Potential Risk Factors
Danielle McClinton
Auditing 640
Southern New Hampshire University
Potential Risk Factors
The income statement is designed to show the company’s profits and losses. A horizontal analysis will be conducted on the condensed income statement in order to recognize any significant changes in account balances. According to the Sears Holding Corporation income statement, potential areas of vulnerability are revenues, costs of sales, and gross profit. A major concern when reviewing the income statement is revenue manipulation. Revenue decreased from $22,138 million to $16,702 million between 2017 and 2018, a 24.6% difference. Revenue is one of the company’s largest accounts; therefore, it is susceptible to material …show more content…
Sears Holdings corporation has closed many of its full-line stores, which has contributed to the decline of revenue in the past few years. Internal controls of revenue included separation of duties, authorizations, approvals, and verifications. Risks related to cash and revenue will be consistent with assertions stated in the audit objectives.
• Accuracy – all cash transactions were recorded, without error.
• Occurrence – all cash transactions actually took place; cash exists.
• Cutoff – all cash transactions were recorded in the proper period.
Cash fraud (failure to record a sale) and cash theft (theft of cash receipts) are also risks that need to be documented. “Comparing the results to its competitors, Sears Holdings reported Total Revenue decrease in the 4 quarter 2017 year on year by -27.69 %, despite revenue increase by most of its competitors of 9.26 %, recorded in the same quarter.” (CSIMarket, 2018) This is something that will need to be investigated since there is such a big difference in revenue compared to …show more content…
Analyzing significant ratios and trends will help discover unusual fluctuations compared to previous periods, anticipated results and similar industry trends. Anticipated (auditor) results will be calculated before starting the analytical procedures. These anticipated results will then be compared to actual results. Analytical procedures do not cost much and can test a considerable number of items in a short period of time.
References
Arens, A.A., Elder, R.J., & Beasley, M.S. (2014). Auditing and Assurance Services:
Danielle McClinton
Auditing 640
Southern New Hampshire University
Potential Risk Factors
The income statement is designed to show the company’s profits and losses. A horizontal analysis will be conducted on the condensed income statement in order to recognize any significant changes in account balances. According to the Sears Holding Corporation income statement, potential areas of vulnerability are revenues, costs of sales, and gross profit. A major concern when reviewing the income statement is revenue manipulation. Revenue decreased from $22,138 million to $16,702 million between 2017 and 2018, a 24.6% difference. Revenue is one of the company’s largest accounts; therefore, it is susceptible to material …show more content…
Sears Holdings corporation has closed many of its full-line stores, which has contributed to the decline of revenue in the past few years. Internal controls of revenue included separation of duties, authorizations, approvals, and verifications. Risks related to cash and revenue will be consistent with assertions stated in the audit objectives.
• Accuracy – all cash transactions were recorded, without error.
• Occurrence – all cash transactions actually took place; cash exists.
• Cutoff – all cash transactions were recorded in the proper period.
Cash fraud (failure to record a sale) and cash theft (theft of cash receipts) are also risks that need to be documented. “Comparing the results to its competitors, Sears Holdings reported Total Revenue decrease in the 4 quarter 2017 year on year by -27.69 %, despite revenue increase by most of its competitors of 9.26 %, recorded in the same quarter.” (CSIMarket, 2018) This is something that will need to be investigated since there is such a big difference in revenue compared to …show more content…
Analyzing significant ratios and trends will help discover unusual fluctuations compared to previous periods, anticipated results and similar industry trends. Anticipated (auditor) results will be calculated before starting the analytical procedures. These anticipated results will then be compared to actual results. Analytical procedures do not cost much and can test a considerable number of items in a short period of time.
References
Arens, A.A., Elder, R.J., & Beasley, M.S. (2014). Auditing and Assurance Services: