Majestic Case Study

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Majestic Case Study January 28, 2015 Relevant Facts: * Privately held company * No regulations * Compliance with GAAP not required * Southern hotel in four different regions * Clientele: cater to high end business and vacation travelers * Financial implication Bank loan covenants (leads to audit implications) * Risks of default * How close is the company to being in default * Want to use analytical procedures as a substitute for substantive tests * Asheville location was closed for a week KPMG Judgment Framework Audit Issues: 1. Is sleeping room revenue fairly stated? 2. Are analytical procedures sufficient evidence to validate the accuracy, existence, and completeness of the sleeping room revenue? Alternatives: 1. Analytical procedures will yield enough evidence to satisfy the accuracy, existence, and completeness of the sleeping room revenue. 2. Substantive tests should be used to generate evidence to satisfy the accuracy, existence, and completeness of the sleeping room revenue. 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. The AU-C Section 520 provides clarity on the Statements on Auditing Standard No. 122 in the Codification of Statements on Auditing Standards. Section 520 is simply entitled “Analytical Procedures,” and it discusses what are analytical procedures and how they can be utilized during audits. According to the requirement section of Section of the document, analytical procedures can be used substantive tests based on the

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