Question
ACCT 107 You are an auditor working at aCPAfirm.Oneofyourfirm'sclientsisaperforming arts organization in Sacramento (World Arts Productions).You've been asked to audit ticket revenue for the year.
ACCT 107
You are an auditor working at aCPAfirm.Oneofyourfirm'sclientsisaperforming arts organization in Sacramento
(World Arts Productions).You've been asked to audit ticket revenue for the year. The organization also earns revenue from sales of show merchandise and from education programs.
You've decided to try and use an analytical procedure to obtain some evidence of the reasonableness of the $1,020,000 reported as Ticket Revenue for the year Performance materiality is set at $30,000 for the account.you have the following information:
There were seven productions during the year under audit.
oA first-run Broadway production that got rave reviews.
oA production commissioned by World Arts
o fourtouring Off-Broadway shows (evening performances)
o One touring Off-Broadway show (matinee performance)
The theater has three types of seats:box seats, upper tier, and orchestra.
oThe theater has a maximum capacity of 3,000 seats.
For each production,World Arts gives away 50 box seats (no charge) to the friends and family of the company's employees.
You decide touse actual results from one of the evening Off-Broadway shows (Dancing Numbers) as the base for your estimateof total revenue.For that show total attendance was 2,000:60% were orchestra seats,30%were upper-tier seats.and10% were box seats.The attendance figure (the 2,000) includes the 50 free box seats.
Ticket prices for Dancing Numbers were:
oBox seats - $110 per ticket
oOrchestra- $70 per ticket
oUpper Tier -$50 per ticket
Additional assumptions were made based on information obtained in your review of prior year activity
. *Attendance for the Broadway show was estimated at 50% higher than Dancing Numbers attendanceThe mix of seats was assumed to be the same.Tickets were priced 50% higher than those for Dancing Numbers.
*Attendance at the commissioned production was estimated at 20% higher than Dancing Numbers.The mix of the extra seats at the commissionedproduction was assumed to be 75% Orchestra and 25% Upper Tier.The mix of the other 2,000 tickets was assumed to be the same as Dancing Numbers.Ticket prices were:$105 Box; $65 Orchestra; $45 Box.
*Ticket prices were decreased by10%from the Dancing number for the off-Broadway matinee performance.Attendance was estimated to be 5% lower.The mix of seats was estimated to be the same Dancing Numbers.
*The other three touring Off-Broadway shows (evening performances) were assumed to have the same ticket pricing, the same number of attendees and the same mix of seats as Dancing Numbers.
1.Based on the above data, what would you (you're the auditor) expect ticket revenue to be (in dollars)?(I will accept a small range of possible correct answers. $2,000 swing.)
2. What's your next step? Pick one.
A . Accept the population as "reasonably fair" and do no other work.
i. Explain your reasoning.
B. Review your assumptions and redo the estimate.
i. Explain why you picked this as the next step.
What assumptions do you think might be inaccurate?How would you determine the new assumption(s)?
C. Perform tests of details and don't rely on the analytical procedure.
i. Explain why you picked this as the next step.What specific test(s) would you perform?(Be realistic.Be specific.Think of what you could use as evidence.)
Reported ticket revenue differs from the expectation by approximately 11 percent; this difference
is material and should be investigated. One explanation for the larger than expected reported ticket
revenue could be that one of the off-Broadway shows got really rave review. In addition, perhaps
the matinee didn't drop in attendance.Auditorscan verify ticket sales,perhapsby comparing deposits of ticket revenue with reported attendance.The auditors also could check production reviews to see if that was a plausible explanation for the higher attendance.
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