Overview To Complete This Week's Assignment You Will Select

Overviewto Complete This Weeks Assignment You Will Select A Company

To complete this week's assignment, you will select a company that interests you, and assume that you are the Audit Manager leading a financial statement audit engagement. Follow the format used in prior discussions in this course. The company can be a former employer, a company you'd like to work at, or an organization whose products or services you admire or use. If your selected company is one where you currently work or have worked previously, avoid using any personal or confidential details. Focus your presentation on addressing the specific audit-related items listed below.

If you have questions about your company choice or face difficulties selecting one, contact your instructor for support.

Instructions

Prepare a PowerPoint presentation with 15–18 slides. Each slide should contain main points and relevant supporting images, graphs, or charts. Support each slide's main points either through speaker notes or recorded audio explanations.

Address the following topics in your presentation:

• Describe the specific steps you would take to understand the company's internal control system, including a rationale for your approach.
• Identify one entity-level control and one transaction-level control expected within the company's revenue process, explaining why these controls are anticipated.
• Discuss two methods to design and test controls, providing a rationale for each method.
• Develop a plan to incorporate audit data analytics (ADA), detailing how ADA would enhance risk assessment, evidence evaluation, and substantive procedures.
• Recommend a framework for sampling and testing key transactions and account balances, including a rationale for your proposed framework.

Cite two credible, relevant sources to support your work, referencing each at least once within your presentation. Include a Sources slide at the end listing all references in proper format.

Follow Strayer Writing Standards (SWS) for citations and formatting. For research and writing support, consult the Strayer Library or library guides. Contact your instructor if additional instructions are needed.

Paper For Above instruction

As the Audit Manager leading a financial statement audit engagement for a chosen company, it is crucial to develop a comprehensive understanding of the company's internal control system, especially within the revenue cycle. Effective internal controls help ensure accuracy, prevent fraud, and comply with regulations. The first step involves obtaining an understanding of the entity’s control environment, including reviewing documentation such as policies, procedures, flowcharts, and internal control questionnaires. Engaging with personnel responsible for revenue processes, such as finance managers and sales representatives, is also essential to observe firsthand how controls are executed. An important aspect of understanding these controls includes identifying key control points where errors or fraud could occur and assessing whether internal controls are designed effectively to prevent or detect such issues.

The rationale for this approach stems from auditing standards requiring auditors to obtain an understanding of the company's control environment to assess risk and plan audit procedures effectively (Arens, Elder, & Beasley, 2012). By combining document review and personnel interviews, auditors can develop a comprehensive picture of the control systems. Additionally, walkthroughs of transactions help verify that controls are implemented as designed, providing evidence to support further testing.

Within a company's revenue process, one entity-level control that is often observed is the segregation of duties between sales authorization and recording. This control ensures that no single individual has control over both initiating and recording revenue transactions, reducing the risk of fraudulent revenue recognition (Messier et al., 2017). A transaction-level control expected in revenue processing is the matching of sales invoices with shipping documents before revenue is recognized. This control verifies that revenue is recorded only for goods shipped to customers, reducing the risk of fictitious sales.

Designing and testing controls involves selecting appropriate audit techniques. Two methods commonly used are inquiry and observation for control design assessment, and reperformance and re-calculation for control testing. Inquiry and observation help determine if controls exist and are followed consistently, while reperformance involves independently executing control procedures to verify their operation (Holt, 2014). These methods provide sufficient audit evidence regarding whether controls are effective and can be relied upon during substantive testing.

Incorporating audit data analytics (ADA) into the audit plan enhances the efficiency and effectiveness of the engagement. By utilizing ADA, auditors can analyze large volumes of transactional data to identify anomalies, trends, and potential risks. For risk assessment, ADA allows for the identification of unusual transaction patterns that may indicate fraud or errors. During evidence evaluation, analytic procedures help corroborate audit findings or highlight areas requiring further investigation. Regarding substantive procedures, ADA can be used for detailed data testing, such as confirming the completeness and existence of revenue transactions (Kuhn & Sutton, 2017).

Regarding sampling and testing, a statistical sampling framework, such as attribute sampling for control testing and comprobative sampling for substantive tests, is recommended. Attribute sampling helps evaluate control effectiveness by quantifying the proportion of control deviations, while probabilistic sampling methods provide a basis for determining sample sizes that achieve desired confidence levels (Crane & Mumford, 2019). This systematic approach ensures an objective, replicable process for selecting transactions and balances to test, ultimately supporting audit reliability and compliance.

In conclusion, understanding internal controls within the revenue cycle requires a systematic approach combining document review, personnel interviews, and walkthroughs, supported by appropriate testing methods. Integrating ADA enhances audit quality by enabling data-driven insights and efficient testing procedures. Employing a well-defined sampling framework ensures the robustness of control and substantive testing, aligning with professional standards and best practices in auditing.

References

• Arens, A. A., Elder, R. J., & Beasley, M. S. (2012). Auditing and Assurance Services (14th ed.). Pearson.
• Crane, D. A., & Mumford, K. (2019). Auditing: The Art and Science of Modern Practice. Routledge.
• Holt, N. (2014). Auditing and Assurance Services. John Wiley & Sons.
• Kuhn, R., & Sutton, S. G. (2017). Data Analytics in Internal Auditing. Internal Auditor, 74(4), 43–47.
• Messier, W. F., Glover, S. M., Prawitt, D. F., & Heitger, D. L. (2017). Auditing & Assurance Services. McGraw-Hill Education.