Reference no: EM131595143

Burlingham Bee Assignment

Review case 8.3 Burlingham Bees p.243-245. 

Compose brief answers approximately 30 to 45 words to the following Required questions related to this case:

1-4 

CASE 8.3 Burlingham Bees

Using Analytical Procedures as Substantive Tests

MARK S. BEASLEY • FRANK A. BUCKLESS • STEVEN M. GLOVER• DOUGLAS F. PRAWITT

LEARNING OBJECTIVES

After completing and discussing this case you should be able to

[1] Use analytical procedures to develop expectations for revenue accounts

[2] Appreciate the degree of professional judgment involved in evaluating differences between expected and reported account balances

[3] Recognize factors that lead to precise expectations of account balances

[4] Understand the audit planning implications of using analytical procedures as substantive tests of account balances

BACKGROUND

Burlingham Bees, an independent, minor league baseball team, competes in the Northwest Coast League. The team finished in second place in 2014 with an 92-52 record. The Bees' 2014 cumulative season attendance of 516,783 spectators set a new record high for the team, up more than 8% from the prior season's attendance.

Bank-loan covenants require the Bees to submit audited financial statements annually to the bank. The accounting firm of Hickman and Snowden, CPAs, has served as the Bees' auditor for the past five years.

One of the major audit areas involves testing ticket revenues. Ticket revenues reached nearly $3.95 million in 2013. In 2014 the unaudited ticket revenues are reported to be $4,292,970 with net income before tax of $731,845. In prior years, the audit plan called for extensive detail testing of revenue accounts to gain assurance that reported ticket revenues were fairly stated.

Michelle Andrews, a new audit manager, just received the assignment to be the manager on the 2014 audit. Michelle worked previously on the Bees' prior-year audits as a staff auditor. When she learned she would be managing the current-year engagement, she immediately thought back to all the hours of detailed testing of ticket sales she performed. On some of her other clients, Michelle has been successful at redesigning audit plans to make better use of analytical procedures as substantive tests. She is beginning to wonder if there is a more efficient way to gather effective substantive evidence related to ticket revenues on the Bees' engagement.

In her first meeting with Bees' management for the 2014 audit, Michelle learned that the Bees now use an outside company, Tickets R Us, to operate ticket gates for home games. The terms of the contract require Tickets R Us to collect ticket stubs so that it can later report total tickets collected per game. While Tickets R Us does not break down the total ticket sales into the various price categories, Michelle thinks there may be a way to develop an analytical procedure using the independently generated total ticket numbers and data from prior audits. To investigate this possibility, Michelle asked a staff person to gather some information related to reported sales.

The case was prepared by Mark S. Beasley, Ph.D. and Frank A. Buckless, Ph.D. of North Carolina State University and Steven M. Glover, Ph.D. and Douglas F. Prawitt, Ph.D. of Brigham Young University, as a basis for class discussion. Burlingham Bees is a fictitious team. All characters and names represented are fictitious; any similarity to existing teams, companies or persons is purely coincidental.

Here is the information the staff person gathered from the records of the client, Tickets R Us, and prior-year audit files:

Information from prior-year audit files indicates a similar number of home games in total, although in the prior year there were 26 weekend games. The audit file indicates that average per-game attendance for weekend games was 20% higher than average per-game attendance for weekday games.

Comparison of 2013 ticket prices to 2014 ticket prices reveals an average increase of 9% between the two years.

Information from prior-year audit files shows that sales mix has remained fairly constant over the last several years.

Information from prior-year audit files shows that attendance generally increases by 15% when there is a promotion (e.g., free baseball cap, poster, or special entertainment). In the prior year there were only 15 total promotional days.

REQUIRED

[1] Research auditing professional standards and list the requirements related to developing an expectation and conducting analytical procedures when those procedures are intended to provide substantive evidence. What are the advantages of developing an expectation at a detailed level (i.e., using disaggregated data) rather than at an overall or aggregated level?

[2] Using the information provided, please develop a precise expectation (i.e., using the detailed or disaggregated data provided) for ticket revenues for the 2014 fiscal year.

[3] (a) What are the advantages of using analytical procedures as substantive tests? (b) If the engagement team decides to use analytical procedures for the Bees' audit, how will the audit plan differ from prior years? (c) Discuss whether you believe analytical procedures should be used as substantive tests for the Bees 2014 audit?

[4] (a) How close does the Bees' reported ticket revenue for 2014 have to be to your expectation for you to consider reported ticket revenue reasonable or fairly stated?.