In assessing the audit risk of a specific company, one must first look at the audit concerns of the overall industry in which it operates. Therefore, in order to properly evaluate Caesars Entertainment Corporation, the gaming industry must be taken into consideration. Specifically, industry trends and strategies, competitors, business processes, regulation and oversight, special accounting and financial reporting practices, internal controls, major risks, as well as the implications of those risks will be addressed.
Industry Trends and Strategies
While the gaming industry was once considered to be “recession proof,” it endured significant losses at the height of the global economic downturn. However, a quick recovery appears to have taken place as revenues began to slowly increase in 2009 and 2010. Furthermore, the future appears to be looking good for the gaming industry since casino operations have recently been legalized in four more states including Kansas, Missouri, Maine, and Massachusetts. On the other hand, the market is believed to be reaching its saturation point in the United States with the industry experiencing difficulty in reaching a value higher than $62 billion. With this apparent problem, a number of companies operating in the gaming industry have foregone opportunities to expand in the United States for more favorable opportunities in Europe and Asia. Another factor expected to have a significant effect on traditional casinos is the rapid growth of online gambling which now accounts for 20% of the total revenue generated by the gaming industry (Koustas 1,2).
The main competitors in the gaming industry operate in the United States as well as abroad. Their sources of revenue include casinos, restaurants, bars, hotel lodging, entertainment venues, and retail shopping. The most notable companies are listed below (“Key” 1).
* Ameristar Casinos, Inc.
* Boyd Gaming Corporation
* Caesars Entertainment Corporation
* Isle of Capri Casinos, Inc.
* Lakes Entertainment, Inc
* MGM MIRAGE
* MTR Gaming Group
* Penn National Gaming, Inc.
* Pinnacle Entertainment, Inc.
* Trump Entertainment Resorts, Inc.
Key Business Processes
While the above mentioned companies offer a wide variety of services, this report will address the processes of their gaming operations.
Gross gaming revenue is reported by a casino’s cage at the end of every shift. There are two distinct types of cycles that occur on the floor. The first is the table game (area) cycle. This cycle includes games like blackjack and roulette. The other primary cycle is the machine cycle. Both cycles include the issuance and collection of money from the gaming area and the slot machines (“Description” 5).
The cage is where cash is received from the area and the machines. Hoppers are filled and table inventory is stocked. The cage can exchange players’ chips for money and extend credit. Because of the central role of the cage, it is important to keep good controls around each process. There are several factors that affect the cage’s balance. They are the amount of drops collected (cash increase), payments received for outstanding markers (cash increase), electronic fund transfers to and from banks (net ±∆), payout for chips (cash decrease), and chips in players’ possession (liability).
The area cycle begins with the cage. The cage starts with a predetermined number of chips, referred to as the casino’s bankroll. The cage gives chips to the table and prepares a fill slip. Players come to the table and purchase chips with cash or on credit. Cash or a marker slip (for credit players) is prepared and put in the lock drop box at the table. Bets are made at the table and the inventory of chips at the table will either increase or decrease. When the table closes, the chips won by the table are...