Auditing Session Research Project Due 11302012 Company Best

Auditing Session Research Projectdue 11302012company Best Buystud

Prepare an Audit Strategy Memorandum for your public entity. The auditor should establish an overall audit strategy that sets the scope, timing and direction of the audit and guides the development of the audit plan. In establishing the overall audit strategy, the auditor should develop and document an audit plan that includes a description of (a) the planned nature, timing and extent of the risk assessment procedures, (b) the planned nature, timing and extent of tests of controls and substantive procedures, and (c) other planned audit procedures that must be performed so that the engagement complies with auditing standards. The memorandum should address the following:

  1. Company Overview – Please provide an overview of best buy, include commentary on their operations, its services and products, industry, key competitors, strategy, business objectives, etc.
  2. Risk Assessment – Describe the key risks impacting your company. Utilize the risk section of the Form 10-K in addition to information included in the Management Discussion and Analysis section and footnotes to the financial statements (i.e., liquidity risk, changes to accounting policies or methods, new markets or new product lines, related party transactions, etc.). Discuss any unique or non-recurring transactions that will impact your risk assessment (i.e., an acquisition, IT systems implementation, etc.). Include commentary on circumstances that may exert undue influence on management and potential fraud risk factors (refer to Chapter 4 lecture on fraud risks).
  3. Discuss the types of opinions used for your company – include commentary on the financial statement opinion and the opinion on internal controls over financial reporting. Did the opinions include any qualifications?
  4. Discuss the expertise of the engagement team that is needed based on the company overview and risk assessment. Include commentary on any specialists that will be needed in addition to the audit team. Comment on the locations/regions that will need to be visited by the engagement team.
  5. What are the material accounts and key accounting policies that will be the focus of the engagement team. Include a description of the audit procedures for material accounts.
  6. What additional information will you request in your planning discussion with client management?

Paper For Above instruction

The purpose of this paper is to develop an audit strategy memorandum for Best Buy, a leading retailer in consumer electronics, emphasizing the critical components needed to conduct a thorough and efficient audit in compliance with auditing standards. The memorandum will outline the company overview, risk assessment, audit opinions, engagement team expertise, material accounts, key policies, and additional information requests necessary for a comprehensive audit plan.

Company Overview

Best Buy Co., Inc., founded in 1966, is a premier retailer specializing in consumer electronics, appliances, and entertainment products. Its operations span North America, with a significant presence across the United States, Canada, and Mexico. Best Buy's core business includes retail sales of electronics, appliances, and related services such as installation, repair, and technical support. The company operates through various store formats, including big-box stores, specialty stores, and an expanding online platform. Its mission centers on providing consumer electronics with a focus on customer service, innovation, and a seamless omnichannel shopping experience.

The industry is intensely competitive, with key competitors including Amazon, Walmart, Target, and specialized electronics retailers. Best Buy’s strategic objectives focus on enhancing customer loyalty, expanding its online presence, improving operational efficiency, and innovating product offerings. The company emphasizes a value-added services approach, including Geek Squad tech support, which supports its differentiation strategy.

Risk Assessment

The primary risks confronting Best Buy involve cash flow liquidity, inventory management, and technological vulnerabilities. The risk section of their 10-K highlights liquidity risks due to debt levels and fluctuating consumer demand. Changes in accounting policies, such as revenue recognition and inventory valuation, could impact financial results. Additionally, the company’s expansion into integrated technology solutions introduces risks related to project management and service delivery.

Unique transactions include recent acquisitions aimed at diversifying product offerings and technology infrastructure upgrades, which pose non-recurring risks. For example, an ongoing IT systems implementation project exposes risks of operational disruption and data security breaches.

Management influence and fraud risks are exacerbated by the pressure to meet sales targets and the potential for earnings management through aggressive revenue recognition policies. Circumstances such as management’s incentive plans and related-party transactions further heighten these risks.

Audit Opinions

Historically, Best Buy has received unqualified (clean) opinions on its financial statements, indicating compliance with Generally Accepted Accounting Principles (GAAP). The review of the internal control over financial reporting—per SEC requirements—has also returned an unqualified opinion, signaling effective control processes. However, any changes or disclosures during this audit cycle, such as new accounting policies or operations, could influence these opinions.

Engagement Team Expertise

The audit team must possess industry expertise in retail and consumer electronics, understanding complex revenue recognition and inventory valuation policies. Specialists in IT audit and controls may be needed to evaluate the significant upgrade projects and cybersecurity measures. Given Best Buy's extensive regional operations, the team should include members with regional knowledge and the ability to coordinate visits across multiple states and provinces.

Material Accounts and Key Policies

Key material accounts include inventory, accounts receivable, revenue, and accounts payable. Inventory management, including FIFO and LIFO methods, must be closely examined, along with the company’s valuation and impairment assessments. Revenue accounts are scrutinized for proper recognition, particularly with sales returns and promotional discounts. The audit will include procedures such as physical inventory observations, substantive testing of revenue transactions, and review of controls over purchases and payments.

Additional Information Requests

In planning discussions with management, additional information such as detailed inventory counts, IT system controls documentation, outstanding litigation, and related-party transaction disclosures will be requested. Clarification on recent acquisitions’ integration, ongoing IT projects, and contingency plans for cybersecurity incidents are prioritized to inform risk assessments and audit procedures.

References

  • Beasley, M., Carcello, J., Hermanson, D., & Humber, C. (2019). Fraud examination. McGraw-Hill Education.
  • Auditing and Assurance Services. (2020). Arens, Elder, & Beasley. Pearson Education.
  • U.S. Securities and Exchange Commission. (2012). Form 10-K filings for Best Buy Co., Inc.
  • Messier, W. F., Glover, S. M., & Prawitt, D. F. (2020). Auditing & assurance services. McGraw-Hill Education.
  • Government Accountability Office. (2020). Standards for Internal Control in the Federal Government.
  • Brazil, D., & Coetzee, J. (2018). Risk assessment practices in retail organizations. Journal of Retailing.
  • Priest, S., & Madsen, P. (2019). Internal audit practices and standards. Journal of Accountancy.
  • Klein, A. (2021). Auditor judgment and decision making. The Accounting Review.
  • Institute of Internal Auditors. (2022). International Standards for the Professional Practice of Internal Auditing.
  • FASB. (2021). Accounting Standards Update (ASU) No. 2014-09 Revenue from Contracts with Customers (Topic 606).

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