Problem
You are an audit manager considering the substantive testing programme for the audit of Tables Ltd, a large hotel company operating in New Zealand. The company has a sophisticated computerised accounting system and actual incomes and expenses are closely monitored against budgeted figures. Tests of control have confirmed that the company has strong internal controls in all areas, and inherent risk has been assessed aslow. Most substantive tests of detail on balance sheet accounts have been completed and have revealed no material misstatements. The company's five hotels have a total of 1,800 rooms which are booked at an average rate of $100 per night. The average monthly occupancy rate is 70%, except during peak holiday season (December, January and April) when itincreases to 90%. You have noticed that Tables Akl, one of the five hotels, has a significantly lower than average occupancy rate and also a significantly higher than average wage rate than the other four hotels this year. In prior years, these rates have shown very little variation from the average rates.
Task
1) Identify the preferred type of substantive procedure for testing Crown Ltd's incomestatement accounts and explain why this is so.
2) Calculate the figure you would expect to see in the Income Statement for thecompany's annual room revenue (please show your calculations).
3) Identify and briefly explain which one management assertion is most at risk at the Crown Akl for each of:
a) Room revenue;
b) Wages expense.