In this case, you will use substantive analytical procedures to audit Costco’s 2021 revenue from Membership fees and Net sales. Information contained in Costco’s 2021 Form 10-K (filed on October 6, 2021) will be useful to you.

Use a tolerable misstatement threshold of $250 million. Submit your responses in the Excel template provided. ONLY responses in the yellow highlighted cells will be evaluated. DO NOT insert any rows or columns in the template. This is an individual case assignment.

Our expectation for 2021 Membership fee revenue may be imprecise because the mix of foreign and domestic members could differ from the mix for 2020. It could also be imprecise because the relative percentage of executive members may have changed. In its 2021 10-K, Costco disclosed that Executive members totaled 25.6 million and represented 55% of paid members in the U.S. and Canada and 17% of paid members in Other International operations at the end of 2021. Using this information and the total paid members for 2021 (61.7 million), calculate the number of members in the U.S. and Canada (combined) and internationally. (Rhetorically: Why wouldn’t Costco just tell us what these numbers are?!) [4 points]

Use the membership totals derived in Question 5 to calculate an average membership fee for 2021. Costco charged $60 per year to members in the U.S. and Canada and $11 per year to members at international locations. Executive members pay double the membership fee (so $120 in the U.S. and Canada and $22 internationally). [3 points]

Develop a new expectation for Membership fees revenue for 2021 using the revised weighted average membership fee for 2021 from Question 6 (You may assume that this weighted average applies to the entire 2021 fiscal year). If we are still only willing to tolerate a 1% error in the balance from our expectation, is Membership fees revenue fairly presented? [3 points]

Net Sales Revenue

(in $millions)	2021	2020	2019	2018	2017
Net sales	192,052	163,220	149,351	138,434	126,172

Net sales accounts for the vast majority of revenue that Costco recognizes. It is generated from the sale of goods and services to members. Key drivers of Net sales are the number of members and the purchasing behavior of members (e.g., volume of purchases annually). We know the following from our audit of the 2020 financial statements:

Member Type (in 000s)	2020
U.S. and Canada Executive Members	19,396.74
U.S. and Canada Non-Executive Members	18,048.71
U.S. and Canada Total Members	37,445.45
Intl Executive Members	3,263.42
Intl Non-Executive Members	17,391.13
Intl Total Members	20,654.55
Total Paid Members	58,100.00

U.S. and Canada non-executive members spent, on average, $3,550 at Costco in 2020. Executive members spent 19.6% more.

International non-executive members spent, on average, $1,080 at Costco in 2020. Executive members spent 15.0% more.

Use the number of members in 2021 and purchasing behavior of members from 2020 to develop an expectation for Net sales revenue in 2021. [3 points]