Question

I have Amazon what would you do??

Please be specific as possible and why you pick your chociees for the question.

Prepare a memo to be reviewed by the chief financial officer (CFO) that summarizes the audit process. 1. Explain any sampling or other audit work that could be done, and if you would recommend the company pursue this additional work. Justify your response.

2. Make recommendations to the CFO on how to mitigate potential risk factors for major business transactions identified in the audit report. B. Assume you are now the CFO. Prepare a memo to the Board of Directors as to what potential issues the external audit team might find and what the company’s response should be. 1. Evaluate the findings from the audit report. Be sure to view these findings from the CFO’s point of view. 2. Develop a strategy to mitigate risks identified in the audit report. 3. Describe how the company might implement the strategy based on the findings from the audit report.

Answer 1

First of all understand, an audit memo is prepared as the final step in completing an audit. An audit memo plays an important part in the audit process since it summarizes all information gathered during an audit.

In the process of conducting an audit, finances and assets of a business are accounted for and measured.

A sample audit work that can be done by internal staff of Amazon Company

Introduction

The board members and executive management of Amazon.com have assigned the task to internal audit group of preparing an audit of revenue cycle.

The overall objective of revenue (Sales and collection) cycle audit is to evaluate whether account transactions, balances, and disclosures relevant to the cycle are fairly presented in accordance with the applicable accounting standards.

More specifically, revenue cycle audit is to ensure that revenue has been appropriately generated, received, recorded, safeguarded, summarized, deposited and reported.

Internal audit team will obtain an understanding of the revenue-related accounting records supporting information and specific amounts in the financial statements that are used to initiate, authorize, record, process, and report transactions.

Internal audit team will evaluate potential risk factors associated with the revenue cycle and reporting financial information related to the revenue cycle.

Analytical procedures will be used where unaudited financial statements or other client data are compared with industry data, similar prior-period data, client- determined expected results, auditor-determined expected results, or expected results using nonfinancial data.

Ratio analysis, a subset of trend analysis, is a technique that will be used to highlight any revenue and/or asset account balances that are out of line with previous results or auditing expectations.

Using trend analysis and ratio analysis, internal audit will evaluate whether there have been any significant changes in following variables:

• Accounts Receivable as a percentage of total sales
• Allowance for doubtful accounts as a percentage of accounts receivable
• Receivables as a percentage of current assets
• Sales Returns and allowances as a percentage of total sales
• Gross Margin
• Year-over-year growth of accounts receivable
• Year-over-year growth of total current assets
• Year-over-year growth of accounts receivable
• Bad debt expense as a percent of net sales and net credit sales

Potential risk factors that might arise and strategies to mitigate the risks:

There are also important controls that should be in place to mitigate the risk of fraud, most notably, the adequate separation of duties, which prevent misstatements due to both errors and fraud. Of particular consideration are cash accounts, because cash is at a high risk of being lost through theft by fraud.

These controls include:

• An individual independent of posting accounts receivable reviews statements before sending to customers.
• Any write-offs are approved by a management official independent of recordkeeping responsibility.
• Individuals without recordkeeping responsibility list cash receipts received and bank reconciliations. Utilize a post office lockbox controlled by the company’s bank at which cash remittances from customers are received.
• Management should deny cash access to anyone responsible for entering sales and cash receipts transaction information into the computer.
• Checks are restrictively endorsed.
• The credit-granting function should be separated from the sales function, because credit checks are intended to offset the natural tendency of sales personnel to optimize volume even at the expense of high bad debt write-offs.

By conducting substantive tests of transactions and tests of controls, some assurance that the revenues of the company are recorded accurately may be provided.

Examples of substantive procedures include:

• Review sales journal, cash receipts journal, and master file for unusual transactions and amounts (Occurrence).
• Prepare a proof of cash receipts, obtain pre-listing of cash receipts and trace amounts to the cash receipts journal and deposit slip, testing for names, amounts and dates.
• Trace customer information on sales invoices to the customer master file to test for nonexistent customers (Occurrence).
• Trace shipping documents to the sales journal and to the general ledger to be sure that each one is included and is properly classified (Completeness, Classification).
• Test access controls and take sample of recorded sales invoices and trace price back to authorized list (Accuracy).
• Compare the date on shipping documents with the date on related sales contracts; sales invoices, the sales journal, and the accounts receivable master file (Timing).

