Read the following scenario and answer the questions (in bold) that follow it.

You are an assistant auditor with Zaird & Associates, CPAs. Universal Air (UA), your fifth audit client in your eight months with Zaird, is a national airline based in your hometown. UA has continued to grow while remaining healthy financially over the eight years of its existence. Indeed, as you start the audit, you notice that (unaudited) sales are up 30 percent this year (20X1), with earnings up 40 percent. Your firm, Zaird & Associates, has been UAs only auditor.

During the audit you noticed that UA records sales when tickets are solddebit receivable (or cash), credit sales. In performing substantive procedures relating to receivables, you also found that some of the sales are for 20X2 flightsgenerally in January and early February. 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 isnt 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 eight years ago. Thus, any overstatement of this years sales at year-end is likely to be averaged out by an understatement at the beginning of the year because the company followed the same policy last year (and the years before).

Valid reasons exist for including the sales when booked. The small airlines earnings 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 fly 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 years flights 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 cans of soda.

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 flight occurs.

She says she is willing to discuss this with you if you disagree, but at this point she thinks it isnt a problem.

Discuss whether you agree or disagree with each of her reasons.

Discussion Board Requirements:

• Discussion boards for the relevant auditing topics covered will be created online on Blackboard.
• In these discussion boards, each student must provide a professional analysis of the underlying issues; furthermore, each student must respond to the professional analyses of at least 1 classmate.
• All discussion board postings are to be written in full sentences demonstrating the proper use of English. All postings must contain the conceptual reasoning, not simply answers with yes, no, or just a personal opinion.