Using Analytical Procedures as Substantive Tests
Use analytical procedures to develop expectations for revenue accounts Recognize factors that lead to precise expectations of account balances Appreciate the degree of professional judgment involved in evaluating differences between expected and reported account balances Understand the audit planning implications of using analytical procedures as substantive tests of account balances
Burlington Bees, an independent, minor league baseball team, competes in the North-west Coast League. The team finished in second place in 200X with an 87—57 record. The Bees' 200X cumulative season attendance of 434,348 spectators set a new record high for the team, up from 390,000 in 200W.
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' auditors for the past five years.
One of the major audit areas involves testing ticket revenues. Those revenues reached nearly $1.9 million in 200W. 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 Kramme, a new audit manager, just received the assignment to be the manager on the 200X 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 substantive evidence related to ticket revenues on the Bees' engagement.
In her first meeting with Bees' management for the 200X audit, Michelle learned that the Bees...