Docsity
Log inSign up
Docsity
Prepare for your exams
Prepare for your exams

Study with the several resources on Docsity

Earn points to download
Earn points to download

Earn points by helping other students or get them with a premium plan

Guidelines and tips
Guidelines and tips
Sell on Docsity
Sell on Docsity
Log inSign up

Prepare for your exams

Study with the several resources on Docsity

Find documents

Prepare for your exams with the study notes shared by other students like you on Docsity

Search Store documents

The best documents sold by students who completed their studies

Search through all study resources
Docsity AINEW

Summarize your documents, ask them questions, convert them into quizzes and concept maps

Explore questions

Clear up your doubts by reading the answers to questions asked by your fellow students

Earn points to download

Earn points by helping other students or get them with a premium plan

Share documents
download point icon20 Points

For each uploaded document

Answer questions
download point icon5 Points

For each given answer (max 1 per day)

All the ways to get free points
Get points immediately

Choose a premium plan with all the points you need

Study Opportunities

Choose your next study program

Get in touch with the best universities in the world. Search through thousands of universities and official partners

Community

Ask the community

Ask the community for help and clear up your study doubts

University Rankings

Discover the best universities in your country according to Docsity users

Free resources

Our save-the-student-ebooks!

Download our free guides on studying techniques, anxiety management strategies, and thesis advice from Docsity tutors

From our blog

Exams and Study
Go to the blog

Auditing Analytical Procedures: Substantive Testing for Ticket Revenues - Prof. Morales, Transcriptions of Designs and Groups

Los Medanos CollegeDesigns and Groups

The use of substantive analytical procedures in auditing, with a focus on developing precise expectations for ticket revenue at a professional sports team. It outlines the key requirements and considerations for auditors when using analytical procedures, including the need to develop expectations based on a detailed understanding of the client's business and industry, the reliability of data used, and the precision of the expectation. The document also provides a detailed example of calculating a precise expectation for ticket revenue, and discusses how to evaluate whether reported revenue falls within a reasonable range based on the expectation. Overall, this document provides valuable insights into the effective application of analytical procedures as a substantive testing technique in auditing.

Typology: Transcriptions

2023/2024

Uploaded on 10/24/2024

shanthi_48
shanthi_48 🇺🇸

4.8

(36)

901 documents

1 / 3

Toggle sidebar

This page cannot be seen from the preview

Don't miss anything!

bg1
Substantive Analytical Procedures
in Auditing: A Case Study of
Burlingham Bees Inc.
Auditing Standard 2305: Substantive
Analytical Procedures
Developing Expectations for Analytical Procedures
According to Paragraph 2 of the standard, analytical procedures involve
comparisons of recorded amounts or ratios to expectations developed by the
auditor. The auditor develops such expectations by identifying and using
plausible relationships that are reasonably expected to exist based on the
auditor's understanding of the client and the industry.
Paragraph 17 states that the expectation should be precise enough to
provide the desired level of assurance that differences that may be potential
material misstatements, individually or when aggregated with other
misstatements, would be identified for the auditor to investigate. The level
of detail used to develop the expectation influences the precision, and the
more detailed the expectation, the greater the chance of detecting a
misstatement (Paragraph 19).
Reliance on Substantive Analytical Procedures
Paragraph 9 examines an auditor's reliance on substantive tests, which may
come from tests of details, analytical procedures, or both. The auditor's
judgment on the expected effectiveness and efficiency of the available
procedures determines which procedure(s) to use (Paragraph 10).
When conducting analytical procedures intended to provide substantive
testing, the auditor considers the level of assurance desired and decides
which procedure(s) can provide such. The auditor also evaluates the risk of
management override of controls, as "substantive analytical procedures
alone are not well suited to detecting fraud" (Paragraph 10).
Factors Influencing Analytical Procedures
Paragraph 11 outlines the factors that influence the efficiency and
effectiveness of an analytical procedure: a) the nature of the assertion, b)
the plausibility and predictability of the relationship, c) the availability and
reliability of the data used to develop the expectation, and d) the precision
of the expectation.
Paragraph 16 focuses on the reliability of data, stating that the auditor
should either test the design and operating effectiveness of controls over
pf3

Partial preview of the text

Download Auditing Analytical Procedures: Substantive Testing for Ticket Revenues - Prof. Morales and more Transcriptions Designs and Groups in PDF only on Docsity!

