| Course | ACC 546 Auditing (ACC/546) |
|---|---|
| Week | 2 |
| Paper type | Audit planning paper |
| Length | about 1,151 words, 4 double-spaced pages plus title page and references |
| Format | APA 7 student paper |
| School | University of Phoenix |
| Program | MS in Accounting |
| Updated | September 2026 |
Free sample paper for ACC 546 Week 2
Planning the Audit of a Listed Kitchenware Retailer: Understanding the Business, Planning Analytics That Compare Sales With Square Footage, Materiality, Fraud Risks and the Team's Timeline
[Student Name]
University of Phoenix
ACC/546: Auditing
Week 2 Assignment
[Instructor Name]
[Date]
The retailer, its figures and the audit team are composites written for a model paper; standards and research findings come from the sources listed.
A composite retailer sells cookware, small appliances, cutlery and kitchen gadgets through 180 stores in malls and lifestyle centers and a website that now produces 27% of sales. Its shares trade on a national exchange. Revenue was $1.42 billion last year and pretax income $62 million. The audit firm has audited the company for six years and is planning the current year's integrated audit of the financial statements and internal control. Planning decides where an audit team's hours go, and hours spent in the wrong places are what let misstatements through. This paper presents the planning memo.
Continuance and Independence
The firm evaluated whether to continue the engagement, considering management's integrity, the firm's independence and its capacity. No independence threats were identified, and management's cooperation in the prior year was good and timely. The engagement partner is in her third year of the five allowed before rotation.
Understanding the Business
The team updated its understanding through reading industry reports, analyst commentary, board minutes and interviews. Key facts: mall traffic continues to decline, so the company is closing weaker stores and investing in its website; online orders are fulfilled from a new distribution center that opened in the third quarter with a new warehouse management system; gross margins depend heavily on vendor allowances, payments from suppliers for promotions and markdown support; and the company faced a merchandise glut after the holiday season, leading to heavy promotions. Executive bonuses depend on comparable sales growth and operating margin.
Planning Analytical Procedures
Planning analytics identify areas that deserve attention. Comparable store sales fell 2%, but total store revenue fell only 1% despite the net closure of eight stores, which is plausible because closed stores were small. Online revenue rose 19%. Gross margin fell 80 basis points, less than the heavy promotions would suggest, pointing the team to vendor allowances and inventory costing. Inventory rose 11% while sales rose 3%, suggesting a risk of obsolete merchandise.
The team also compared financial results with nonfinancial measures. Revenue per square foot in stores was consistent with prior years after adjusting for closures, and online revenue growth matched the growth in orders and web traffic reported by the e-commerce platform. Brazel et al. (2009) found that inconsistencies between financial and nonfinancial measures, such as revenue growth outpacing growth in capacity, were associated with fraud, so these comparisons are an efficient early check.
Materiality
The team set overall materiality at 5% of pretax income, $3.1 million, because investors focus on earnings and pretax income has been stable enough to serve as a benchmark. Performance materiality was set at 65% of overall materiality, $2.0 million, lower than the 75% used last year because of the new distribution center and system and last year's adjustments to inventory. The threshold for accumulating misstatements is $155,000 (Public Company Accounting Oversight Board, 2010b).
Fraud Brainstorming
The engagement team met to discuss how fraud could occur. Incentives include bonuses tied to comparable sales and margin and pressure to meet analysts' expectations in a weak year. Opportunities include the complexity of vendor allowance agreements, many negotiated by buyers with limited finance review, and manual adjustments to inventory reserves. Rationalization could arise from the belief that promotions are temporary. The team identified fraud risks in revenue, particularly timing of online sales and the returns reserve, vendor allowance recognition and inventory reserves, in addition to the risk of management override present in every audit.
Significant Risks and Responses
Under the PCAOB's risk assessment standard, significant risks require special audit consideration, including tests of details rather than analytics alone (Public Company Accounting Oversight Board, 2010a). The team identified four.
First, inventory valuation, given the glut and the new distribution center. The response includes observing counts at the distribution center and a sample of stores, testing the aging and markdown reserve with subsequent sales and testing controls in the new warehouse system.
Second, vendor allowances. The response includes confirming a sample of allowance agreements and amounts directly with vendors, testing whether allowances are recognized as a reduction of cost when earned and reviewing allowances recorded near year end.
Third, online returns. The response includes testing the returns reserve against historical return rates and post-year-end returns.
Fourth, management override, with journal entry testing and review of estimates for bias.
Controls to Test in the Integrated Audit
Because the company is an accelerated filer, the team will also opine on internal control over financial reporting. Using a top-down approach, it starts with entity-level controls, such as the audit committee's oversight and the monthly review of results by region, then selects key controls over the significant risks: the approval and reconciliation of vendor allowance receivables, the monthly review of inventory reserves by the merchandising and finance leaders, the reconciliation of online orders shipped to revenue recorded and the returns reserve calculation. Where these controls are effective, the team can reduce, though not eliminate, substantive testing of the related accounts.
Communications Planned
The team will communicate its overall audit strategy, significant risks and the planned use of internal audit to the audit committee before fieldwork begins, as PCAOB standards require, and will update the committee in January on the results of interim testing and any control deficiencies found. Early communication gives the committee time to ask questions about the new distribution center, which several directors have raised.