Conclusion & Recommendation

It is recommended that upper management and the board of directors approve the implementation of audit program, in order to identify and mitigate any potential risks. With the existence and potential severity of the risks surrounding the accounts, transactions, and processes involved with the revenue cycle, as well as the inconsistent changes in account balances identified in the analytical procedures, it is imperative that internal controls are implemented and operate sufficiently. The proposed program for the internal audit of the revenue cycle will help to identify any potential issues that impact transaction processing, policies and procedures, safeguards against fraud risks, and operational risks, among others. If the internal audit produces any findings or issues that may become material items in the external audit, an action plan can be drawn to include corrective action. It will be important that the company utilizes the internal controls, including controls to mitigate the risk of fraud. If any deficiencies surrounding these controls are found, it will be imperative that they be corrected and implemented so as to operate in a sufficient manner.

First of all understand, an audit memo is prepared as the final step in completing an audit. An audit memo plays an important part in the audit process since it summarizes all information gathered during an audit.

In the process of conducting an audit, finances and assets of a business are accounted for and measured.

A sample audit work that can be done by internal staff of Amazon Company

Introduction

The board members and executive management of Amazon.com have assigned the task to internal audit group of preparing an audit of revenue cycle.

The overall objective of revenue (Sales and collection) cycle audit is to evaluate whether account transactions, balances, and disclosures relevant to the cycle are fairly presented in accordance with the applicable accounting standards.

More specifically, revenue cycle audit is to ensure that revenue has been appropriately generated, received, recorded, safeguarded, summarized, deposited and reported.

Internal audit team will obtain an understanding of the revenue-related accounting records supporting information and specific amounts in the financial statements that are used to initiate, authorize, record, process, and report transactions.

Internal audit team will evaluate potential risk factors associated with the revenue cycle and reporting financial information related to the revenue cycle.

Analytical procedures will be used where unaudited financial statements or other client data are compared with industry data, similar prior-period data, client- determined expected results, auditor-determined expected results, or expected results using nonfinancial data.

Ratio analysis, a subset of trend analysis, is a technique that will be used to highlight any revenue and/or asset account balances that are out of line with previous results or auditing expectations.

Using trend analysis and ratio analysis, internal audit will evaluate whether there have been any significant changes in following variables:

• Accounts Receivable as a percentage of total sales
• Allowance for doubtful accounts as a percentage of accounts receivable
• Receivables as a percentage of current assets
• Sales Returns and allowances as a percentage of total sales
• Gross Margin
• Year-over-year growth of accounts receivable
• Year-over-year growth of total current assets
• Year-over-year growth of accounts receivable
• Bad debt expense as a percent of net sales and net credit sales

Potential risk factors that might arise and strategies to mitigate the risks:

There are also important controls that should be in place to mitigate the risk of fraud, most notably, the adequate separation of duties, which prevent misstatements due to both errors and fraud. Of particular consideration are cash accounts, because cash is at a high risk of being lost through theft by fraud.

These controls include:

• An individual independent of posting accounts receivable reviews statements before sending to customers.
• Any write-offs are approved by a management official independent of recordkeeping responsibility.
• Individuals without recordkeeping responsibility list cash receipts received and bank reconciliations. Utilize a post office lockbox controlled by the company’s bank at which cash remittances from customers are received.
• Management should deny cash access to anyone responsible for entering sales and cash receipts transaction information into the computer.
• Checks are restrictively endorsed.
• The credit-granting function should be separated from the sales function, because credit checks are intended to offset the natural tendency of sales personnel to optimize volume even at the expense of high bad debt write-offs.

By conducting substantive tests of transactions and tests of controls, some assurance that the revenues of the company are recorded accurately may be provided.

Examples of substantive procedures include:

• Review sales journal, cash receipts journal, and master file for unusual transactions and amounts (Occurrence).
• Prepare a proof of cash receipts, obtain pre-listing of cash receipts and trace amounts to the cash receipts journal and deposit slip, testing for names, amounts and dates.
• Trace customer information on sales invoices to the customer master file to test for nonexistent customers (Occurrence).
• Trace shipping documents to the sales journal and to the general ledger to be sure that each one is included and is properly classified (Completeness, Classification).
• Test access controls and take sample of recorded sales invoices and trace price back to authorized list (Accuracy).
• Compare the date on shipping documents with the date on related sales contracts; sales invoices, the sales journal, and the accounts receivable master file (Timing).

Conclusion & Recommendation

It is recommended that upper management and the board of directors approve the implementation of audit program, in order to identify and mitigate any potential risks. With the existence and potential severity of the risks surrounding the accounts, transactions, and processes involved with the revenue cycle, as well as the inconsistent changes in account balances identified in the analytical procedures, it is imperative that internal controls are implemented and operate sufficiently. The proposed program for the internal audit of the revenue cycle will help to identify any potential issues that impact transaction processing, policies and procedures, safeguards against fraud risks, and operational risks, among others. If the internal audit produces any findings or issues that may become material items in the external audit, an action plan can be drawn to include corrective action. It will be important that the company utilizes the internal controls, including controls to mitigate the risk of fraud. If any deficiencies surrounding these controls are found, it will be imperative that they be corrected and implemented so as to operate in a sufficient manner.

