Question

Universe Studios Sentiasa is a theme park licensed from a major Bollywood studio. Customers pay a fixed fee to enter the park where they can participate in a variety of activities such as riding roller-coasters, playing on slides and purchasing themed souvenirs from gift shops.

Customers purchase tickets to enter the theme park from ticket offices located outside the park. Tickets are only valid on the day of purchase. Adults and children are chargedthe same price for admission to the park. Tickets are preprinted and stored in each ticket office. Tickets are purchased using either cash or credit cards. Each ticket has a number comprising of two elements - two digits relating to the ticket office followed by six digits to identify the ticket. The last six digits are in ascending sequential order.All cash ticket sales are recorded on a computer showing the amount of each sale and the number of tickets issued. This information is transferred electronically to the accounts office. Cash is collected regularly from each ticket office by two security guards. The cash is then counted by two accounts clerks and banked on a daily basis. The total cash from each ticket office is agreed to the sales information that has been transferred from each office. Total cash received is then recorded in the cash book, and then the general ledger.

The park also accepts Visa and Mastercard. Payments by credit cards are authorised online as the customers purchase their tickets. Computers in each ticket office record the sales information, which is transferred electronically to the accounts office. Credit card sales are recorded for each credit card company in a receivables ledger. When payment is received from the credit card companies, the accounts clerks agree the total sales values to the amounts received from the credit card companies, less the commission payable to those companies. The receivables ledger is updated with the payments received. You are now commencing the planning of the annual audit of Universe Studios Sentiasa .

Required

(a) Identify four (4) risks that could affect the assertion of completeness of sales and cash receipts. [12 marks] (b) Discuss the extent to which substantive procedures could be used to confirm the assertion of completeness of income in Universe Studios Sentiasa. [6 marks] (c) Provide any four (4) substantive analytical procedures that can be used to give assurance on the total income from ticket sales for one day in Universe Studios Sentiasa. [12 marks]

Answer 1

Answer to Q (a.)

Risk affecting completeness – (1)The computer system does not record sales accurately and/or information is lost or transferred incorrectly from the ticket office computer to the accounts department computer.

(2) Cash sales are not recorded in the cash book; cash is stolen by the accounts clerks.

(3) Tickets are issued but no payment is received – that is the sale is not recorded.

(4) Cash is removed by the ticket office personnel, by the security guards or by the account clerks.

Answer to Q (b)

Substantive procedures Substantive procedures include analytical procedures and other procedures. Analytical procedures include the analysis of significant ratios and trends and subsequent investigation of any trends or relationships that appear to be abnormal. These procedures can be used effectively in Universe Studios as an approximation of income that can be obtained from sources other than the cash receipt records. Other procedures, or tests of detail, are normally used to verify statement of financial position assertions and include obtaining audit evidence relevant to specific assertions. However, they could be used in Universe Studios to trace individual transactions through the sales/cash systems to ensure all ticket sales have been recorded (completeness assertion). The use of other procedures will be time consuming.

Answer to Q (c)

Substantive analytical procedures - completeness of income for one day

1) Obtain proof in total . Tickets sold times price should equal day's income.

2) Compare the expected sales from ticket numbers to the total sales amount from cash and credit sales for each ticket office.

3) Compare ticket offices day by day and staff rotation to see if sales lower some day/ some staff.

4) Compare sales with previous days and account for changes.