Reference no: EM132624885

Question - The audit partner in charge of the audit of Air New Zealand plans to obtain evidence of its revenue recognition by relying on internal controls and use of analytical procedures. Air New Zealand's revenue recognition policy relating to money received in advance, is to initially hold them in a deferred revenue account and later transfer the appropriate amount to sales revenue when goods are transported. However, suppose that, during subsequent testing of internal controls a significant number of instances occurred where revenue was incorrectly recognised immediately upon customers' payment in advance, rather than when passengers are transported. (Note that this scenario is a theoretical 'thought experiment' and does not relate to any real circumstances pertaining to Air New Zealand's internal control systems or financial statements.) Analyse the implication of the above issues in planning the audit of Air New Zealand and a draft audit strategy for the audit of Air New Zealand.

Hints: ISAs and AG ISAs 300, 315, 320 and 330 in particular provide useful information in identifying issues concerning planning, industry and entity risk, materiality and responses to assessed risks.