Question

Revenue Recognition and Ethics. The following article was published in Newsday on February
9, 2009:
Call for Probe of Ticket Sales
Bruce Springsteen fans were victims of a “classic bait and switch” scam by the nation’s
largest concert ticket seller, Senator Charles Schumer said yesterday, as he called for a
federal investigation into the company, Ticketmaster. Schumer wants the Federal Trade
Commission to look into whether the Ticketmaster website withheld the best tickets from the
public and then shuttled fans to TicketsNow, a fully owned subsidiary. TicketsNow had the
best seats available immediately—at sky-high prices—after Springsteen tickets went on sales
at 10 A.M. on February 2.
A federal investigation would look into whether Ticketmaster was instantly scalping the tickets,
never giving fans a chance to buy them at face value, Schumer said. Customers who tried to
buy tickets originally priced at $95 on Ticketmaster’s website were directed to TicketsNow
where they were priced at more than $2,000.
Since buying TicketsNow in February, Ticketmaster has faced similar criticism for its handling
of Elton John tickets in Canada and numerous U.S. concert tours, including Radiohead. Law
enforcement agencies in Connecticut and New Jersey have also launched investigations.
Required:
a. During the course of an audit, do you believe that the auditor should look into how revenues
are being generated? Do you think the auditors should have looked at the business
practices of Ticketmaster?
b. Assume that Ticketmaster had properly accounted for the revenue it received from the
Springsteen concert. Should the auditors have asked Ticketmaster to make adjustments or
disclosures regarding its sales practices?
c. Should Ticketmaster disclose the investigations being conducted in Connecticut and New
Jersey?

Answer 1

1. The basic objective of any profit making organization is to maximize profits. Thus, various measures are adopted to increase revenue to achive this objective. However, these practices should be ethical. Customers who wanted to buy the best tickets were not even given a chance to do, and were redirected to Ticketsnow website where the tickets were exorbitantly priced. The auditors should have asked for a rate chart of the tickets to know the normal pricing and asked for reasons for tickets sold at much higher rates through ticket now.

2. Even if Ticketmaster had accounted for the revenue, the auditor should have asked for the disclosure that a significant amount of profit can be attributed to the ticket selling at muvh higher prices through ticket now.

C. The disclosure of investigations is required if it is possible that these investigations might lead to a liability for ticketsnow if the decision is not in their favour i.e. outflow of financial resources is probabale.