Specialists and Internal Audit
IT specialists will test general controls over the new warehouse management system and the e-commerce platform. The team will use the work of internal audit on store inventory counts after evaluating its competence and objectivity, but will perform its own tests on the significant risks.
Staffing
The team includes the engagement partner, a senior manager with retail experience, two seniors and four staff, plus the IT specialists and a data analytics specialist who will run full-population tests of journal entries and online sales cutoff. An engagement quality reviewer, a partner independent of the team, will review the significant risks and the report.
Timeline
Interim work, including control testing and the understanding of the new system, will be performed in October. The team will observe inventory at year end in late January and complete substantive work in February and early March, with the report due in mid-March.
Anticipated Critical Audit Matters
Inventory valuation and vendor allowances are likely critical audit matters, since both involve material accounts and especially challenging judgment. The engagement partner will raise both with the audit committee in the planning meeting so there are no surprises in March.
Conclusion
The plan directs the team's effort to the risks that matter for this retailer: inventory in a year of excess merchandise and new systems, vendor allowances that shape margin and returns in a growing online channel, with materiality set conservatively and procedures tied to each significant risk.
References
Brazel, J. F., Jones, K. L., & Zimbelman, M. F. (2009). Using nonfinancial measures to assess fraud risk. Journal of Accounting Research, 47(5), 1135-1166. https://doi.org/10.1111/j.1475-679X.2009.00349.x
Public Company Accounting Oversight Board. (2010a). Identifying and assessing risks of material misstatement (Auditing Standard No. 12).
Public Company Accounting Oversight Board. (2010b). Consideration of materiality in planning and performing an audit (Auditing Standard No. 11).
What the ACC 546 Week 2 instructions ask
ACC 546 Week 2 typically asks graduate students to plan an audit. Typical requirements include client acceptance or continuance, obtaining an understanding of the company, its industry, its controls and its accounting policies, performing planning analytical procedures, setting materiality and tolerable misstatement, identifying and assessing risks of material misstatement, including fraud risks and significant risks, planning the use of specialists and others and preparing an audit strategy and timeline. Many prompts give a company's financial data, sometimes with operating statistics, and ask for a planning memo addressed to the engagement partner. The paper should connect each planning decision to a risk and cite PCAOB or AICPA standards and research in APA style.
How this ACC 546 Week 2 example is built
A specialty retailer with stores and an online channel offers a realistic mix of risks: inventory spread across locations, vendor allowances that reduce cost of sales, promotions and returns that affect revenue and new systems supporting e-commerce. The paper follows the planning memo's order. It summarizes the understanding of the business, then shows planning analytics, including the comparison of financial and nonfinancial measures that research recommends. Materiality is set and explained. The fraud brainstorming session is described with the risks it identified. Significant risks are listed with the planned responses. The memo ends with the team, the controls to test in the integrated audit, the timeline and the matters likely to become critical audit matters.
ACC 546 Week 2 grading rubric: where the points go
Graduate grading for audit planning tends to reward a thorough, business-specific understanding, meaningful planning analytics, justified materiality, a well-reasoned identification of significant and fraud risks and a clear link between risks and planned procedures. Faculty check that the presumed fraud risk in revenue and the risk of management override are addressed, that nonfinancial data are used where helpful, that performance materiality is set below overall materiality with reasons and that the timeline and use of specialists fit the risks. Anticipating critical audit matters shows awareness of reporting. An organized memo format, a timeline that fits the risks and cited standards and research earn the remaining credit.
ACC 546 Week 2 help: mistakes to avoid
ACC 546 Week 2 memos often list generic risks, such as revenue and inventory, without saying what could go wrong for this company. State the specific way each account could be misstated. Another weakness is running planning analytics on financial ratios alone; comparing sales growth with store count, square footage or web traffic can reveal inconsistencies. Students also set materiality without explaining the benchmark. Justify it. Remember that the fraud brainstorming must consider incentives, opportunities and rationalizations. Link each significant risk to a planned response. Include specialists where judgment requires them, such as IT or valuation, and say what they will test. Finally, anticipate critical audit matters.
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ACC 546 Week 2 questions, answered
What does ACC/546 Week 2 usually cover?
It usually covers audit planning: understanding the company and its environment, planning analytical procedures, materiality, risk assessment including fraud risks, the audit strategy and the use of specialists.
Where can I find a free ACC 546 Week 2 sample paper?
Our planning memo for a listed kitchenware retailer, covering analytics, materiality, fraud risks and timeline, is posted here with explanatory notes in the margin. Send your own planning case and the first draft costs nothing.
Why use nonfinancial measures in planning analytics?
Comparing financial results with operating data, such as store count, square footage or units, can reveal inconsistencies that suggest misstatement, since fabricated revenue rarely comes with matching operating growth.
What is a significant risk?
A risk of material misstatement that requires special audit consideration, such as fraud risks, unusual transactions or estimates with high uncertainty.
What is a critical audit matter?
A matter communicated to the audit committee that relates to material accounts or disclosures and involved especially challenging, subjective or complex auditor judgment, described in the auditor's report.
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