PLEASE ANSWER ALL PART 1, PART 2 AND PART 3!

I. Introduction

Coliseum Entertainment Corporation is one of the worlds largest hotel and gaming entertainment companies. Coliseum is a publicly-traded company; its stock trades on the New York Stock Exchange (NYSE) under the CECP ticker symbol. The company, which first went public in 1973, is currently experiencing significant financial pressure stemming from debt obligations incurred as part of its recent acquisition of a large industry competitor. One of Coliseums strategies to increase revenue and income has been to expand entertainment offerings and to encourage increased traffic to the companys existing hotel and gaming properties. With that strategy in mind, Coliseum constructed a new attraction, the Reel Wheel, which opened on April 1, 20X4.

The Reel Wheel

The Reel Wheel is an observation wheel located at a new outdoor mall situated between two of Coliseums hotel properties on the Las Vegas Strip. The Reel Wheel is the largest observation wheel in the world, standing 550 feet tall. There are 28 observation cars, each holding up to 40 people. The cars have 225 square feet of interior space, and each weighs roughly 44,000 pounds. It takes approximately 30 minutes for the wheel to make a complete rotation.

The Reel Wheel operates daily year-round from 11:00 a.m. to 2:00 a.m. Operations between 11:00am and 5:00pm are considered day time rides; those between 5:00pm and 2:00am are considered night time rides. During night time operations, the wheel lights up with more than 2,000 LED lights that bathe the wheel and its riders in a rainbow of bright and colorful lights.

Within each of the 28 observation cars, interior lighting, TV monitors, music, and sound effects entertain guests while the wheel is in motion. Although Coliseum primarily displays its own advertising images in each of the Reel Wheel observation cars, it also sells advertising space to complementary businesses.

In addition to ticket sales and advertising revenue, the Reel Wheel generates additional revenue through the sale of food and beverages, photos, and Coliseum-themed souvenirs from a gift shop located at the base of the observation wheel.

Because of the allure of seeing the Las Vegas Strip at night, ticket sales for night time rides are charged a premium. Children 12 and under always ride free on the Reel Wheel, and Las Vegas locals receive a 40% discount off of regularly-priced tickets. In order to entice more people to ride the Reel Wheel during the hottest summer months, a discounted price structure ($5.00 off each ticket) was offered during the third quarter of 20X5 (July through September). Locals are not eligible for the summer pricing structure, but they continued to get 40% off of regular ticket prices.

In addition to selling tickets to tourists and locals, the Reel Wheel also sells tickets in wholesale batches to travel agencies, local hotels, and other tourism-related services that bundle the tickets together with vacation packages and other offerings. The wholesale ticket prices do not vary based on time of day or season.

Coliseums Annual Audit

Coliseum has engaged one of the largest public accounting firms in the world to conduct its annual audit of the companys financial statements. The engagement audit partner has asked you, a third-year associate with the firm, to oversee the audit of Ticket Sales Revenue generated by the Reel Wheel during the 20X5 calendar year. The clients unaudited reported Ticket Sales Revenue balance for the year is $73,468,219. The amount of tolerable difference allocated to this account is $675,000. The underlying internal controls related to ticketing revenue have been tested, and no significant deficiencies or material weaknesses were identified.

Given the nature of the Reel Wheels operations and ticket revenue transactions, the audit partner encourages you to consider using substantive analytical procedures to develop an independent expectation of ticket sales revenue and to use that estimate as evidence in evaluating the reasonableness of Coliseums reported ticket sales revenue for the Reel Wheels operations during the year.

Instructions and Deliverables

Part 1: Understanding the Audit Concept

After reading the case materials, please take a few minutes to search through the PCAOBs auditing standards to identify the one(s) governing the use of substantive analytical procedures. Refer to and cite these standard(s) as you complete the following tasks.

After studying the relevant auditing standards, draft a brief memo to address the following issues. Be sure to cite the appropriate paragraphs of relevant standards to justify your responses to each bulleted item.

a. How and in what contexts may substantive analytical procedures be used during the course of a financial statement audit?

b. Are substantive analytical procedures allowed to be used as audit evidence?

c. What specific assertions related to the Ticket Sales Revenue account balance could a substantive analytical procedure be used to test?

d. Does the Ticket Sales Revenue account include predictable relationships required to develop an independent expectation?

e. Why do you think a substantive analytical procedure might be more effective and efficient than tests of details for the Ticket Sales Revenue account?

f. What do the auditing standards mean when they refer to the precision of an expectation developed with a substantive analytical procedure? What do the standards suggest that you could do to improve the precision of your expectation for Ticket Sales Revenue?

g. Does the data provided to you for the purpose of conducting the audit of Reel Wheels Ticket Sales Revenue meet the requirements regarding the reliability of underlying data? How does the source of the information impact its reliability? Are there external sources that might be used to validate portions of the data provided by the client?

h. As indicated in the standards, briefly describe the required steps for documentation of substantive analytical procedures.

Part 2: Performing the Audit Procedure

As part of the annual audit of Coliseum Entertainments 20X5 financial statements, the engagement audit partner has encouraged you a third-year associate auditor to develop a substantive analytical procedure to test Coliseums 20X5 Ticket Sales Revenue account for the Reel Wheel attraction.

After carefully reviewing the appropriate auditing standards, you approach the appropriate personnel at Coliseum and request the data needed to create your data analytic. Appendix A of this case contains a copy of the requested data related to ticket sales revenue generated by the Reel Wheel during 20X5.

