Audit-planning procedures | My Assignment Tutor

You are an auditor on the AUS Limited (AUS) audit engagement for the financial year ending30 September 2019. AUS is a large hotel company with more than 800 hotels in Australia andAsia under a range of hotel brands. You are in the process of undertaking audit-planningprocedures for the AUS audit. You have noted a number of significant risks outlined below.AUS’s revenue is made up of management fees earned from hotels managed by AUS underlong-term contracts with hotel owners, and from the rental of rooms and food and beveragesales from hotels owned and leased by the company directly. In hotels owned and leaseddirectly by AUS, the company’s practice is to confirm hotel bookings by taking credit carddetails and collecting payment for accommodation and incidentals at the end of a customer’sstay. You have noted an increasing incidence of corporate clients prepaying for theiremployees’ accommodation. These have been recorded as revenue when payment has beenreceived.It has also come to your attention that there have been a growing number of disputes with hotelowners in relation to the amount of management fees being charged. Management feesincluded a base fee, a percentage of hotel revenue, and an incentive fee based on the hotel’sprofitability. Individual contracts negotiated with hotel owners include provisions forpercentage increases of the base fee either annually or biannually to take effect at specific dates.Based on your initial review of the correspondence, it appears that AUS has been applyingpercentage increases to the base fee charged to hotel owners prior to their effective date ascontained in the contracts with individual hotel owners.AUS runs a hotel loyalty program which enables members of the program to earn points forevery dollar spent on an accommodation, food and beverages at AUS branded hotels. Thesepoints may be redeemed at a later date for free accommodation or other benefits. AUS recordsa loyalty program future redemption liability on the basis of the number of points expected tobe redeemed prior to their expiry multiplied by redemption cost per point. An announcementwas made on 30 May 2017 that points earned under the loyalty program would now expire intwo years rather than five years from the time they are earned. AUS’s managementsubsequently reduced the amount provided in the loyalty program future redemption liabilityby $80 million based on their estimate of the revised amount required to meet the liability giventhe impact of the change.AUS has embarked on a large-scale software development project in the current year tointernally develop improved guest reservation and hotel management systems. An amount of$37 million for the year has been capitalised as software development during the year. Yourinitial review has revealed that this amount includes repairs and maintenance of a range ofAUS’s hardware incurred during a year.Required(a) Considering the information provided, determine the four key account balances andrelated assertions at risk. Briefly justify your answer. (8 Marks)(b) Recommend one audit procedure in relation to each of the assertions identified above(2 Marks)(Total Marks 10)(Maximum Word Limit 400)

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