The Eagle’s Nest Resort Communities, Inc. is a diversified company with three luxury resort communities (one each in Hawaii, Texas, and Maine); a ski apparel production division located in Denver, Colorado; a travel business specializing in high adventure, hunting, and fishing expeditions in Alaska, Canada, and Mexico; and a luxury cruise ship operating in the Carribean. Headquarters are located in Denver. Last year’s gross revenue from each division of the business may be summarized in round figures as follows:

The company’s internal auditors recently completed an audit of the Mexico High Adventure operations. It seems that a number of complaints had been received from clients who said their accommodations were not comparable with those advertised in the company’s literature. Clients also complained about bad food, and one group actually got lost for a week in the southern jungles of Mexico because of a reportedly ill-prepared expedition leader. The group was rescued by another of the company’s expedition leaders who led the search after the group was two days late returning.
The auditors found that revenues from the Mexico operations had declined over the past three years and that the operations manager had been trying to improve profits by minimizing costs. As a result, he had hired inexperienced expedition leaders who would work for less money, and he had changed the hotel chain where expedition members gathered before and after their adventures. The new hotel chain was advertised as a luxury chain, but was willing to sign a less expensive contract with the company than the previous chain. Although the new chain was not quite of the ultra-luxurious quality that the original chain was, the operations manager felt that the clients would not object. He also felt that they might even prefer the new one, since the decor was a bit more rustic and would suit the atmosphere of an outdoor adventure.
The auditors recommended an immediate change in policies so that more highly qualified expedition leaders would be recruited and hired and the previous hotel chain would be retained. The auditors also recommended that a new advertising and promotional campaign be designed to counter the diminished reputation of the company’s operations in Mexico.

Required:

a. If the auditors decide to review only the documentation of the auditee’s corrective actions for the follow-up procedures, what documents would be the most appropriate to examine in order to evaluate (1) the actions regarding the qualifications of expedition leaders, (2) the change in hotel accommodations, and (3) the advertising and promotional campaign?

b. What would be the determining factors in your decision as an auditor to review documents only or to conduct an on-site review of performance in this case?

c. Would you perform an on-site performance review, review documents at your Denver offices, or combine your review of both documentation and on-site performance? Why?

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Division Resort Communities Ski Apparel Travel Business Cruise Ship TOTAL GROSS REVENUES Gross Revenue $25,000,000 3,000,000 12,000,000 20,000,000 $60,000,000