Reference no: EM132898243

Question - You are an auditor with ZZ, a public accounting firm. Your firm has just accepted a new engagement to audit the animal financial statements of Chestnut Limited, a medium-size restaurant business. Chestnut operates a chain of specialty fast-food restaurants. Most of the restaurants are franchised, and Chestnut receives franchise fees based on the franchisee store's net sales revenues. Chestnut receives 4% of net sales as a base franchise fee, 1% as an advertising fee, and 0.5% as an administration fee for processing franchisee accounting information and issuing reports in a standard format. Franchisee's sales information is uploaded daily to Chestnut's central accounting system, where it is input into the franchise reporting system to generate daily, monthly, and year-end management reports.

Assume that you are an audit manager reviewing the audit work on the franchise revenues that have been documented by the staff during their fieldwork is Chestnut. What procedures do you expect are included in their audit work? State any assumptions you make.