The auditors for Weston University are conducting their audit for the fiscal year ended December 31, 2011. Specifically, the audit firm is now focusing on the audit of revenue from this season's home football games. While planning the audit of sales of football tickets; one of their newer staff people observed that in prior years, many hours were spent auditing revenue. This staff associate pointed out that perhaps the firm could apply analytical procedures to evaluate whether it appears that revenue account is properly stated.
The staff associate noted that information for a typical home game could be used to estimate revenues for the entire season. The home football season consisted of seven home games - one against a nationally ranked powerhouse, Bloomington University, and six games against conference opponents. One of these conference games is Weston's in-state archrival, Norwalk University. All these were day games except for the games against a conference opponent, Westport University.
The auditor will base their estimate on game played against Kramer College, a conference opponent, Weston University. The following concerning that game is available:
Total attendance 24,000 (stadium capacity 40,000)
The attendance figure includes the 500 free seats described below, and the 24,000 figure should be used as a basis for all further calculations.
Ticket prices
Box seats $12 per ticket
End zone seats 8 per ticket
Upper - deck seats 5 per ticket
At the game against Kramer College, a total attendance was allocated among the different seats as follow:
Box seats 70%
End zone seats 20%
Upper - deck seats 10%
· Based on the information obtained in prior year audits, the following assumptions are made to assist in the estimation of revenue for all the games;
· Attendance for the Bloomington University game was expected to be 30% higher than total attendance for an average game, with the mix of seats purchase expected to be the same as for regular game; however, tickets are priced 20% higher than a normal game
· The game against Norwalk University was expected to draw 20% more fans than normal game, with 75% of these extra fans buying box sets and the other 25% purchasing upper - deck seats.
· To make up for the extra costs associated with the night game, ticket prices were increased by 10% each; however, attendance was also expected to be 5- percent lower than for normal game, with each type of seating suffering a 5 percent decline.
· At every game, 500 box seats are given away free to players' family and friends. This number is expected to be the same for all home games.
REQUIRED:
1. Based on information above develop an expectation for the ticket revenue for seven home football games.
2. Reported ticket Revenue was $2, 200,000. Is the difference between your estimate and reported ticket revenue large enough to prompt further consideration? Why or why not? If further consideration is warranted, provide possible explanations for the difference between estimated and actual football ticket revenue. What evidence could you gather to verify each of your expectations?
3. Under what conditions is substantive analytical procedure likely to be effective in a situation such as that described in this problem?