You are the audit senior on the audit of Great Eastern Hotel (GEH). This two-star hotel is

Question:

You are the audit senior on the audit of Great Eastern Hotel (GEH). This two-star hotel is located in a major coastal city and as such is prone to seasonal fluctuations. The 200-room hotel is open year round with a standard room rate of $90 per night. GEH charges $95 per room in the summer and $85 per room in the winter, the same as the prior year. The hotel includes a bar and restaurant as well as underground parking. From the audit work performed to date, you are satisfied that GEH has well-established controls. You therefore decide to place reliance on these controls and for the most part use only substantive analytical procedures to test revenue (summarized below). You are satisfied that this approach will provide you with sufficient assurance on hotel room revenue. So far, you have obtained a breakdown of room rental revenue by quarter and gathered some statistics on occupancy rates from the local tourist board.

REQUIRED
a. Comment on the quality of information you have obtained so far, considering its source, audit assertions, and level of detail in your discussion.
b. What additional analytical procedures would you be required to perform in order to ensure the degree of precision necessary to provide adequate assurance for hotel room revenue?
c. Develop an expectation of GEH’s rental revenue. Based upon this analysis, provide your conclusion on GEH’s 2020 hotel revenue.
d. Based on your analysis and conclusion in Part (b), describe what further inquiries you would make of GEH management and corroborating evidence you would request. Tie your discussion to specific audit assertion(s) you are concerned with.
e. Despite the well-established controls at GEH and your decision to place reliance on them, is it appropriate to use only substantive analytical procedures to gain assurance over revenue accounts? Explain why.