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Burlingham Bees

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by

A V

on 30 January 2014

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Transcript of Burlingham Bees

Burlingham Bees
Amit Vashisht
Briana Samuela
Jessi Hehn
Background
An independent minor league team
In 2011, attendance increased to 516,783 ( 8% increase from 2010)
Financial Background
$3.95 million of ticket revenue in 2010
Nearly $4.3 million in
unaudited
ticket revenue in 2011
Net Revenue of $731,845 for the current year
Current Situation
Michelle Andrews has taken over as the new audit manager
Michelle wants to create a "more efficient" way to gather evidence regarding ticket revenue
Michelle believes that an analytical procedure can be created to determine tickets sold in each price category
Bank Loan Requirements
Bank loan requires Burlingham to submit audited financial statements each year
For the past 5 years, they have been audited by Hickman & Snowden
Ticket Operations
The Bees now use an independent company, Tickets R Us, to operate ticket gates
They collect the stubs & report total tickets collected
Michelle would like to use the Tickets R Us info & prior audit data to develop substantive analytical procedures
Analytical Procedures
Involve comparing recorded values with expected values
Expected values are developed by the auditor and usually performed in 3 different phases of the audit
3 phases -
Planning / Completion / Testing
Analytical Procedures: Auditing Standards
AU 329 Substantive Analytical Procedures
Analytical procedures involve comparisons of recorded amounts to expectations developed by the auditor

Expectations should be developed using:

1
) comparable prior period financial info, giving consideration to known changes.

2
) anticipated results-budgets, forecasts

3
) relationships among elements of financial info within the period.

4
) industry information

5
) relationships of financial info with relevant non financial info
Analytical Procedures: The Auditor
Auditors decide the appropriate level of assurance wanted from substantive testing & then decide which procedures to use.
Auditors should also evaluate the risk of management overriding controls when developing substantive analytical procedures
Analytical Procedures: Effectiveness / Efficiency
The effectiveness & efficiency of an analytical procedure depends on:

1. The nature of the assertion

2. Plausibility & predictability of relationship

3. Availability & reliability of data used to develop expectation

4. Preciseness of the expectation
Substantive Analytical Procedures
The auditor, when designing substantive analytical procedures should consider the amount of difference from the expectation that can be accepted without further investigation (based upon materiality)
If substantive analytical procedures aren't satisfactory, perform other analytical procedures
Documentation of Substantive Analytical Procedures
When an analytical procedures are used as the principal substantive test of a significant financial statement assertion, the auditor should document all of the following:

1.)
The expectation,
where that expectation is not otherwise readily determinable from the documentation of the work performed, and factors considered in its development

2.)
Results of the comparison
of the expectation to the recorded amounts or ratios developed from recorded amounts

3.) Any
additional auditing procedures performed
in response to significant unexpected differences arising from the analytical procedure and the results of such additional procedures
Expectations:
Detailed Level
vs
Aggregated Level
Detailed expectations provide a greater level of assurance
Allows for a greater level of predictability
Data may not be available to determine expectations at a detailed level
Expectation for the Burlingham Bees
Provided Information:
Total Attendance (2011) - 516,783
Weekday games - 44
Weekend games - 28
An additional 2 weekend games from 2010
Attendance for weekend games is 20% higher
Club seats - $12
Box seats - $10
General - $ 6
adults
$ 4
children
Promotional games - 17 (2 more than 2010)
Expectations for the Burlingham Bees: Attendance
Total Attendance of 516,783
Weekday games - 44
Weekend games - 28
Weekend attendance - 20% higher
Expectations:
Weekdays - (6650 people * 44 games) =
292,600 people
Weekend - (6650 * 1.2) * 28 games =
223,440 people
Total Estimated Attendance ~
516,000 people
Expectations for the Burlingham Bees: Attendance
Club seats
Box seats
General adult
General child
Weekday
Weekend
25%
26%
30%
29%
23%
24%
22%
21%
Weekday
Weekend
73,150
87,780
67,298
64,372
58,094
64,798
53,626
46,922
Expectations for the Burlingham Bees: Attendance
Club seats - $12
Box seats - $10
General adult - $6
General child - $4
Weekday Weekend
877,800
877,800
403,788
257,488
Total Revenue
(before promotions)
2,416,876
697,128
647,980
321,756
187,688
1,854,552
Expectations for the Burlingham Bees: Promotions
Weekdays - (6,650 * 8 promotional games) = 53,200
Weekends - (7,980 * 9 promotional games) = 71,820
Weekday Weekend
25% 26%
30% 29%
23% 24%
22% 21%
Weekday Weekend
13,300
15,960
12,236
11,704
18,673
20,828
17,237
15,082
Weekday Weekend
159,600
159,600
73,416
46,816
224,076
208,280
103,422
60,328
Total Revenue:
439,432 596,106
Normal
Promotional
Weekday Weekend
183,540
183,540
84,428
53,838
257,690
239,520
118,934
69,378
Total Revenue:
505,347 685,522
Increase of:
65,915 89,416
Final Expected Total Revenue: Burlingham Bees
Initial Revenue
Weekday Weekend
$2,416,876
$1,854,552
Promotion Income
$65,915
$89,416
Total Income
$2,482,791
$1,943,968
Total Combined Estimated Income
$4,426,759
Total Reported Unaudited Income
$4,292,970
($133,789)
How much variation between the estimated and reported revenue can we accept?
Depends upon
risk level
/
desired accuracy
/
promotions
/
sales mix
Reasonably Stated Estimation
Calculation based upon swapping 2011 ticket prices with the 9% lower 2010 ticket prices
Initial Revenue
Weekday Weekend
$2,199,357
$1,687,642
Promotion Income
$65,915
$89,416
Total Income
$2,265,272
$1,777,058
Estimated Range
-

(
$4,042,330
-
$4,426,759
)
Total Reported Unaudited Income
$4,292,970
Outside the "reasonableness range"
If the stated revenue is
below
the estimated range:
It arises suspicion since higher attendance and higher ticket prices were unable to increase revenue
If stated revenue is
above
the estimated range:
It arises suspicion since the estimate is the maximum of the attendance, prices, and promotions put together
What could be the reason for the difference?
A variation in weekend attendance from the stated 20%
A variation in the sales mix ( Club / Box / General)
A variation in the promotion attendance from the stated 15%
A variation in the ticket price
An intentional misstatement of any factors from Tickets R Us
Analytical Procedures as Substantive Tests
Audit Plan Difference due to Analytical Procedures
Improves timeliness
Cost Effective
More efficient use of resources
Reduces the need for more detailed testing
Compare data with prior year ticket revenue to determine whether or not the results are reasonable
Due to the use of a independent 3rd party, the data is more reliable
Reduced chance of risk due to public information ( number of games / ticket prices / attendance )
Burlingham Bees: Overall Situation
Analytical Procedures in this situation are helpful
The benefits of using these procedures outweighs the limited risk in this situation
The estimation calculated earlier falls within a "reasonable limit"
Due to the nature of this case, additional substantive testing is not necessarily requried
Questions?
Full transcript