Your1040Return.com should have its financial statements audited for several reasons. First, it is needed to determine whether the company keeps proper books of accounts. Gooch & Brown CPA will collect audit evidence and use it to form an opinion as to whether the financial statements reflect the company's financial affairs. Secondly, a financial audit is needed to help Your1040Return.com to detect errors, frauds, and irregularities. An understanding of these reasons will enable the auditor to set objectives to mitigate potential audit risks
The auditor needs to understand Your1040.com's business model because it is the basis of determining the potential business risks that may give rise to material misstatements. By understanding the model, the auditor will be able to design and perform audit procedures that mitigate business risks. Also, it allows the auditor to determine compliance with laws and regulations applicable to the company based on its business model.
The company is facing compliance risk and security or fraud risk. The changing legislation places the firm at a higher risk of inadvertently breaching taxation laws. Material misstatements that may arise because of this risk are related to provisions, legal obligations, and taxation. Given the growth in the customer base, a security risk is also high. An attempt by marketing executives to bribe Chicago to access the customer list suggests the degree of this fraud risk (Beasley et al. 24). Unidentified fraud increases the risk of material misstatements.
The company has robust internal controls ranging from the segregation of duties, restrictions on access to information systems, and verifications by third parties. However, the company should establish an internal audit function to enhance risk management. The firm should also strengthen its control environment to enhance employees' integrity.
The auditors will give a qualified audit opinion if the controls over electronic records do not guarantee that the books of accounts are not altered. This aspect suggests that the auditors have reservations on how the company maintains its electronic records.
Cloud computing, according to Marston et al., means using a network of remote servers to manage data, which are stored in remote servers over the internet instead of microcomputers (176). It is beneficial to Your1040Return.com, which houses its web servers in a key-coded room. This technology would improve efficiency, enhance access to real-time data, and also enable the firm to reduce IT costs. Also, the company would benefit from unlimited backups.
Revenue in any accounting period is recognized using either deferred revenue or account receivable policies. Research shows that managers have discretion in using these approaches to revenue recognition (Caylor 83). Depending on the nature of the business, decision-makers use a policy that enhances avoidance of losses, negative earnings surprises, and a decrease in earnings (Caylor 83).Your1040Return.com uses the deferral policy to recognize revenue from platinum services. For silver packages, it follows the conventional accounting policy that requires firms to recognize revenue at a point of transaction. For the Gold package, the company uses the accrual policy where partial revenue is recognized when clients access the system. The remaining amount is treated as accounts receivable until when the customers submit returns to the IRS.
I would obtain evidence to show that ad swapping occurred by verifying the company's legally binding agreements. Also, I would review ad click statistics in its online platform. The main issue that would arise is whether the company should record advertising revenue. Also, there is a concern on how to recognize revenue and whether swap related costs should be amortized over the extended contact period. However, Standing Interpretation Committee (SIC) requires such companies to measure revenue from bartered transactions based on the market value of advertisement services rather than the amount received (Epstein and Jermakowicz 275).
To: Steven Chicago
From: Gooch & Brown CPA
Date: 20th January 2020
Gooch & Brown CPA
Threats to the Viability of Your1040Return.com's Business Strategy
The main issues that threaten the viability of the company's business are related to online security, system reliability, and privacy concerns. Some of the security threats are phishing attacks and hacking that may occur as a result of vulnerabilities in the system. Given that Your1040Return.com has not embraced cloud computing, the system may also crash, leading to a loss of data. Besides, the client's information may be compromised and used for identity theft.
Payment to Tax Professionals
If I were in Chicago's shoes, I would compensate tax professionals for the services offered per customer. First of all, I would negotiate for fair and just prices as a strategy to ensure the organization does not overpay for professional services. Compensating tax professionals for services offered per client rather than paying them a fixed amount for a specified period would protect the company from overpaying them at a time when the demand for tax services is low. As a control measure, I would establish a department to manage payments to tax experts.
Evaluating Electronic Evidence
The auditor may decide that it would not be practical to reduce detection risk to the lowest level possible if the client only maintains transaction evidence electronically. In such instances, the auditors will perform tests of controls as a way to obtain evidence to support assertions. Auditors may also qualify or disclaim their opinion if they believe that the company's electronic records do not allow them to gather sufficient evidence through substantive tests.
Beasley, Mark S., et al. Auditing Cases: An Interactive Learning Approach. New York, Pearson Education, 2019.
Caylor, Marcus L. "Strategic Revenue Recognition to Achieve Earnings Benchmarks." SSRN Electronic Journal, 2008, doi:10.2139/ssrn.885368.
Epstein, Barry Jay, and Eva K. Jermakowicz. Wiley Interpretation and Application of International Financial Reporting Standards. New Jersey, Wiley, 2010.
Marston, Sean, et al. "Cloud Computing-The Business Perspective." Decision Support Systems, vol. 51, no. 1, 2011, doi:10.1016/j.dss.2010.12.006.
Cite this page
Paper Example: Financial Statement Audit. (2023, Mar 26). Retrieved from https://speedypaper.com/essays/financial-statement-audit
If you are the original author of this essay and no longer wish to have it published on the SpeedyPaper website, please click below to request its removal:
- Free Essay about Privacy Concerns on Social Media Platforms
- Free Essay on Revising Canon four of the Code of Ethics for Engineers
- Barbarian Days by William Finnegan - Free Essay with a Book Review
- Free Essay: Religious Agencies as Service-Delivery Strategy
- Free Essay Example - Welfares of Oil Boring
- Intended Organizational Structure and Management Philosophy. Paper Example
- Advocacy Strategic Budget - Free Paper Sample