- The assignment is to formulate an audit plan for a public company based on their latest
10-K annual report
Instructions:
1. Document your understanding of your chosen entity focusing on
a. Nature of the entity (e.g. organizational structure and management
personnel; sources of funding of the entity’s operating and investment
activities, including the entity’s capital structure, noncapital funding and
other debt instruments; the entity’s investments; the entity’s operating
characteristics including its size and complexity; sources of the entity’s
earnings, including the relative profitability of key products and services;
key suppliers and customer relationship)
b. Regulatory environment (e.g. Accounting principles and industry specific
practices; regulatory framework for a regulated industry; legislation
and regulation that significantly affect the entity’s operations; taxation
(corporate and other); government policies currently affecting the conduct
of the entity’s business; environmental requirements affecting the industry
and the entity’s business)
c. Objectives and Strategies
2. Determine materiality and list 2 qualitative factors (e.g. material misstatement
in prior years; high risk of fraud; the entity is close to violating a covenant in a
loan agreement; small amounts may cause the entity to miss forecasted revenues
or earnings, or affect the trend in earnings; the entity operates in a volatile
environment, has complex operations like multi-locations, or operates in a highly
regulated industry) that will impact your decision and explain why.
3. Comparing the current year income statement and balance sheet to prior years.
Perform analytical procedures (trend analysis, ratio analysis and reasonableness
analysis) and identify 3 relationships on the balance sheet and income statement
and indicate how they impact your risk assessment.(see definition on picture)
4. Based on findings from the management discussion and analysis portion of
the annual report what have you determined the underlying reasons for the
relationships identified in #3.
5. Determine the balance sheet/income statement accounts which you consider to
have a high risk of material misstatement. Justify your answers as to why you
consider the account to have a high risk of material misstatement.
6. For the accounts determined to have high risk of material misstatement what
assertions (see picture) will you focus on. What is your justification related to the
assertions.
7. List and briefly describe 3 accounting policies listed in the footnotes to the
financial statements.
8. Identify the related parties and describe your procedures to identify the related
parties.
9. What type of audit report was issued based on the types of reports listed in
Chapter 18. (unqualified, qualified, adverse, disclaimer)
10.How does revenue recognition work for your selected company.
Around 8 pages