Audit Strategy Memorandum Purpose: This audit strategy is intended to provide ou
ID: 2568139 • Letter: A
Question
Audit Strategy Memorandum
Purpose: This audit strategy is intended to provide our responses to the risks identified for [Apple Inc.] and generally detail the associated tests of controls and substantive procedures that will be required during the audit.
Background: This is a company that specializes in building and selling technology such as the iPhone and Macintosh. This is one of the more popular companies in the world since just about everybody ether owns a Samsung or an Apple product as a way to communicate with one another. Apple Inc. has been founded by Steve Jobs and now is led by Tim Cook. This is a highly successful company and is very diverse with the type of products they offer.
Issue(s): The following issues are taken from the SEC 10k form of Apple Inc.
Global and regional economic conditions could materially adversely affect the Company.
Global markets for the Company’s products and services are highly competitive and subject to rapid technological change, and the Company may be unable to compete effectively in these markets.
To remain competitive and stimulate customer demand, the Company must successfully manage frequent product introductions and transitions.
The Company depends on the performance of distributors, carriers and other resellers.
The Company faces substantial inventory and other asset risk in addition to purchase commitment cancellation risk.
Future operating results depend upon the Company’s ability to obtain components in sufficient quantities on commercially reasonable terms.
The Company depends on component and product manufacturing and logistical services provided by outsourcing partners, many of which are located outside of the U.S.
The Company’s products and services may experience quality problems from time to time that can result in decreased sales and operating margin and harm to the Company’s reputation.
The Company relies on access to third-party digital content, which may not be available to the Company on commercially reasonable terms or at all.
The Company’s future performance depends in part on support from third-party software developers.
The Company relies on access to third-party intellectual property, which may not be available to the Company on commercially reasonable terms or at all.
The Company could be impacted by unfavorable results of legal proceedings, such as being found to have infringed on intellectual property rights.
The Company is subject to laws and regulations worldwide, changes to which could increase the Company’s costs and individually or in the aggregate adversely affect the Company’s business.
The Company’s business is subject to the risks of international operations.
The Company’s retail stores have required and will continue to require a substantial investment and commitment of resources and are subject to numerous risks and uncertainties.
Investment in new business strategies and acquisitions could disrupt the Company’s ongoing business and present risks not originally contemplated.
The Company’s business and reputation may be impacted by information technology system failures or network disruptions.
There may be losses or unauthorized access to or releases of confidential information, including personally identifiable information, that could subject the Company to significant reputational, financial, legal and operational consequences.
The Company’s business is subject to a variety of U.S. and international laws, rules, policies and other obligations regarding data protection.
The Company’s success depends largely on the continued service and availability of key personnel.
The Company’s business may be impacted by political events, war, terrorism, public health issues, natural disasters and other business interruptions.
The Company expects its quarterly revenue and operating results to fluctuate.
The Company’s stock price is subject to volatility.
The Company’s financial performance is subject to risks associated with changes in the value of the U.S. dollar versus local currencies.
The Company is exposed to credit risk and fluctuations in the market values of its investment portfolio.
The Company is exposed to credit risk on its trade accounts receivable, vendor non-trade receivables and prepayments related to long-term supply agreements, and this risk is heightened during periods when economic conditions worsen.
The Company could be subject to changes in its tax rates, the adoption of new U.S. or international tax legislation or exposure to additional tax liabilities.
Guidance: Discuss the assertions, test of controls and substantive procedures that you recommend that is consistent with the purpose of the audit strategy.
Conclusion: Discuss the audit approach that you recommend taking. Use the audit approach paragraph as outlined in Appendix B as a guide. Be careful not to restate this paragraph verbatim. You need to be creative to tailor your audit approach for your situation.
https://www.sec.gov/Archives/edgar/data/320193/000032019317000070/a10-k20179302017.htm#s2580FABA87865BC3AA85349AC36B2144
Please fill in the Guidance and Conclusion for this exercise. Thank you very much!
