Audit risk mitigation project

AUDIT RISK ASSESSMENT AND MITIGATION PROJECT

One significant task performed by auditors in the planning process is risk assessment.The auditor’s risk assessments provide the main road map to plan the necessary procedures to lower overall audit risk.For this project, all Control Risk Assessments are MODERATE.For your public company, you must do the following:

• Gain an understanding of the business (highlight areas where risk might exist and why).
• Gain an understanding of the industry that the business operates (highlight areas where risk might exist and why).
• Calculate planning materiality, including performance materiality and your deminimus materiality (provide your rationale for our decisions).
• Perform a preliminary analytical review with related analysis.This analysis consists of identifying areas where risk might exist, what those risks might be, and why.
• Analyze the summary of significant accounting policies.This analysis consists of identifying areas where risk might exist, what those risks might be, and why.
• Based on your identification of areas where risk might exist (specifically linking your understanding of the business, your understanding of the industry, your preliminary analytical review, and your analysis of significant accounting policies), develop your independent list of risks along with the reasons why these are risks.
• Take the independent list of risks and identify how those risks translate to audit assertion risks (e.g., Risk: commodity prices can significantly fluctuate during the year.This can have a significant effect on profitability and the overall value of inventory held by the company.Audit Assertion Risk: As a result, management may be motivated to avoid write-downs of inventory due to price decreases and violate LCM.This can cause a valuation issue for the ending inventory balance in both raw materials and finished goods.)Some risks identified may not have links to audit assertion risks since they are not a concern for the auditor.
• Take each audit assertion risk identified and weight those risks on both dimensions of likelihood and significance. Provide an appropriate justification for each risk weighting, and then map the audit assertion risks.
• Develop appropriate procedures for each audit assertion risk.

The following grading rubric will assist you in the development and the organization of your project:

Administrative Grading Components:

• Plagiarism: Significant plagiarism (including coping material from the 10K and Annual Report) results in a 0 for the project.
• Minor Typos: -5 points
• Minor Grammatical Errors: -5 points
• Major Typos: -10 points
• Major Grammatical Errors: -10 points
• Any Violation of the Document Requirements: -10 points

Document Requirements:

• 10 to 15 pages single-spaced (excluding the appendix for the Balance Sheet, Income Statement, Cash Flows, and Statement of Stockholders’ Equity)
• Appendices for the financial statements and the analytical review spreadsheets only.
• 1 inch margins all around.
• 12 point Times New Roman Font
• Single Microsoft Word Document.

Content Grading Components:The points next to each item is the maximum you can earn for each.There are a total of 100 points.Below this list are possible deductions.

• Understanding the business – 5 points
• Understanding the industry – 5 points
• Planning Materiality – 5 points
• Preliminary Analytical Review – 10 points
• Analysis of the Summary of Significant Accounting Policies – 10 points
• Discussion of the business risks based on your understanding of the business, your understanding of the industry, your preliminary analytical review, your planning materiality, and your analysis of significant accounting policies. – 20 points
• Discussion of the audit assertion risks with careful links to your business risks, your preliminary analytical review, and your analysis of significant accounting policies. – 20 points
• Audit assertion risk weighting with justification – 12 points
• Audit assertion risk mapping – 3 points
• Procedures to mitigate your audit assertion risks. – 10 points

Listing of Possible Deductions:

• No or Inadequate understanding of the business (minus 5 points)
• No or Inadequate understanding of the industry (minus 5 points)
• No planning materiality (minus 5 points)
• No preliminary analytical review (minus 10 points)
• No analysis from the preliminary analytical review (minus 10 points)
• No analysis of the summary of significant accounting policies (minus 10 points)
• No discussion of the interaction between the preliminary analytical review and the summary of significant accounting policies (minus 5 points)
• No discussion of business risks (minus 20 points)
• No links between the preliminary analytical review and the audit assertion risks (minus 5 points)
• No links between the analysis of the summary of significant accounting policies and the audit assertion risks (minus 5 points)
• No links between the business risks and the audit assertion risks (minus 5 points)
• No audit assertion risk weighting (minus 12 points)
• No audit assertion risk map (minus 3 points)
• No justification of your risk weighting (minus 10 points)
• No linking your preliminary analytical, analysis of the summary of significant accounting policies and business risks to your risk weighting (minus 10 points)
• No procedures (minus 10 points)
• No direct link of your procedures to the audit assertion risks you are testing (minus 10 points)

Judgments of Adequacy: While these items must be present, I may still deduct points in each section if I believe the discussion, links, and analysis are inadequate or superficial.These are my judgments and they are not negotiable.Make sure you label each required item.I will not hunt for these.If I cannot find your analysis related to these items, they will get the full deduction.

Tips to research your company and the company’s accounting policies:

The SEC website (www.sec.gov) provides all the authoritative information on the company.All filings, including the 10K, 10Qs, and 8Ks are found there.

The Northeastern Library has expansive amounts of information for industry data.The Mergent Web Reports database is one of the better items for conducting industry research.A full listing of business and economics websites, including Mergent Web Reports can be found at http://www.lib.neu.edu/online_research/articles/business_and_economics.

Analyzing the Summary of Significant Accounting Policies requires an understanding of financial accounting.Use the Accounting Standards Codification to brush up on your financial reporting.

In the syllabus, there is a link to Knowledgeleader.com. This has a wealth of audit related resources.