You are the audit senior on the audit of Great Eastern Hotel (GEH). This two-star hotel is located in a major coastal city and as

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You are the audit senior on the audit of Great Eastern Hotel (GEH). This two-star hotel is located in a major coastal city and as such is prone to seasonal fluctuations. The 200-room hotel is open year round with a standard room rate of $90 per night. GEH charges $95 per room in the summer and $85 per room in the winter, the same as the prior year. The hotel includes a bar and restaurant as well as underground parking.

From the audit work performed to date, you are satisfied that GEH has well-established controls. You therefore decide to place reliance on these controls and for the most part use only substantive analytical procedures to test revenue (Summarized below). You are satisfied that this approach will provide you with sufficient assurance on hotel room revenue. So far, you have obtained a breakdown of room rental revenue by quarter and gathered some statistics on occupancy rates from the local tourist board.

REQUIRED

a. Comment on the quality of information you have obtained so far, considering its source, audit assertions, and level of detail in your discussion.

b. What additional analytical procedures would you be required to perform in order to ensure the degree of precision necessary to provide adequate assurance for hotel room revenue?

c. Develop an expectation of GEH?s rental revenue. Based upon this analysis, provide your conclusion on GEH?s 2018 hotel revenue.

d. Based on your analysis and conclusion in Part (b), describe what further inquiries you would make of GEH management and corroborating evidence you would request. Tie your discussion to specific audit assertion(s) you are concerned with.

e. Despite the well-established controls at GEH and your decision to place reliance on them, is it appropriate to use only substantive analytical procedures to gain assurance over revenue accounts? Explain why.

Great Eastern Hotels Statement of Income for the Year Ended December 31 2018 2017 (audited) Revenue: $5 535 617 1 497 612 $5 165 176 Hotel Room Rental 1 488 619 Food & Beverage 396 158 Parking, Telephone, Other 417 602 Interest 58 610 56 711 $7 507 542 $7 108 563 Expenses: Direct Costs: Hotel Room Rental 3 165 992 3 105 644 1 388 691 Food & Beverage 1 452 107 Other 389 917 365 223 $4 944 600 $2 462 942 $4 922 974 $2 185 589 Gross Margin 1 617 532 1 574 805 General & Administration Advertising & Promotion 364 817 349 576 Other 216 911 166 978 $2 199 260 $2 091 359 $ 163 682 24 Net Income Before Tax 94 230 Income Tax Expense 26 754 40 519 $ 236 928 Net Income 52 711 2018 Breakdown of Room Revenue by Quarter ($000s) Q1 Q2 Q3 Q4 1 471 1 193 1 427 Hotel Room Rental 1445 2018 Hotel Occupancy Rates Q1 Q2 Q4 Summer Fall Q3 Winter Spring 71% First Class Two Star 77% 75% 86% 76% 70% 84% 71% Third Rate 60% 69% 74% 78%