4.65 Audit Strategy Memorandum. 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. LO 4-7 Required: Select a public company and determine a significant risk that could affect its financial statements. (Hint: Go to the EDGAR database at www.sec.gov and select the company's form 10-K. The 10-K will have a list of risk factors the company faces). Describe the risk and how it could affect the financial statements, including what assertions might be misstated. Prepare an audit strategy memorandum for the risk describing what controls the company might use to mitigate the risk, how you could test the controls, and what substantive procedures you might use to determine whether there is a misstatement Because this is early in your auditing class, do not worry about specific procedures; just be creative and think about a general strategy an auditor might useExplanation / Answer
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 OMB APPROVAL OMB Number: 3235-0063 Expires: August 31, 2020 Estimated average burden hours per response ... . 1,998.78 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 GENERAL INSTRUCTIONS A. Rule as to Use of Form 10-K. (1) This Form shall be used for annual reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) (the “Act”) for which no other form is prescribed. This Form also shall be used for transition reports filed pursuant to Section 13 or 15(d) of the Act. (2) Annual reports on this Form shall be filed within the following period: (a) 60 days after the end of the fiscal year covered by the report (75 days for fiscal years ending before December 15, 2006) for large accelerated filers (as defined in 17 CFR 240.12b-2): (b) 75 days after the end of the fiscal year covered by the report for accelerated filers (as defined in 17 CFR 240.12b-2); and (c) 90 days after the end of the fiscal year covered by the report for all other registrants. (3) Transition reports on this Form shall be filed in accordance with the requirements set forth in Rule 13a-10 (17 CFR 240.13a-10) or Rule 15d-10 (17 CFR 240.15d-10) applicable when the registrant changes its fiscal year end. (4) Notwithstanding paragraphs (2) and (3) of this General Instruction A., all schedules required by Article 12 of Regulation S-X (17 CFR 210.12-01 - 210.12-29) may, at the option of the registrant, be filed as an amendment to the report not later than 30 days after the applicable due date of the report. B. Application of General Rules and Regulations. (1) The General Rules and Regulations under the Act (17 CFR 240) contain certain general requirements which are applicable to reports on any form. These general requirements should be carefully read and observed in the preparation and filing of reports on this Form. (2) Particular attention is directed to Regulation 12B which contains general requirements regarding matters such as the kind and size of paper to be used, the legibility of the report, the information to be given whenever the title of securities is required to be stated, and the filing of the report. The definitions contained in Rule 12b-2 should be especially noted. See also Regulations 13A and 15D. C. Preparation of Report. (1) This form is not to be used as a blank form to be filled in, but only as a guide in the preparation of the report on paper meeting the requirements of Rule 12b-12. Except as provided in General Instruction G, the answers to the items shall be prepared in the manner specified in Rule 12b-13. (2) Except where information is required to be given for the fiscal year or as of a specified date, it shall be given as of the latest practicable date. (3) Attention is directed to Rule 12b-20, which states: “In addition to the information expressly required to be included in a statement or report, there shall be added such further material information, if any, as may be necessary to make the required Persons who respond to the collection of information contained in this form are not required to respond unless the form displays SEC 1673 (01-12) a currently valid OMB control number. statements, in the light of the circumstances under which they are made, not misleading.” D. Signature and Filing of Report. (1) Three complete copies of the report, including financial statements, financial statement schedules, exhibits, and all other papers and documents filed as a part thereof, and five additional copies which need not include exhibits, shall be filed with the Commission. At least one complete copy of the report, including financial statements, financial statement schedules, exhibits, and all other papers and documents filed as a part thereof, shall be filed with each exchange on which any class of securities of the registrant is registered. At least one complete copy of the report filed with the Commission and one such copy filed with each exchange shall be manually signed. Copies not manually signed shall bear typed or printed signatures. (2) (a) The report must be signed by the registrant, and on behalf of the registrant by its principal executive officer or officers , its principal financial officer or officers , its controller or principal accounting officer, and by at least the majority of the board of directors or persons performing similar functions. Where the registrant is a limited partnership, the report must be signed by the majority of the board of directors of any corporate general partner who signs the report. (b) The name of each person who signs the report shall be typed or printed beneath his signature. Any person who occupies more than one of the specified positions shall indicate each capacity in which he signs the report. Attention is directed to Rule 12b-11 (17 CFR 240.12b-11) concerning manual signatures and signatures pursuant to powers of attorney. (3) Registrants are requested to indicate in a transmittal letter with