When testing the effectiveness of Caption By Hyatt's controls related to the liability, what did the testing include?

According to Caption By Hyatt's 2025 Franchise Disclosure Document, when auditing the deferred revenue related to the loyalty program, the effectiveness of Caption By Hyatt's controls related to the liability was tested. The testing also included testing the underlying data that served as the basis for the actuarial estimate, including points earned and redemptions, to test that the inputs to the actuarial estimate were reasonable. With the assistance of actuarial specialists, independent estimates of the liability were developed and compared to management's estimate.

This testing is crucial because the deferred revenue liability related to the loyalty program is a significant figure, amounting to $1,333 million as of December 31, 2024. This liability is actuarially determined and relies on estimates of future point redemptions, including breakage for points that may not be redeemed. The subjectivity of the breakage assumption means that evaluating the reasonableness of this estimate requires considerable auditor judgment and effort.

For a prospective Caption By Hyatt franchisee, this indicates that the brand's financial statements are rigorously audited, with specific attention paid to the loyalty program's financial impact. Understanding the loyalty program's financial structure and the assumptions behind it can provide franchisees with insight into the long-term financial health and stability of Caption By Hyatt.