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Question: Burlingham Bees, an independent, minor league

Burlingham Bees, an independent, minor league baseball team, competes in the Northwest Coast League. The team finished in second place in 2018 with a record of 94-50. The Bees’ 2018 cumulative season attendance of 534,784 spectators set a new record high for the team, up more than 5% 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 $5.08 million in 2017. In 2018 the unaudited ticket revenues are reported to be $5,515,897 with net income before tax of $937,703. 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 2018 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 2018 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. Here is the information the staff person gathered from the records of the client, Tickets R Us, and prior-year audit files:

Burlingham Bees, an independent, minor league baseball team, competes -1

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.

Burlingham Bees, an independent, minor league baseball team, competes -2

Comparison of 2017 ticket prices to 2018 ticket prices reveals an average increase of 9% between the two years.

Burlingham Bees, an independent, minor league baseball team, competes -3

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

Burlingham Bees, an independent, minor league baseball team, competes -4

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.
[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 2018 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 2018 audit?
[4] (a) How close does the Bees’ reported ticket revenue for 2018 have to be to your expectation for you to consider reported ticket revenue reasonable or fairly stated (i.e., provide a high level of assurance)?
(b) If reported ticket revenues were outside your “reasonable range,” what could explain the difference?
(c) Would you consider it acceptable for auditors to design substantive analytical procedures to obtain moderate or low assurance by accepting a difference between reported and expected revenue that is 2 or 3 times the size of audit materiality?


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