Essay on Kpmg Case Study

973 Words May 29th, 2013 4 Pages
Using Analytical Procedures as Substantive Tests By Frank A. Buckless and D. Scott Showalter, NC State University

Case Study: Majestic Hotels, Inc.

Case Study: Majestic Hotels, Inc.
Using Analytical Procedures as Substantive Tests
By Frank A. Buckless and D. Scott Showalter, NC State University

BACKGROUND
Majestic Hotels, Inc., a privately-held company, has four hotels located in Charleston, South Carolina; Asheville, North Carolina; Savannah, Georgia; and West Palm Beach, Florida that cater to high-end business and vacation travelers. Bank-loan covenants require that Majestic Hotels, Inc. submit audited financial statements annually to the bank. Specifically, the bank covenants contain revenue and occupancy measures that
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REQUIRED
1. Research professional standards and list the requirements related to developing an expectation and conducting analytical procedures when those procedures are intended to provide substantive evidence. Review the sleeping room revenue work paper template provided in Appendix A. Would use of the template help the audit firm comply with professional standards? Explain your answer. 2. Use the room revenue work paper template provided in Appendix A along with the external hotel and industry information obtained by the staff person to develop an expectation for Majestic’s 2011 sleeping room revenues. a. Are Majestic’s reported sleeping room revenues within your “reasonableness range?” b. If reported sleeping room revenues were inside your “reasonableness range” would your analytical procedure provide sufficient evidence for you to conclude Majestic’s 2011 sleeping room revenues are fairly reported? c. If reported sleeping room revenues were outside your “reasonableness range,” what could explain the difference? 3. Review the internal client records provided in Appendix B. Use the room revenue work paper template provided in Appendix A along with the internal client records provided in Appendix B to develop an expectation for Majestic’s 2011 sleeping room revenues. a. Are Majestic’s reported sleeping room revenues within your “reasonableness range?” b. If reported sleeping room revenues were inside your “reasonableness

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