This is a continuation of my work. Part I: Procedures is complete, I still need Part II Risk Factors. In the rubric that is uploaded, please ignore part III

ACC 640: Milestone One

Final Project: Amazon

Stephanie Metzger

Southern New Hampshire University

PROCEDURES

The purpose of this paper is to describe and explain how Amazon will audit their financial statements for any material errors or fraudulent activities.

Describe Audit Process

It is the responsibility of the auditor to give an opinion on the company’s financial statements. In order to perform an accurate and informed audit, there are several steps that need to be followed relating to planning, fieldwork, reporting and follow-ups.

To start, the auditors need to make plan for what information they will look at from Amazon. The list that is compiled from the initial discussion among auditors will be sent to the relevant parties within the management team at Amazon. Next, the auditors will discuss with management an appropriate date to begin the fieldwork. Once this date is set, the auditors can begin gathering background information on the company and if it is new to the company, they can pull old audit reports to help identify potential risks (The University of Texas at Austin, 2020).

According to the AICPA, the next step would be developing a timeline and assigning responsibilities. This will ensure that the audit team receives all the appropriate data in a timely fashion so they could begin their audit procedures before arriving on site (AICPA, 2020). As the information flows in, it is important to keep items organized. If an online portal can be set up for Amazon, the auditing service can create subfolders to keep cash, revenue, expenses, etc. separated.

However, before delving into the audit, the team needs to understand the industry in which Amazon competes. With a strong understanding, we can be sure to ask the appropriate questions to evaluate not only the financials, but also the internal policies and procedures for Amazon. After all this is completed, the team should have a detailed strategy that will make the rest of the auditing process simple (AICPA, 2006).

Next, the internal audit team will go on-site at Amazon’s headquarters. While here they will meet with members of the management and accounting teams to go over any questions relating to transactions or policies. More samples will also be required from the staff for submission to ensure accurate results. With all of the relevant information collected, the internal audit team can conduct a risk assessment to identify any potential risks within the company or towards Amazon as a vendor. Amazon faces many risks as an online retailer. Their business can be dependent on economic well-being, technological advancements, reputations in the industry, and many more. These risks can threaten the potential cash flows for Amazon making it more susceptible to material errors and fraudulent transactions (Riquelme & Roman, 2014).

Upon the end of the audit process, the team will create a report stating their findings on accuracy and any recommendations to Amazon relating to representation of transactions or policy changes (The University of Texas at Austin, 2020). Follow-ups will be done with management before publishing the final audit report.

EXPLAIN HIGH-RISK TRANSACTIONS REVIEW

Cash and revenues can be considered the highest risk transactions for Amazon and any business. These accounts are the most common to find fraud, so as a result, the audit team will spend the most time analyzing these accounts. The internal audit will need to look at accounts in the income statement such as: revenue, net sale, COGS, net expenses, and net income (M. & A., 2016). One important item to check as auditors is that appropriate cut-off dates were used when recording entries that affect cash related accounts.

Financial ratios can be a helpful tool when analyzing these accounts to get a sense of the numeric change relating to certain accounts. The quick ratio is a common tool used to determine the business’s ability to pay off their short-term liabilities by converting assets to cash (CFI, 2020). When presenting the findings from these analyses, the audit team can prepare tables to depict the year over year change in the financials.

TESTING ASSERTIONS

Testing of the information can be done by answering the following questions outlined in our textbook (Arens, 2017):

Transaction-related audit objectives

1. Occurrence: Does the recorded transaction exist?
2. Completeness: Have all transactions been recorded?
3. Accuracy: Have all transactions been accurately recorded?
4. Classification: Are all transactions included properly classified?
5. Cutoff: Have all transaction been recorded in the correct accounting period?

Balance-related audit objectives:

1. Existence: Do the amounts included exist?
2. Completeness: Are existing amounts are included?
3. Valuation: Are assets, liabilities and equity included at the appropriate amounts?
4. Rights and Obligations: Are rights associated with assets and obligations associated with liabilities?
5. Presentation and disclosure: Are the components of the financial statements properly classified, described and disclosed?

References

AICPA. (2006). Performing Audit Procedures in Response to Assessed Risks. Retrieved from AICPA: https://www.aicpa.org/content/dam/aicpa/research/standards/auditattest/downloadabledocuments/au-00318.pdf

AICPA. (2020, January 22). 10 Steps to a Successful Audit. Retrieved from AICPA: https://www.aicpa.org/interestareas/notforprofit/resources/governancemanagement/ten-steps-to-a-smooth-audit.html

Arens, A. A. (2017). Auditing and Assurance Services: An Integrated Approach. Boston: Pearson.

CFI. (2020). What is the Quick Ratio? Retrieved from CFI: https://corporatefinanceinstitute.com/resources/knowledge/finance/quick-ratio-definition/

M., L. J., & A., R. S. (2016). A New Look At Fraudulent Transfer Liability In High Risk Transactions. Business Law Today.

Riquelme, I. P., & Roman, S. (2014). The relationships among consumers’ ethical ideology, risk aversion and ethically-based distrust of online retailers and the moderating role of consumers’ need for personal interaction. ETHICS AND INFORMATION TECHNOLOGY, 135-155.

The University of Texas at Austin. (2020). Audit Process. Retrieved from The University of Texas in Austin Office of Internal Audits: https://audit.utexas.edu/audit-process