Trenton Thunder is an American Minor League Baseball team, based in Trenton, New Jersey. The team is the Double A-affiliate of the New York Yankees and won the 2019 Eastern League Championship. The Thunder's 2019 cumulative season attendance of 534,784 spectators set a new record high for the team, up more than 5% from the prior season's attendance.

Bank-loan covenants require the Thunder to submit audited financial statements annually to the bank. The accounting firm of Hickman and Snowden, CPAs, has served as the Thunder's auditor for the past five years.

One of the major audit areas involves testing ticket revenues. Ticket revenues reached nearly $5.08 million in 2018. In 2019 the unaudited ticket revenues are reported to be $5,515,897 with net income before tax of $937,703. In prior years, the audit plan called for extensive detail testing of revenue accounts to gain assurance that reported ticket revenues were fairly stated.

Michelle Andrews, a new audit manager, just received the assignment to be the manager on the 2019 audit. Michelle worked previously on Thunder's prior-year audits as a staff auditor. When she learned she would be managing the current-year engagement, she immediately thought back to all the hours of detailed testing of ticket sales she performed. On some of her other clients, Michelle has been successful at redesigning audit plans to make better use of analytical procedures as substantive tests. She is beginning to wonder if there is a more efficient way to gather effective substantive evidence related to ticket revenues on the Thunder engagement.

In her first meeting with Thunder management for the 2019 audit, Michelle learned that Thunder now uses an outside company, Tickets R Us, to operate ticket gates for home games. The terms of the contract require Tickets R Us to collect ticket stubs so that it can later report total tickets collected per game. While Tickets R Us does not break down the total ticket sales into the various price categories, Michelle thinks there may be a way to develop an analytical procedure using the independently generated total ticket numbers and data from prior audits. To investigate this possibility, Michelle asked a staff person to gather some information related to reported sales. Here is the information the staff person gathered from the records of the client, Tickets R Us, and prior-year audit files:

2019 Park Attendance (all games)

Total park attendance 534,784

2019 Number of Games

Weekday games 44

Weekend games 28

Information from prior-year audit files indicates a similar number of home games in total, although in the prior year there were 26 weekend games. The audit file indicates that average per-game attendance for weekend games was 20% higher than average per-game attendance for weekday games.

2019 Per-Game Ticket Prices

Club seats $ 14

Box seats $ 12

General seats:

Adult $ 8

Child (Senior Citizens) $ 6

Comparison of 2018 ticket prices to 2019 ticket prices reveals an average increase of 9% between the two years.

Sales Mix Weekday Weekend

Club seats 25% 26%

Box seats 30% 29%

General seats:

Adult 23% 24%

Child (Senior Citizens) 22% 21%

Information from prior-year audit files shows that sales mix has remained similar over the last several years.

2019 Promotions: Number of Games

Weekday 8

Weekend 9

Information from prior-year audit files shows that attendance generally increases by 15% when there is a promotion (e.g., free baseball cap, poster, or special entertainment). In the prior year, there were only 15 total promotional days.

REQUIRED:

[1] What are the advantages of developing an expectation at a detailed level (i.e., using disaggregated data) rather than at an overall or aggregated level?

[2] Using the information provided, please develop a precise expectation (i.e., using the detailed or disaggregated data provided) for ticket revenues for the 2019 fiscal year.

[3] (a) How close does the Thunder reported ticket revenue for 2019 have to be to your expectation for you to consider reported ticket revenue reasonable or fairly stated (i.e., provide a high level of assurance)?

(b) If reported ticket revenues were outside your "reasonable range," what could explain the difference?

(c) Would you consider it acceptable for auditors to design substantive analytical procedures to obtain moderate or low assurance by accepting a difference between reported and expected revenue that is 2 or 3 times the size of audit materiality?