Substantive Analytical Procedures

in Auditing: A Case Study of

Burlingham Bees Inc.

Auditing Standard 2305: Substantive

Analytical Procedures

Developing Expectations for Analytical Procedures

According to Paragraph 2 of the standard, analytical procedures involve comparisons of recorded amounts or ratios to expectations developed by the auditor. The auditor develops such expectations by identifying and using plausible relationships that are reasonably expected to exist based on the auditor's understanding of the client and the industry.

Paragraph 17 states that the expectation should be precise enough to provide the desired level of assurance that differences that may be potential material misstatements, individually or when aggregated with other misstatements, would be identified for the auditor to investigate. The level of detail used to develop the expectation influences the precision, and the more detailed the expectation, the greater the chance of detecting a misstatement (Paragraph 19).

Reliance on Substantive Analytical Procedures

Paragraph 9 examines an auditor's reliance on substantive tests, which may come from tests of details, analytical procedures, or both. The auditor's judgment on the expected effectiveness and efficiency of the available procedures determines which procedure(s) to use (Paragraph 10).

When conducting analytical procedures intended to provide substantive testing, the auditor considers the level of assurance desired and decides which procedure(s) can provide such. The auditor also evaluates the risk of management override of controls, as "substantive analytical procedures alone are not well suited to detecting fraud" (Paragraph 10).

Factors Influencing Analytical Procedures

Paragraph 11 outlines the factors that influence the efficiency and effectiveness of an analytical procedure: a) the nature of the assertion, b) the plausibility and predictability of the relationship, c) the availability and reliability of the data used to develop the expectation, and d) the precision of the expectation.

Paragraph 16 focuses on the reliability of data, stating that the auditor should either test the design and operating effectiveness of controls over

financial information used in the substantive analytical procedures or perform other procedures to support the completeness and accuracy of the underlying information. The factors that influence the auditor's consideration of the reliability of data include: - Whether the data was obtained from independent sources outside the entity or from sources within the entity - Whether sources within the entity were independent of those who are responsible for the amount being audited - Whether the data was developed under a reliable system with adequate controls - Whether the data was subjected to audit testing in the current or prior year - Whether the expectations were developed using data from a variety of sources

Advantages of Detailed Expectations

There are several advantages of developing an expectation at a detailed level rather than an overall or aggregated level. Developing expectations at a detailed level enhances the effectiveness and efficiency of an analytical procedure, as it increases the chance of detecting a misstatement of any given amount opposed to an aggregated expectation. The level of diversity and complexity of information varies greatly depending on the company, and developing expectations at a more detailed level allows the auditor to gain a better understanding of the client's business operations and disaggregate complexity.

Precise Expectation for Ticket Revenue

To establish the 2014 precise expectation of ticket revenues, the average game attendance, ticket price, game revenue, and number of games must first be calculated for typical weekdays and weekends, as well as promotional weekdays and weekends.

The average attendance on a typical weekday is 6,426 attendees per game. The average ticket price for a weekday game is $8.26, and the average ticket price for a weekend game is $8.30.

The average game revenue is calculated by multiplying the game attendance by the ticket price. Using these calculations, the precise expectation for ticket revenue in 2014 is $4,277,630.86.

Evaluating the Reasonableness of Reported

Ticket Revenues

(a) For this calculation, the tolerable difference cannot exceed the overall materiality of the audit. Considering the reported pre-tax net income of $731,845, the generally accepted level of 5% can be used to determine the materiality range for the actual revenue figure. Thus, the reasonable range for total revenue is between $4,241,038.61 and $4,314,223.11.

(b) If the reported ticket revenues were outside the "reasonableness range," it could be due to: - A misstatement in revenues, either from an error or fraud - Failure in incorporating significant factors that affect games'