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Statutory Audit of Hotels and Resorts

1. Pre-Audit Planning

Obtain the engagement letter and confirm the audit’s objectives and scope.

Review prior year’s audit reports and management letters for recurring issues.

Prepare a detailed audit plan including timelines, resources, and responsibilities.

Schedule initial meetings with key stakeholders (management, finance, operations).

2. Business and Regulatory Understanding

Conduct in-depth interviews with management to understand operations and strategic objectives.

Review the organizational chart to clarify reporting structures and accountability.

Identify key operational areas such as room sales, food & beverage, events, and ancillary services.

Familiarize with applicable laws and regulations, including

Hospitality industry regulations (e.g., zoning, health and safety standards).

Local business licensing laws.

Employment laws (e.g., Fair Labor Standards Act, minimum wage, overtime regulations).

Tax compliance (e.g., sales tax, occupancy tax, income tax).

3. Financial Statement Analysis

Review the balance sheet for accuracy, focusing on current vs. non-current classifications.

Analyze the income statement for revenue streams, ensuring proper categorization of income and expenses.

Ensure compliance with applicable accounting standards (e.g., IFRS, GAAP) and industry-specific guidelines.

Review and verify the completeness of notes to the financial statements.

4. Revenue Recognition Procedures

Assess the hotel’s revenue recognition policies in accordance with ASC 606 or IFRS 15.

Validate revenue from different streams, including room sales, food and beverage, and event hosting.

Review contracts with customers to ensure terms align with recognized revenue.

Test for unrecorded sales by analyzing occupancy reports and sales data.

5. Expense and Cost Verification

Review expense recognition policies to ensure they align with the matching principle.

Conduct tests on significant expenses, including payroll, utilities, maintenance, and marketing.

Ensure all expenses have appropriate approvals and supporting documentation, including invoices and receipts.

Verify compliance with tax deductions and credits, ensuring adherence to IRS guidelines or local tax authorities.

6. Inventory and Asset Verification

Perform a physical count of inventory, including consumables, supplies, and merchandise.

Validate the existence and condition of fixed assets (furniture, fixtures, and equipment).

Review the depreciation policies and ensure they comply with relevant regulations.

Assess the valuation of inventory, ensuring it is recorded at the lower of cost or market value.

7. Liability and Contingency Assessment

Review accounts payable for completeness and accuracy, ensuring all liabilities are recorded.

Confirm significant liabilities with suppliers and lenders, including reviewing terms and conditions.

Analyze loan agreements for compliance with covenants and terms.

Assess contingent liabilities and ensure disclosures are made in accordance with ASC 450 or IAS 37.

8. Compliance with Local and Industry Regulations

Ensure compliance with local health and safety regulations (e.g., fire safety, food handling).

Review environmental regulations and compliance with waste management laws.

Validate adherence to licensing requirements (liquor licenses, food service licenses).

Confirm compliance with data protection regulations (e.g., GDPR, CCPA) in handling customer information.

9. Internal Controls Assessment

Evaluate the effectiveness of internal controls over financial reporting and operational processes.

Conduct walkthroughs of key processes (e.g., revenue management, procurement, payroll).

Identify any weaknesses in controls and assess the risk of fraud or misstatements.

Review IT controls related to financial systems, including access controls and data integrity.

10. Final Review and Reporting

Draft the audit report, summarizing findings, conclusions, and recommendations for improvement.

Discuss findings with management, allowing for their input and responses.

Finalize the audit report, ensuring it addresses all identified issues and includes an action plan.

Present the final report to the audit committee or board of directors, emphasizing critical findings.

11. Post-Audit Follow-Up

Schedule follow-up meetings to monitor the implementation of recommendations made during the audit.

Evaluate the effectiveness of corrective actions taken by management.

Review any changes in policies or procedures as a result of audit findings.

Maintain an organized record of all audit documentation and correspondence for future reference and compliance purposes.

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