Question

You have recently been appointed as an audit assistant for MKZ Auditing LLC, a popular auditing firm based in Al Ain. Your line manager spoke to you two weeks ago to inform you that you have been assigned with another senior auditing staff to undertake a visit and audit a client called SMC Hotels LLC.

Your line manager has tasked you to liaise with the senior auditing staff to prepare a presentation to be delivered to the senior management on how you propose to investigate and plan the audit of SMC Hotels LLC.

Required

Analyse the relevance of the concept of assurance to the planned audit of SMC Hotels LLC ( In your Own Words)

Answer 1

As per line manager instruction newly appointed audit assistant to lisise with the senior auditor to prepare presentation for senior management regarding investigation procedure to make a plan of do SMC Hotels LLC .. Before preparing audit plan , procedure , test control etc , auditor has to understand about “ Understanding of Hotel “ . Hotel industry is true mirror of social , economical , cultural growth . need to understand that multiple factor influence like economic , political, competition . Auditor has to see the strength of supplier – this is one of the most important factor because good and reliable suppler provides timely and high quality goods and services . Another important factor would be Employees – Employees are always key asset in this type of organization .

Auditor also understood and noticed certain specific nature of service in relates to Hotel Industry like :

Room Supply – Total room available in the Hotel . Auditor while preparing report for management , needs t look ito any Revenue leakage – Hotel must have established control for preventing any type of revenue leakage. To prevent revenue leakage , need to understand system process m integrity matter in the hotel so all operationg like food bill ,beverages all are linked directly to guest ledger by interacting POS ( Point on sale basis ) .

Also need to facor following matter whole reviewing and making reprt towards management – like :

Fixe cost position , contribution factor on revenue from rooms , most important Night / Income Audit . ensure all Internal control , ledger posting , cash closing balance match with general ledgfer balance on a daily basis

Need to highlight any major capex plan of the hotel . In hotel Industry , they invested almost 90 % + in case of Fixed asset

As per SA 300 “ Planning of Audit of Financial Statement mainly cover overall audit strategy , scome , timing ,

Auditor as per standard need to “ Assess teh risk of material misstatement through understanding of entity

Auditor should highlight risk relates to revenue like

Non recognised revenue by providing unauthorised occupancy of room without showing proper check in

Incorrect rate charged, incorrect revenue accounting in general ledger , non recognition of actual cash settlement made by accounting team

Auditor along with revenue need to review and highlight risk relates to Expenses – like

Non recognition of provision for cost

Incorrect capitalization on renovation expenditure , may be capital iten wrongly charged to p&l

Auditor need to have control on IT . In hotel industry , PMS , POS , back office system including financial books are significant applications

Auditor needs to verify that there exist a process to ensure completeness of income accounted

Auditor needs to ensure that revenue is done on real time basis and there is an Inventory module integrated with the financial Module

Auditor needs to ensure that Revenue assurance Control like assurance control on happen in both Room revenue and F&B revenue

Auditor must use ata Analysis tools like CAAT to facilitate evaluation of controls

Auditor need to do fraud risk analysis and control

Auditors needs to daw a complete checklist relates to key are of revenue recognition – Room Service , F&B service , other mofe of revenue like laundry , telephone , Internet

Need to highlight couple of major points relates to commission payment – like commission not being paid to a non existent / dummy travel agent , unauthorised higher commission is not paid

Auditor also need to ensure other cost like – Rentals , payroll cost , Inventory management , guest loyalty reward program / redemption