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Team 14: Amazon.com



By: Nathan Paul and Seiichi Fujii

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Overview
Amazon.com is a consumer-centric entity that
focuses on providing products and services that
satisfy consumers needs. Jeff Bezos founded
Amazon.com in July of 1994, with a focus on online
retail products such as compact discs, computer
hardware, computer software, videos, and books.
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Overview Cont.
Amazon.com has grown through multiple
expansions into different industries and also through
multiple acquisitions of different companies; this has
contributed largely to Amazon.coms impressive
growth. Amazon.com has become the worlds largest
online retailer and they aim to be the leader in
Internet commerce for the entire world.
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Understanding the Client
Amazon competes in a number of different business
fields
Some risks related to doing business in the
ecommerce sector are as follows: foreign risk, data
loss, security breaches, intense competition,
expansion into new products, services, technologies,
and geographic regions, inability to accurately
forecast business growth rate, maintaining
acquisitions and investments, and government
regulation
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Assessing Risks
Inventory, inherently has high risk
-Rapid changes in product cycles and pricing
-Defective merchandise (Estimates. Any time there is an estimation, high
inherent risk exists)
-Changes in consumer demand and consumer spending patterns
-Changes in customer tastes
-Seasonality
-Obsolescence (Proper accounting of allowances)
-Amount of returns
We determined Control risk to be 0.6. We determined Inherent risk to be 0.8
Detection risk = .10

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Internal Controls
We expect to see these internal controls in place:
Restrict access to facilities
Inspect and number incoming inventory
Checks for existence
Need controls to segregate between company owned
inventory and third party seller inventory.
Software controls that protect against unauthorized orders.
Need controls to update the value of the inventory
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Planning the Audit
Assess the need for specialists:
IT Auditor
Assess the possibility of illegal acts:
Overstatement
Identify related parties:
LivingSocial
Conduct preliminary analytical procedures:
Inventory has decreased for past 3 years
9.89 in 2010
9.1 in 2011
8.34 in 2012

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Audit Strategy and Plan
Based on our audit model, we decided that the
detection risk is low.
We will observe physical inventory count at year-end. (timing)
We will take substantial number of test counts and use large
sample for vouching inventory purchases. (nature)
We will perform an extensive amount of tests (extent)
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Audit Strategy and Plan Cont.
We are Testing to gather evidence that supports
Balance Sheet Account Assertions:
1. Existence
2. Completeness
3. Rights and Obligations (Ownership)
4. Measurement
-Accuracy
-Valuation
-Timing

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Completing the Audit
Section 204 and 404 of Sarbanes-Oxley both address required
communications between auditors and the clients audit
committee.
AU 265 and AS 5 require auditors to communicate (in writing) all
significant internal control deficiencies and material weaknesses to
the client and individuals charged with governance.
Contingent Liabilities:
Patent Infringement
Tax related lawsuits
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Questions?

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