An auditor is auditing the financial statements of a privately owned local hotel. The hotel has 200 guest rooms and in the last year, it generated $12.8 million in revenues. The auditor assessed the system of internal controls as effective and therefore decided to perform an ADA. The auditor has decided to perform a substantive analytical ADA using the average nightly and vacancy rates to develop an expected revenue amount for the year and by month. This will be compared with the actual revenues.

Required

a. What assertions will be addressed by this procedure?

b. What are the dependent and independent variables?

c. How will the auditor determine what is an acceptable difference?

d. Assume the auditor conducted the test and produced the results in the chart below. The auditor determined that an acceptable difference was $300,000. Identify the exception and discuss how the auditor should deal with this notable item.

e. The auditor created the visualization below. How can it be improved?

Transcribed Image Text:

1,800,000.00 1,600,000.00 1,400,000.00 1,200,000.00 1,000,000.00 800,000.00 600,000.00 400,000.00 200,000.00 0.00 January March February Actual and estimated hotel revenues April May Actual revenue June July August September Expected revenue October November December