Cloud 9 assignment PDF

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Summary

Cloud 9 assignment Auditing ...

Description

Potential Risks - Description

Accounts

Retails issues with the just-in-time inventory system linked with the main warehouse. With the product being available through its own retail store, issues with the inventory through its justin-time system affects potential customers. This may result in an inventory, sales, and accounts receivable over/understatement at the time of financial statement preparations.

Inventory

Purchases of inventory from China. The company uses a FOB shipping point for which goods are accepted on delivery. Late, lost, or delayed inventory shipments may affect inventory counts on hand as well as accounts payable to the suppliers.

Inventories

Warranty - the company issues 12 months of warranty on footwear which could be mistakenly recognized as earned revenue when it should be a liability.

Accrued Liabilities (Unearned revenue)

Thefts affect on the accuracy of inventory count and valuation. Inventory shrinkage may be under or overstated.

Inventory

Management has an incentive to achieve higher revenues given that they are treated to stock options. This provides an opportunity for purposely misstating numbers to achieve their stock options.

Revenue

There is a lot of leftover inventory from the lightning 7 shoe. Inventory may need to be revalued if obsolete or if a lower economic value is expected so inventory is not overstated.

Inventory

The company's program, Swift, is relied upon for everything regarding sales and inventory. Errors in the program could lead to misstated revenues and inventory.

Revenue

Possibility of understating expenses to make it look like the company is making more money then they are. Cloud 9 could postpone putting their retail store on the financial statement one

Expense Accounts

Sales Revenue Accounts receivable

Accounts payable

Revenue

Cost of Goods Sold

Inventory

Depreciation - Building

year and push it to the next to make it look like there was a bigger gross profit. Making the business more attractive to consumers and wholesalers. Loyalty program implemented to give incentive to consumers but as people start gaining points and obtaining coupons this could be hard to track and cause items to be misstated. For example: Cloud 9 paid China for the shoes to be made but then they are sold for a lower price then normal because of the coupon and this ends up messing up various accounts and not giving us an accurate representation of all the costs.

Cost of Goods Sold

Inventory purchases all in USD. Risks due to the fluctuation of the USD as the fluctuation may affect the cost of inventory, prices of inventory, and revenue from the sale of inventories. This is due to possible misrepresentation of actual exchange rates and value of the USD at the time of purchase.

Sales Revenue

Pressure from the parent company to increase its revenue by 4% could potentially cause them to overstate their revenue or understate their expenses to make them look more profitable

Revenue

Revenue - Understated

Cost of Goods Sold...