Reference no: EM132867338

Question - Audit strategy All Tunes Satellite Radio (ATS) provides a subscription service to satellite radio channels. Customers can pay for a subscription on a monthly basis, or pay for a year in advance and receive a 15% discount. Approximately 53% of customers pay in advance. When ATS receives payment in advance, a deferred revenue account (Unearned Revenue) is credited. At the end of each month as the satellite radio service is provided to customers, ATS makes an adjusting entry to recognize subscription revenue. The audit team is planning a reliance on controls strategy to obtain evidence of revenue recognition for ATS. The team will be testing internal controls over the recognition of subscription revenue during interim.

Required -

a. Explain the type of audit strategy planned by the audit team for gathering evidence about revenue recognition.

b. Suppose during the interim testing of internal controls the team discovers a significant number of instances in which subscription revenue received in advance is recognized immediately as revenue. Analyze how the audit strategy will be impacted.