Exercises Page III-16' Universal Air (Part A) You are an assistant auditor with Zaird & Associates, CPAs. Universal Air (UH), your fifth audit client in your eight months with Zaird, is a national airline based :in your home town. UA has continued to grow while remaining healthy nancially over the eight years of its existence. Indeed, as you start the audit you notice that (unaudited) sales are up 30% this year (203(1), with earnings up 40%. Your firm Zaird Associates has been UA's only auditor. During the audit you noticed that UA records sales when tickets are solddebit receivable [or cash]I credit sales. In performing substantive tests relating to receivables you also found that some of the "sales" are for 2030 fli enerall in Janna and earl Februa . You brought up this matter to your in-charge senior and she indicated that she also wondered about this last year when she worked on the audit. She suggested that she concluded that this isn't likely to be a problem for at least three reasons (any one of which would be sufficient to allow the current method): - The company has been using this approach since its inception 8 years ago. Thus, any overstatement of this year's sales at yearend is likely to be "averaged out" by an understatement at the beginning of the year, since the company followed the same policy last year (and the years before). (Acceptableremember petty cash; can depart from GAAP blc immaterial departure from GAAPcan use expediencies as long as they don't materially depart from GAAP. If auditing how would you see if the beginning of the year and ending of the year balance out: look at Jan at the end of the year and the previous Jan and see if they are averaging out) - Valid reasons exist for including the sales when \"booked.\" The small airline's earning process is probably best considered about complete when the sale is made because this is the toughest part of the revenue generation process. The planes are scheduled to y for the first six months of next year, and will fly, regardless of whether these relatively few passengers who paid before year-end for next year's ights are on them; there are virtually no variable costs incurred for these passengers, except for a few very small bags of peanuts and a few 2 liter bottles of soda. (Not acceptable) 0 Imagine what a nightmare it would be to have to record an entry when a passenger buys a ticket, and then another one when the ight occurs. (Not acceptable) She says she is willing to discuss this with you if you disagree, but at this point she thinks it isn't a problem. REQUIRED 1. Discuss whether you agree or disagree with each of her reasons