the Form 10-K whether the financial statements in the report reflect a change from the preceding year in any accounting principles or practices, or in the method of applying any such principles or practices. E. Disclosure With Respect to Foreign Subsidiaries. Information required by any item or other requirement of this form with respect to any foreign subsidiary may be omitted to the extent that the required disclosure would be detrimental to the registrant. However, financial statements and financial statement schedules, otherwise required, shall not be omitted pursuant to this Instruction. Where information is omitted pursuant to this Instruction, a statement shall be made that such information has been omitted and the names of the subsidiaries involved shall be separately furnished to the Commission. The Commission may, in its discretion, call for justification that the required disclosure would be detrimental. F. Information as to Employee Stock Purchase, Savings and Similar Plans. Attention is directed to Rule 15d-21 which provides that separate annual and other reports need not be filed pursuant to Section 15(d) of the Act with respect to any employee stock purchase, savings or similar plan if the issuer of the stock or other securities offered to employees pursuant to the plan furnishes to the Commission the information and documents specified in the Rule. G. Information to be Incorporated by Reference. (1) Attention is directed to Rule 12b-23 which provides for the incorporation by reference of information contained in certain documents in answer or partial answer to any item of a report. (2) The information called for by Parts I and II of this form (Items l through 9A or any portion there of) may, at the registrant’s option, be incorporated by reference from the registrant’s annual report to security holders furnished to the Commission pursuant to Rule 14a-3(b) or Rule 14c-3(a) or from the registrant’s annual report to security holders, even if not furnished to the Commission pursuant to Rule 14a-3(b) or Rule 14c-3(a), provided such annual report contains the information required by Rule 14a-3. Note 1. In order to fulfill the requirements of Part I of Form 10-K, the incorporated portion of the annual report to security holders must contain the information required by Items 1-3 of Form 10-K; to the extent applicable. Note 2. If any information required by Part I or Part II is incorporated by reference into an electronic format document from the annual report to security holders as provided in General Instruction G, any portion of the annual report to security holders incorporated by reference shall be filed as an exhibit in electronic format, as required by Item 601(b)(13) of Regulation S-K. 2 (3) The information required by Part III (Items 10, 11, 12,13 and 14) may be incorporated by reference from the registrant’s definitive proxy statement (filed or required to be filed pursuant to Regulation 14A) or definitive information statement (filed or to be filed pursuant to Regulation 14C) which involves the election of directors, if such definitive proxy statement or information statement is filed with the Commission not later than 120 days after the end of the fiscal year covered by the Form 10-K. However, if such definitive proxy statement or information statement is not filed with the Commission in the l20-day period or is not required to be filed with the Commission by virtue of Rule 3a12-3(b) under the Exchange Act, the Items comprising the Part III information must be filed as part of the Form 10-K, or as an amendment to the Form l0-K, not later than the end of the 120-day period. It should be noted that the information regarding executive officers required by Item 401 of Regulation S-K (§ 229.401 of this chapter) may be included in Part I of Form 10-K under an appropriate caption. See Instruction 3 to Item 401(b) of Regulation S-K (§ 229.401(b) of this chapter). (4) No item numbers of captions of items need be contained in the material incorporated by reference into the report. However, the registrant’s attention is directed to Rule 12b-23(e) (17 CFR 240.12b(e)) regarding the specific disclosure required in the report concerning information incorporated by reference. When the registrant combines all of the information in Parts I and II of this Form (Items 1 through 9A) by incorporation by reference from the registrant’s annual report to security holders and all of the information in Part III of this Form (Items 10 through 14) by incorporating by reference from a definitive proxy statement or information statement involving the election of directors, then, notwithstanding General Instruction C(1), this Form shall consist of the facing or cover page, those sections incorporated from the annual report to security holders, the proxy or information statement, and the information, if any, required by Part IV of this Form, signatures, and a cross-reference sheet setting forth the item numbers and captions in Parts I, II and III of this Form and the page and/or pages in the referenced materials where the corresponding information appears. H. Integrated Reports to Security Holders.
SUBSTANTIVE AUDIT PROCEDURES
Substantive procedures are intended to create evidence that an auditor assembles to support the assertion that there are no material misstatements in regard to the completeness, validity, and accuracy of the financial records of an entity. Thus, substantive procedures are performed by an auditor to detect whether there are any material misstatements in accounting transactions.
Substantive procedures include the following general categories of activity:
At a general level, substantive procedures related to testing transactions can include the following:
Examples of substantive procedures are:
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