First of all understand, an audit memo is prepared as the final step in completing an audit. An audit memo plays an important part in the audit process since it summarizes all information gathered during an audit.

In the process of conducting an audit, finances and assets of a business are accounted for and measured.

A sample audit work that can be done by internal staff of Amazon Company

Introduction

The board members and executive management of Amazon.com have assigned the task to internal audit group of preparing an audit of revenue cycle.

The overall objective of revenue (Sales and collection) cycle audit is to evaluate whether account transactions, balances, and disclosures relevant to the cycle are fairly presented in accordance with the applicable accounting standards.

More specifically, revenue cycle audit is to ensure that revenue has been appropriately generated, received, recorded, safeguarded, summarized, deposited and reported.

Internal audit team will obtain an understanding of the revenue-related accounting records supporting information and specific amounts in the financial statements that are used to initiate, authorize, record, process, and report transactions.

Internal audit team will evaluate potential risk factors associated with the revenue cycle and reporting financial information related to the revenue cycle.

Analytical procedures will be used where unaudited financial statements or other client data are compared with industry data, similar prior-period data, client- determined expected results, auditor-determined expected results, or expected results using nonfinancial data.

Ratio analysis, a subset of trend analysis, is a technique that will be used to highlight any revenue and/or asset account balances that are out of line with previous results or auditing expectations.

Using trend analysis and ratio analysis, internal audit will evaluate whether there have been any significant changes in following variables:

Accounts Receivable as a percentage of total sales
Allowance for doubtful accounts as a percentage of accounts receivable
Receivables as a percentage of current assets
Sales Returns and allowances as a percentage of total sales
Gross Margin
Year-over-year growth of accounts receivable
Year-over-year growth of total current assets
Year-over-year growth of accounts receivable
Bad debt expense as a percent of net sales and net credit sales

Potential risk factors that might arise and strategies to mitigate the risks:

There are also important controls that should be in place to mitigate the risk of fraud, most notably, the adequate separation of duties, which prevent misstatements due to both errors and fraud. Of particular consideration are cash accounts, because cash is at a high risk of being lost through theft by fraud.

These controls include:

An individual independent of posting accounts receivable reviews statements before sending to customers.
Any write-offs are approved by a management official independent of recordkeeping responsibility.
Individuals without recordkeeping responsibility list cash receipts received and bank reconciliations. Utilize a post office lockbox controlled by the company’s bank at which cash remittances from customers are received.
Management should deny cash access to anyone responsible for entering sales and cash receipts transaction information into the computer.
Checks are restrictively endorsed.
The credit-granting function should be separated from the sales function, because credit checks are intended to offset the natural tendency of sales personnel to optimize volume even at the expense of high bad debt write-offs.

By conducting substantive tests of transactions and tests of controls, some assurance that the revenues of the company are recorded accurately may be provided.

Examples of substantive procedures include:

Review sales journal, cash receipts journal, and master file for unusual transactions and amounts (Occurrence).
Prepare a proof of cash receipts, obtain pre-listing of cash receipts and trace amounts to the cash receipts journal and deposit slip, testing for names, amounts and dates.
Trace customer information on sales invoices to the customer master file to test for nonexistent customers (Occurrence).
Trace shipping documents to the sales journal and to the general ledger to be sure that each one is included and is properly classified (Completeness, Classification).
Test access controls and take sample of recorded sales invoices and trace price back to authorized list (Accuracy).
Compare the date on shipping documents with the date on related sales contracts; sales invoices, the sales journal, and the accounts receivable master file (Timing).

Conclusion & Recommendation

It is recommended that upper management and the board of directors approve the implementation of audit program, in order to identify and mitigate any potential risks. With the existence and potential severity of the risks surrounding the accounts, transactions, and processes involved with the revenue cycle, as well as the inconsistent changes in account balances identified in the analytical procedures, it is imperative that internal controls are implemented and operate sufficiently. The proposed program for the internal audit of the revenue cycle will help to identify any potential issues that impact transaction processing, policies and procedures, safeguards against fraud risks, and operational risks, among others. If the internal audit produces any findings or issues that may become material items in the external audit, an action plan can be drawn to include corrective action. It will be important that the company utilizes the internal controls, including controls to mitigate the risk of fraud. If any deficiencies surrounding these controls are found, it will be imperative that they be corrected and implemented so as to operate in a sufficient manner.

