What factors impact the level of disaggregation of data that would be required when performing substantive analytical procedures?

Case: Logan Self Storage Part I: Substantive Analytical Procedures Facts Logan Self Storage, Inc. (LSS) is a C-Corporation based in San Diego, California. With approximately 10% of the self storage market nationwide, they own 460,000 storage units of various sizes throughout the United States and reported 2012 rent revenue of $115,687,453.00. Because rents vary significantly by geographic location due to land constraints and market demand for self storage services, LSS has divided its operations into five segments based on geographic location. These include operations in the West, Midwest, Southwest, South, and Northeast. LSS has three types of storage units that it offers for rent: small units, large units, and commercial units. The small units are 10 feet wide by 10 feet deep (100 square feet) total and are commonly used by renters for storage of extra belongings which do not fit in their apartments or for storage of small items between moves. The large units are 10 feet wide by 30 feet deep (300 square feet) and are commonly used for vehicle or boat storage or for storage of most household belongings between moves. Their largest units are commercial units which are thirty feet wide by thirty feet deep. In addition, one corner of this 900 square foot unit has approximately 144 square feet of office space enclosed, leaving an L-shaped storage area of approximately 756 square feet. While LSS competes directly with many competitors on the small and large units, it is a first mover in the commercial units and currently has few competitors. These units are popular with small businesses that require storage of company equipment or vehicles, such as construction companies and small machine shops. Rent revenue per square foot for each of these units varies significantly across the country and by the size of the unit. Despite the combination of office space and storage space, rents for commercial space are calculated on the total square footage and thus per-square-foot prices are significantly higher. You have been asked to use analytical analysis to test the reasonableness of the total rent revenue for LSS for the 2012 fiscal year. Your team has determined that $5 million is the materiality threshold to be used for this client. To assist you in completing the analytical analysis, some new staff members on your audit team have compiled the following information: Total Number of Storage Units 460,000 Weighted Avg. Revenue per Square Foot $1.10 Weighted Average Occupancy 90% Weighted Average Square Feet per Unit 226.09 Logan Self Storage Part I 1. Using the information provided, develop your own expectation of the total rent revenue for LSS for the 2012 fiscal year. 2. Based on the estimate you calculated in part 1, does the reported rent revenue appear to be fairly stated in all material respects? Why or why not? 3. Research AU 329. What factors influence the effectiveness and efficiency of substantive analytical procedures? 4. What additional information would you like to have when developing your expectation of the total rent revenue for 2012? Part II: Substantive Analytical Procedures-DO NOT COMPLETE UNTIL YOU HAVE COMPLETED PART I Facts At your request, the staff auditors compiled the following, more detailed information regarding rental activities at LSS for the 2012 fiscal year: Number Small Units Number Large Units Number Commercial Units West 60,522 27,130 8,347 Southwest 50,435 22,609 6,597 Midwest 37,826 16,957 5,217 South 63,043 28,261 8,696 Northeast 78,174 35,043 10,783 Avg. Small Unit Annual Revenue per Square Foot Avg. Large Unit Annual Revenue per Square Foot Avg. Commercial Unit Annual Revenue per Square Foot West $0.68 $0.62 $1.25 Southwest $0.81 $0.74 $1.31 Midwest $0.61 $0.57 $1.18 South $0.83 $0.75 $1.32 Northeast $2.02 $1.72 $2.72 Avg. Small Unit Occupancy Avg. Large Unit Occupancy Avg. Business Unit Occupancy West 92% 90% 96% Southwest 87% 88% 94% Midwest 81% 87% 91% South 88% 89% 93% Northeast 94% 91% 95% Logan Self Storage Part II 1. Using this data, develop an updated expectation for the total rent revenue for LSS for the 2012 fiscal year. 2. Using your updated expectation from requirement #1, determine whether the reported rent revenue appears to be fairly stated. 3. What specific factors may have led to the difference between your first and second estimates? 4. What factors impact the level of disaggregation of data that would be required when performing substantive analytical procedures? 5. What other factors regarding the data should you consider when determining the level of reliance you can place on substantive analytical procedures?