 LO6 Audit Plan

Material Amounts  Sales  11,691,000 x 1%= $116,910 (materiality estimate)  Total Assets  8,983,000 x 1%= $89,830  The range for planning materiality is between 89,830 and 116,910 dollars in a given account  Based on the company’s steady growth of sales and their amount of obligations to both creditors and investors, we have selected 105,000 as a reasonable amount for planning purposes

Material Types of Transactions  booking conventions  financing debt  purchasing land for future hotel prospects

High Risk Areas Asset Impairment Account  Unusual high impairment charge to their timeshare strategy account in 2009 during a bad economy  No impairment charges in both 2008 & 2010  Higher Net Income due to lack of depreciation of the asset in 2010  Opportunity to impair the asset in the “bad year” without their Income being significantly lower than competitors

Changes in Net Income  In 2009 Marriott suffered net loss of 353 million  Due to the journal entry that was made:  Credit to Asset account and Debit to a Loss account  In 2010 Marriot recorded net income of 458  Asset was taken off the books in the previous year  No depreciation needed to be recorded in the current year

High Risk Areas Pressure to Reach EPS  Possible manipulations of EPS due to high levels of competition  Net Income significantly differed between 2009/2010 due to the asset impairment in 2009  Higher EPS in 2010 due to higher net income  Auditor should audit:  Asset Impairment Account  Revenue and Expense  Especially, Service Revenue and Depreciation Expense Accounts  Check if these accounts were accrued in accordance to GAAP  Number of shares outstanding  check for any unusual purchases of Treasury Stock

High Risk Areas Footnotes  Subsequent Events  Marriott has properties in countries like Libya, Egypt and Pakistan  Possible impairment of assets due to them being located in unstable countries

High debt obligations  Marriott high contractual obligations like  debt,  capital lease obligations,  both recourse and nonrecourse operating leases,  long-term liabilities  All equal to 5,121 million.  An auditor should audit Marriott’s short and long-term payables and fixed asset accounts.

Low Risk Areas  Inventory Accounts  Service company and not a Merchandiser  Inventory sold is at low levels  Cost of Goods Sold that relates to the goods available for sale at the shops or restaurants  Receivable Account  Most clients must pay up front with either cash or a credit card  Uncollectible Accounts  Tie directly to the Receivables

Control Risk  Both internal and external risks assessments have to be taken into consideration when evaluating whether or not control risk should be reduced.  Marriott’s control risk has to be assessed accordingly to the probability of any loss occurrence and the estimated amount as well as the company’s investment in internal control.  We were unable to find any evidence that Marriott has invested in the quality of their internal control or if they anticipate any loses in the near future.  In our opinion, the assessed control risk shouldn’t be reduced.  If the company increased the quality of their audit function, the control risk should be re-evaluated.

How is audit allocated geographically?  Ernst & Young has conducted an integrated audit in which they gathered evidence to support opinions on Marriott’s consolidated financials and system of internal controls  E&Y audits Marriott’s financial statements nationwide and worldwide.  strengthens credibility of Marriott’s financial operations  ensures compliance of Marriott’s consolidated financial statements and disclosures with GAAP (or iGAAP) as well as regulatory and statutory regulations within each state or country  reduces risk for potential misrepresentation or fraud, which encourages US investors to invest not only nationwide but also globally  E&Y should audit Marriott’s assets that are located globally to check for possible impairment

Qualified Opinion  Marriott’s financial statements and their internal control are in compliance with GAAP and statutory requirements and regulations are free of material misstatements and errors.  An auditor concluded that Marriott gave a fair and true representation of the company’s operations and their financial condition, which gives reasonable assurance regarding reliability of financial reporting.