+ 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. + 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. + 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 + 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
+ 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 + 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
+ 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) + 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
+ 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 + Questions?