AMAZON: ANALYTICAL PROCEDURES AND RISK TEST To understand Amazon business and identify potential audit risk in cash and revenue accounts, I would apply the following analytical procedures:

AMAZON: ANALYTICAL PROCEDURES AND RISK TEST

To understand Amazon business and identify potential audit risk in cash and revenue accounts, I would apply the following analytical procedures:

1. Compare a variety of revenue and cash financial ratios with previous years, select competitors and industry standards: cash ratio, gross profit, return on revenue, days sales outstanding, COGS to revenue, aging of receivables, turnover of receivables.
2. Conduct a cross-sectional analysis of Amazon for years 2013 and 2014 against main competitors within the same industry to identify trends.
3. Conduct a Sales Trend Analysis by Region and graph sales data by month (2012 -2014) to identify unusual trends.
4. Conduct cutoff analytical procedures by testing sales transactions by comparing sales data (2013-2014) before and after year-end to sales invoices and shipping documentation.
5. Evaluate whether the financial statements include the required disclosures regarding revenue.

Is selection and application of accounting principles appropriate for amazon business and consistent with the applicable financial reporting framework used in the retail online industry?

• Review independent audit reports for the years ended in 2013 and 2014.
• Review the process used, to elaborate estimates and develop an independent expectation of the estimate to corroborate the reasonableness of management’s estimate.

The following fieldwork will be required:

1. Obtain the 31 December 2013 and 2014 trial balances and financial statements.
2. Obtain monthly sales data by Region for years 2012, 2013 and 2014.
3. Obtain policies and procedures and organizational charts forcredit, billing, and collections area.
4. Interviewmanagement and key credit department personnel to gain an understanding of the credit approval and monitoring processes.
5. Prepare common size financial statements for years 2012, 2013 and 2014 using revenue as base.
6. Meet with external audit to obtain an understanding of testing performed and issues identified.
7. Trace 50 or more random customer orders or shipping reports, to the sales journal.
8. Testing of year-end accounting estimates, judgments and decisions made by management.
9. Review 50 invoices (may include sales orders above) to evaluate that invoices reflect approved price and discounts, compare to customer order and shipping records, unit prices, discounts, credits and any special terms.
10. Check bank reconciliation has been reconciled as approved by chief accountant.
11. Observe buyer checking the goods received note and invoiced before authorizing check for payment.
12. Analyze unusual sales made close to year end and vouching to original source documents
13. Scanning general ledger, accounts receivable subsidiary ledger, and sales journal for unusual activity

C. Create a test to assess appropriate assertions for designated high risk business transaction.

We will test sales cut off by identifying the last shipping advice for the year and examining five large sales for three days before and after year end.

References:

1. Clarified Statements on Auditing Standardshttp://www.aicpa.org/Research/Standards/AuditAttest/Pages/clarifiedSAS.aspx

2. Amazon financial ratios http://www.gurufocus.com/term/pe/AMZN/P%252FE%2BRatio/Amazon.com%2BInc

3.  Specialty Retail financial ratios http://csimarket.com/Industry/industry_Financial_Strength_Ratios.php?ind=1307

4. Auditing and Assurance Services: An integrated Approach 15^th Edition by Alvin A. Arens, Randal J. Elder,    Mark S. Beasley Chapter 8 and 9

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