First of all understand, an audit memo is prepared as the final step in completing an audit. An audit memo plays an important part in the audit process since it summarizes all information gathered during an audit.

In the process of conducting an audit, finances and assets of a business are accounted for and measured.

A sample audit work that can be done by internal staff of Amazon Company

Introduction

The board members and executive management of Amazon.com have assigned the task to internal audit group of preparing an audit of revenue cycle.

The overall objective of revenue (Sales and collection) cycle audit is to evaluate whether account transactions, balances, and disclosures relevant to the cycle are fairly presented in accordance with the applicable accounting standards.

More specifically, revenue cycle audit is to ensure that revenue has been appropriately generated, received, recorded, safeguarded, summarized, deposited and reported.

Internal audit team will obtain an understanding of the revenue-related accounting records supporting information and specific amounts in the financial statements that are used to initiate, authorize, record, process, and report transactions.

Internal audit team will evaluate potential risk factors associated with the revenue cycle and reporting financial information related to the revenue cycle.

Analytical procedures will be used where unaudited financial statements or other client data are compared with industry data, similar prior-period data, client- determined expected results, auditor-determined expected results, or expected results using nonfinancial data.

Ratio analysis, a subset of trend analysis, is a technique that will be used to highlight any revenue and/or asset account balances that are out of line with previous results or auditing expectations.

Using trend analysis and ratio analysis, internal audit will evaluate whether there have been any significant changes in following variables:

• Accounts Receivable as a percentage of total sales
• Allowance for doubtful accounts as a percentage of accounts receivable
• Receivables as a percentage of current assets
• Sales Returns and allowances as a percentage of total sales
• Gross Margin
• Year-over-year growth of accounts receivable
• Year-over-year growth of total current assets
• Year-over-year growth of accounts receivable
• Bad debt expense as a percent of net sales and net credit sales

Potential risk factors that might arise and strategies to mitigate the risks:

There are also important controls that should be in place to mitigate the risk of fraud, most notably, the adequate separation of duties, which prevent misstatements due to both errors and fraud. Of particular consideration are cash accounts, because cash is at a high risk of being lost through theft by fraud.

These controls include:

• An individual independent of posting accounts receivable reviews statements before sending to customers.
• Any write-offs are approved by a management official independent of recordkeeping responsibility.
• Individuals without recordkeeping responsibility list cash receipts received and bank reconciliations. Utilize a post office lockbox controlled by the company’s bank at which cash remittances from customers are received.
• Management should deny cash access to anyone responsible for entering sales and cash receipts transaction information into the computer.
• Checks are restrictively endorsed.
• The credit-granting function should be separated from the sales function, because credit checks are intended to offset the natural tendency of sales personnel to optimize volume even at the expense of high bad debt write-offs.

By conducting substantive tests of transactions and tests of controls, some assurance that the revenues of the company are recorded accurately may be provided.

Examples of substantive procedures include:

• Review sales journal, cash receipts journal, and master file for unusual transactions and amounts (Occurrence).
• Prepare a proof of cash receipts, obtain pre-listing of cash receipts and trace amounts to the cash receipts journal and deposit slip, testing for names, amounts and dates.
• Trace customer information on sales invoices to the customer master file to test for nonexistent customers (Occurrence).
• Trace shipping documents to the sales journal and to the general ledger to be sure that each one is included and is properly classified (Completeness, Classification).
• Test access controls and take sample of recorded sales invoices and trace price back to authorized list (Accuracy).
• Compare the date on shipping documents with the date on related sales contracts; sales invoices, the sales journal, and the accounts receivable master file (Timing).

Conclusion & Recommendation

It is recommended that upper management and the board of directors approve the implementation of audit program, in order to identify and mitigate any potential risks. With the existence and potential severity of the risks surrounding the accounts, transactions, and processes involved with the revenue cycle, as well as the inconsistent changes in account balances identified in the analytical procedures, it is imperative that internal controls are implemented and operate sufficiently. The proposed program for the internal audit of the revenue cycle will help to identify any potential issues that impact transaction processing, policies and procedures, safeguards against fraud risks, and operational risks, among others. If the internal audit produces any findings or issues that may become material items in the external audit, an action plan can be drawn to include corrective action. It will be important that the company utilizes the internal controls, including controls to mitigate the risk of fraud. If any deficiencies surrounding these controls are found, it will be imperative that they be corrected and implemented so as to operate in a sufficient manner.