Before we get into the analysis of financial statements of Amazon, it is important to note the audit procedures that were used in the whole process. The two audit testing procedures used were a substantive test and the test of details. In the substantive test, the auditor will have adequate access to information so that final decision is taken fairly. There can be cross validations. The second is the test of details where the validity of the accuracy and completeness of transactions is tested.
The potential risk factors and compliance issues with Generally Accepted Accounting Principles (GAAP)
There is a continuous rise in the cash flows of the Company because of expansion and other reasons. This is where it is important for the Company to keep sure that the correct accounting method; which is the accrual method, is used. Accrual basis of accounting is used by the Company to present data and information given in the financial statements. GAAP of the related nations has also been followed as said by the financial statements of the Company. The true and fair Company position can thus be reflected from this compliance.
Analyze the risk factors and compliance issues with GAAP or IFRS on the balance sheet
The state of internal control in a firm signifies the way in which transactions are performed, and there is sharing of responsibilities. The guidelines on compliance auditing can be gained from ISSAI 4200, which also gives guidelines on financial statement audit. In some of the cases, there is a failure from the side of the management for the discharge of all related obligations prior to asset recording. The primary concern is the existence confirmation of the assets as mentioned in the balance sheet. GAAP is the general set of principles that must adhere. However, the GAAP encompasses the general accounting principles, so an accountant is provided with few discretion on how the accounting principles as followed. This discretion given to an accountant gives birth to the risk factors (Bonham & Ernst & Young, 2008). The considerable assertions are:
Accuracy: There is always a chance that there is an overstatement of assets by the management. The duties of management to record the right asset values are protected by the Generally Acceptable Principles. There should be a complete determination of the liabilities and assets of the Company, which are equivalent to its duties and rights. Changes are bound to happen in the stated total liabilities and assets. There should be correct and proven means of depreciation used for these assets so that tax exemption can be claimed by the Government.
Using the internal control, analyze the cash and revenue for potential risk factors
The growth and progress of Amazon are phenomenal and for the management of daily operations that the firm needs to indulge in, the need for a strong internal control exists more than ever. There is high independence for the internal audit department to function, and that is why if they take control, the workplace becomes more organized. There has been an increase in the inflow of cash in to Amazon in the recent year. There is a requirement for the firm for recognition of revenue right after they are grossed.
What risks need to be documented?
Strategic Risks: As given by the name, the strategic risks contain threats related to industry dynamics and variances. These risks may include a high-rise in industry competition so that sales have dropped or advancement technology introduction or decrease in goods and services demands.
Operational Risks: These are related to the day to day activities of the organization. There must be a valuation of the potential risks that affect these firm transactions on a regular scale. The safety and access to the records of transactions are to be duly maintained.
Financial Risk: This risk represents the threats in the financial being of the institution. There must be a guarantee that the financial transactions of the Company have been conducted with utmost fairness and are devoid of frauds. There should be accuracy in transaction recording.
How does this information compare to the company or industry averages, or the company’s past performance?
The firm is in a phase of growth, and the financial position suggests the same, given the situation of all the related accounts. This is an indication that there is the progress of the firm. The total assets of the firm are 56.23 billion in 2015, which is a slight increase compared to 2014. There is an increase in the total shareholder’s equity situation too. The management is conscious regarding correct identification and treatment of risks.
Explain the audit universe and how you identified it
The samples taken from the total Company transactions represent the audit universe. The high risk in transactions means that the materiality to be considered by the auditor is also high. The sample size is thus increased because there is the presence of many risky transactions.
Based on your analysis of risk, devise a sampling program for the audit universe
The Company is in the stage of growth as the business is growing and the expansion is also huge. There is numerous financial statement that needs to be looked into and verified. The sampling designs thus suitable for this would be both cross-sectional and longitudinal. This ensures that frauds can be correctly identified at transactions points and over long periods of time.
Most preferable audit testing procedures that could be used in the field
Analytical procedures: These involve steps and actions, which test the validity and truth behind the information and statements given by the management in the course of the audit process. These procedures refer to the financial information evaluations by analyzing the likely relationships that exist between the data of financial as well as non-financial nature. In addition to this, the analytical procedures the investigation of fluctuations and the inconsistent relationship among the information (Canadian Institute of Chartered Accountants, 1980). Manipulation is checked either by a sampling of accounts or by interviewing a potentially vulnerable employee.
Observation: Observation allows looking at transactions occurring spontaneously without any interruption. For instance, the flow of employee roles can be observed in the organization and controls can be checked for any loopholes. The loopholes can later be managed by the organization (Oag-bvg.gc.ca, 2012).
Recalculation: Since this is an online business and there will be global accounts, recalculation is advised. This is where stated sales figures are taken and recalculated to check whether the calculated figures are correct, along with correctness of the price and quantity details.
Bonham, M., & Ernst & Young. (2008). International GAAP 2008: Generally accepted accounting practice under International financial reporting standards. Chichester, West Sussex: J. Wiley & Sons.
Canadian Institute of Chartered Accountants. (1980). Extent of audit testing. Toronto: The Institute.
Oag-bvg.gc.ca,.(2012). 1052 Audit Procedures for Obtaining Audit Evidence. Retrieved 17 January 2016, from http://www.oag-bvg.gc.ca/internet/methodology/performance-audit/manual/1052.shtm