the absence of known conditions to the contrary. Particular conditions such as those mentioned can cause variations in these relationships. a. The use of analytical procedures with minimal test of details provides the auditor with evidence to draw audit conclusions. The more reliance an auditor can place on analytical procedures, the less time he needs to spend on tests of details. Auditor objectives usually can be accomplished with less time and cost by applying analytical procedures rather than tests of details. In addition, the auditor may need to rely on analytical procedures when detailed evidence is not readily available for a particular item. It is also more cost effective and may provide evidence when other procedures would be ineffective. If the audit team decides to make use of analytical procedures for the company’s audit, the audit plan will be different in such a way that it would allot less working hours on testing of details. Analytical procedures should be used for Bee’s audit because of the following reasons: Bee utilizes another company, Tickets R Us, in the collection of its tickets. The involvement of a third-party provides lesser risk of manipulation by Bee or management override of controls, making data collected from said entity more reliable. Prior-year audit files are most reliable as Hickman and Snowden has personally conducted five years of extensive detail testing in auditing Bee’s ticket revenues. Previous audit files show that the total number of home games is mostly consistent, proof of which is the prior year’s record of a similar total number of games, with only a slight difference in the mix of weekdays and weekend games. The average number of per-game attendance has also been established by Hickman and Snowden and such can be used to identify the allocation of spectator attendance. Ticket prices are known and established and can be compared with prior year’s prices to determine the allowable increase in total sales revenue. Information from prior years’ audit files show that the sales mix has remained fairly constant over the last several years. It is known and established that attendance generally increases by 10% when there is a promotion. All these information serve as proof that an audit plan utilizing extensive details testing is not necessary. Five years of audit files – all of which conducted through extensive details testing, will provide Hickman and Snowden ratios, trend analysis and other pertinent information that will allow them to successfully and confidently complete the audit of Bee’s ticket revenues. References AU Section 329 Analytical Procedures, Retrieved February 11, 2009, from http://www.pcaobus.org/standards/interim_standards/auditing_standards/au_329.html