The auditors for Weston University are conducting their audit for the fiscal year ended December 31, 2015. Specifically, the audit firm is now focusing on the audit of revenue from this season’s home football games. While planning the audit of sales of football tickets, one of their newer staff people observed that, in prior years, many hours were spent auditing revenue. This staff associate pointed out that perhaps the firm could apply analytical procedures to evaluate whether it appears that the revenue account is properly stated.
The staff associate noted that information for a typical home game could be used to estimate revenues for the entire season. The home football season consisted of seven home games—one against a nationally ranked powerhouse, Bloomington University, and six games against conference opponents. One of these conference games is Weston’s in-state archrival, Norwalk University. All of these games were day games except for the game against a conference opponent, Westport University. The auditors will base their estimate on the game played against Kramer College, a conference opponent. This game is considered to be an average home game for Weston University. The following information concerning that game is available:
Total attendance 24,000 (stadium capacity is 40,000)
This attendance figure includes the 500 free seats described below, and the 24,000 figure should be used as a basis for all further calculations.
Ticket prices
Box seats $12 per ticket
End-zone seats 8 per ticket
?Upper-deck seats 5 per ticket
At the game against Kramer College, total attendance was allocated among the different seats as follows:
Box seats 70%
End-zone seats 20%
Upper-deck seats 10%
Based on information obtained in prior year audits, the following assumptions are made to assist in estimating revenue for all other games:
Attendance for the Bloomington University game was expected to be 30 percent higher than total attendance for an average game, with the mix of seats purchased expected to be the same as for a regular game; however, tickets are priced
20 percent higher than for a normal game.
The game against Norwalk University was expected to draw 20 percent more fans than a normal game, with 75 percent of these extra fans buying box seats and the other 25 percent purchasing upper-deck seats.
To make up for extra costs associated with the night game, ticket prices were increased by 10 percent each; however, attendance was also expected to be 5 percent lower than for a normal game, with each type of seating suffering a 5 percent decline.
At every game, 500 box seats are given away free to players’ family and friends. This number is expected to be the same for all home games.
Based on the information above, develop an expectation for ticket revenue for the seven home football games.
1. a) Based on the information above, develop an expectation for ticket revenue for the seven home football games.
b) Reported ticket revenue was $2,200,000. Is the difference between your estimate and reported ticket revenue large enough to prompt further consideration? Why or why not? If further consideration is warranted, provide possible explanations for the difference between estimated and actual football ticket revenue. What evidence could you gather to verify each of your explanations?
c) Under what conditions are substantive analytical procedures likely to be effective in a situation such as that described in this problem?