Question

I have amazon company.

A. Analyze the income statement for any potential risk factors and compliance issues with Generally Accepted Accounting Principles (GAAP) or International Financial Recording Standards (IFRS). B. Analyze the risk factors and compliance issues with GAAP or IFRS on the balance sheet. C. Using the internal control, analyze the cash and revenue for potential risk factors. 1. What risks need to be documented? 2. How does this information compare to the company or industry averages, or the company’s past performance? D. Explain the audit universe and how you identified it. E. Based on your analysis of risk, devise a sampling program for the audit universe. F. Choose the most preferable audit testing procedures that could be used in the field, based on the audit universe items sampled in this situation.

Please expalin where you got your answers. "what substantive test of details or account balance you would complete."

Answer 1

A. Analyze the income statement for any potential risk factors and compliance issues with Generally Accepted Accounting Principles (GAAP) or International Financial Recording Standards (IFRS)

The income statement reveals that Amazon’s net sales increased from 2103-2015, according to stock Stock Analysis , but the net income from operations decreased from 2013-2014, then increased from 2014-2015, surpassing 2013 levels. Stock Analysis also reports that “Amazon.com Inc.'s income (loss) before income taxes declined from 2013 to 2014 but then increased from 2014 to 2015 exceeding 2013 level.” The same holds true for Amazon’s net income. The reason for these dips and jumps needs to be properly investigated.

B. Analyze the risk factors and compliance issues with GAAP or IFRS on the balance sheet.

Amazon recognizes many risks in the sales and collection cycle. Amazon’s sales and collection cycle begin with customer orders submitted over the internet. Goods purchased from Amazon are paid for upon ordering with a credit card approved through a third party based on their standards. Many Amazon orders are fulfilled by third parties, as well. The success of Amazon in this initial section is subject to many risks, including the dependency on accuracy, quality and timeliness from sellers fulfilling Amazon orders.

C. Using the internal control, analyze the cash and revenue for potential risk factors. 1. What risks need to be documented? 2. How does this information compare to the company or industry averages, or the company’s past performance?

A control risk matrix similar to Arens, Elder and Beasley’s (2104, p.306) to assess the control risk level at the sales transaction level. First, unit selling prices are recalled by the computer at the POS - the cashier only has to scan the UPC of each item and this automatically recalls the price for the item. Items are not typically individually priced, but there is a tag in front of each item on the shelf indicating the price of it.

D. Explain the audit universe and how you identified it.

The inspection of Krogers financial documents identifies a few points of interest. The first thing that stands out is a huge drop in cash assets. From February 1, 2014 to January 31, 2015, Kroger cash assets decreased by more than 33%, as indicated by Marketvis.io (2015). I expect that this was an effect of acquiring Vitacost for $237.7 million in August of 2014 and Harris Teeter for $2.4 billion in January of 2014. Accounting for the acquisition of another company in its entirety is an event that should be more closely looked at. Another point of concern is that Kroger values most of its inventory with LIFO, but fuel inventories with FIFO. Owczarzak reported that Kroger had closed a Michigan store in March of 2015, 4 stores in 2014, and hadn’t closed others since 2011. The accounting for a store closing may also require additional documentation. Kroger maintains classification of deferred rent in “other current liabilities/long-term liabilities,” which is a standard practice, but will require additional evidence.

Choose the most preferable audit testing procedures that could be used in the field, based on the audit universe items sampled in this situation.

Wood and Braithwaite (2013) reported that the view of internal controls was expanded by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its 1992 report entitled Internal Control – Integrated Framework. The framework defines internal controls as “a process effected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: 1) effectiveness and efficiency of operations, 2) reliability of financial reporting, and 3) compliance with applicable laws and regulations.” After examining Kroger’s reporting of its use of internal controls, It have been found that Kroger has an 18 page business ethics policy outlining business policies. Kroger has set up a disclosure review committee to evaluate internal controls and meet quarterly and as needed to ensure compliance with the SEC (McMullen, 2014).