Use Excel to create analytics showing your solutions to the following three questions. Use separate tabs to show your work in analyzing each question.

a. In order to better understand whether the reported number of total passengers in 20X5 (as advertised by Coliseum) is reasonable, develop a quick estimate of the maximum number of passengers possible during 20X5. In other words, how many passengers could ride on the Reel Wheel if every passenger car was filled to capacity for the entire year? Given that not every car will be filled to capacity, develop a rough estimate for a reasonable number of reported passengers during the year. Does the number of reported passengers seem reasonable?

b. Develop an independent estimate of Ticket Sales Revenue using highly-aggregated data (e.g., Total Number of Paying Passengers, Average Ticket Price). Evaluate this independent estimate by comparing it to the client's reported account balance. Determine if the reported balance is within a tolerable range of your independent estimate using this aggregated data approach.

c. Using the disaggregated data available to you, develop an audit work paper to report a more precise estimate for Ticket Sales Revenue in 20X5 at the Reel Wheel. Compare your revised estimate using disaggregated data with the clients reported account balance and determine (1) whether or not the clients amount appears to be materially misstated and (2) what, if any, additional audit work is required to test the account balance.

Part 3: Reflect on the Engagement

a. Given your objective of using the analytical procedure to provide most of the assurance needed regarding the Ticket Sales Revenue account for the Reel Wheel, is the estimate developed in 2.3 precise enough, or is more precision needed? Explain.

b. Given that much of the data used in your analytical procedure is provided by your client, what additional audit procedures could you supplement this substantive analytic with to provide additional corroborating evidence that these ticket sales actually occurred?

c. Some companies use a third-party service provider to sell tickets to customers and to collect tickets upon entrance into the venue. Consider how your approach to auditing the Ticket Sales Revenue account would be different if a third-party ticket provider with a SOC 1 Type II report were providing these services for the client and was therefore the provider of ticket sales data (e.g. number of passengers, ticket prices, seasonality, daytime vs. nighttime rides, etc.).

Coliseum Entertainment Substantive Analytical Procedure - Ticket Sales Revenue: The Reel Wheel Year-end Audit: December 31, 20X5 Workpaper (WP) ID: Date: A.01 Prepared By: 20X5 Unaudited Account Balance (Ticket Sales Revenue) Unit Label Tickmark PBC Data Point WP Reference Ticket Sales Revenue (unaudited) Allocated tolerable difference $73,468,219.00 dollars 675,000.00 dollars from Trial Balance 20X5 Su Information & Data for "The Reel Wheel" Unit Label Tickmark PBC,RW PBC, RW PBC, Rw PBC, Rw PBC, Rw PBC, RW PBC, RW Tickmark PBC PBC 12 Data Point WP Reference Observation Wheel Height Number of Passenger Cars Interior Space per Car Maximum Capacity per Car Time Required for Car Revolution Hours of Operation (Open) Hours of 550 14 15 16 28 225 square feet passengers 40 30 18 19 11:00am 2:00am Data Point Description (20X5 calendar year) Unit Label WP Reference Days in Operation Total Passengers Total Children Passengers 361 from A.02 A.02, A.03 WP Reference 3,058,452 passengers Description (20X5 calendar year) Unit Label Tickmark RW RW RW RW RW PBC Data Point 24 25 26 Regular Ticket Price (Child; Age 0 12) Regular Ticket Price Day (Adult: Age 13+) Regular Ticket Price Night (Adult: Age 13+) Summer Ticket Price Day (Adult: Age 13+) Summer Ticket Price - Night (Adult: Age 13+) WholesaleTicket Price 24.95 34.95 dolars 19.95 29.95 dollars 12.95 29 30 Coliseum Entertainment Substantive Analytical Procedure - Ticket Sales Revenue: The Reel Wheel Year-end Audit: December 31, 20X5 Workpaper (WP) ID: Date: A.01 Prepared By: 20X5 Unaudited Account Balance (Ticket Sales Revenue) Unit Label Tickmark PBC Data Point WP Reference Ticket Sales Revenue (unaudited) Allocated tolerable difference $73,468,219.00 dollars 675,000.00 dollars from Trial Balance 20X5 Su Information & Data for "The Reel Wheel" Unit Label Tickmark PBC,RW PBC, RW PBC, Rw PBC, Rw PBC, Rw PBC, RW PBC, RW Tickmark PBC PBC 12 Data Point WP Reference Observation Wheel Height Number of Passenger Cars Interior Space per Car Maximum Capacity per Car Time Required for Car Revolution Hours of Operation (Open) Hours of 550 14 15 16 28 225 square feet passengers 40 30 18 19 11:00am 2:00am Data Point Description (20X5 calendar year) Unit Label WP Reference Days in Operation Total Passengers Total Children Passengers 361 from A.02 A.02, A.03 WP Reference 3,058,452 passengers Description (20X5 calendar year) Unit Label Tickmark RW RW RW RW RW PBC Data Point 24 25 26 Regular Ticket Price (Child; Age 0 12) Regular Ticket Price Day (Adult: Age 13+) Regular Ticket Price Night (Adult: Age 13+) Summer Ticket Price Day (Adult: Age 13+) Summer Ticket Price - Night (Adult: Age 13+) WholesaleTicket Price 24.95 34.95 dolars 19.95 29.95 dollars 12.95 29 30