You are an auditor with ZZ, a PA firm. Your firm has just accepted a new engagement to audit the annual financial statements of Chestnut Limited, a medium-sized restaurant business. Chestnut operates a chain of specialty fast food restaurants. Most of the restaurants are franchised, and Chestnut receives franchise fees based on the franchisee store’s net sales revenues.
Chestnut receives 4% of net sales as a base franchise fee, 1% as an advertising fee, and 0.5% as an administration fee for processing franchisee accounting information and issuing reports in standard format. Franchisee sales information is uploaded daily to Chestnut’s central accounting system, where it is input into the franchise reporting system to generate daily, monthly, and year-end management reports.

Required:
Assume you are an audit manager reviewing the audit work on the franchise revenues that has been documented by the staff during their field work at Chestnut. What procedures will you expect to have been included in their audit work? State any assumptions you make.