ACC 640 Module 10 Final Project Example

Integrated Audit Plan and Draft Critical Audit Matters, Fiscal 2025

[Student Name]

Southern New Hampshire University

ACC 640: Auditing

Final Project

[Instructor Name]

[Date]

The organization, setting and figures below are a composite written as a model document. No real employer, client, colleague or patient is described.

Integrated Audit Plan and Draft Critical Audit Matters, Fiscal 2025

Purpose

This document sets out the integrated audit plan for the 2025 statements and the company's controls, revised for the findings and feedback from each milestone, and drafts the critical audit matters for the auditor's report (Public Company Accounting Oversight Board, 2017).

Plan Summary

Audit plan summary

Materiality used normalized income because 2025 earnings fell sharply, consistent with the firm guidance Eilifsen and Messier (2015) describe.

Risks and Responses

Online revenue cutoff and occurrence were tested with full-population analytics matching 1.9 million orders to payment and carrier data; 60 orders shipped in January were recorded in December, a $41,000 error. The returns reserve was tested by developing an independent expectation by product line, leading management to increase the reserve by $900,000. Inventory existence was addressed by observing counts at both third-party warehouses, confirming quantities and evaluating service auditor reports; valuation was tested against January and February selling prices, leading to a $900,000 write-down. Management override was addressed by analytics over all manual journal entries and a review of estimates for bias.

How Findings Changed the Plan

Two findings altered the plan. The unposted wholesale return credits found by monetary unit sampling showed a systematic control gap, so the team replaced sample expansion with a full comparison of warehouse return receipts to credit memos and linked the issue to the returns reserve and inventory testing. The Montana and Midwest confirmation results also led to a review of contract pricing for all retailers with negotiated terms. These changes added about 140 hours, within the contingency in the budget.

Staffing and Timeline

Staffing is one partner, a senior manager, two seniors, four associates, two IT auditors and a valuation specialist, for about 3,400 hours. Planning and the predecessor review ran in October, interim control testing in November, count observations on December 30 and January 3, year-end fieldwork from January 19 to February 13, and completion and quality review through February 26.

Independence and Ethics

Because the firm's advisory group configured the company's ERP in 2024, the team confirmed at planning and again at completion that no advisory services were performed after November 2024 and that none of the advisory staff worked on the audit. The audit committee preapproved the audit and the limited tax compliance work the firm performs, as SEC rules require, and the partner confirmed in writing that the firm remains independent before the report date. No team member holds the company's shares or has relatives in key positions.

Specialists and the Work of Others

The two IT auditors tested the remediated access controls and built the order-matching analytics. The firm's valuation group reviewed the returns model and helped design the independent expectation; the engagement team remains responsible for conclusions drawn from their work, so the senior manager reviewed their memos in detail. The warehouse operators' SOC 1 reports were evaluated for scope, period and exceptions, and the complementary user entity controls were tested. The company's internal audit work on low-risk areas, such as payroll, was used after the team reperformed a sample of it and found no differences.

Completion Results

Uncorrected misstatements total $511,000, below materiality and not material qualitatively. A retailer's bankruptcy led to a $1.9 million increase in the credit loss allowance. Internal control is effective, with a significant deficiency over wholesale return credits and a deficiency in reconciliation review. The opinions on the financial statements and internal control will be unqualified.

Draft Critical Audit Matters

Returns reserve. As described in Note 2, the company records a reserve for expected returns of online and wholesale sales, $6.8 million at December 31, 2025. The principal consideration in determining that this was a critical audit matter was the significant judgment in estimating return rates after the company introduced a lifetime returns policy in September 2025 and experienced higher returns on certain new products, which required especially subjective auditor judgment. Our procedures included testing controls over the reserve process, testing the completeness and accuracy of return data, developing an independent expectation of the reserve using return rates by product line and month, and comparing returns received after year end with the reserve.

Inventory valuation. As described in Note 4, inventories of $117 million are written down when expected selling prices, less costs to sell, fall below cost. The principal consideration was the judgment in estimating selling prices for aged seasonal styles, for which recent sales occurred at significant markdowns. Our procedures included testing the aging of inventory, comparing cost with selling prices and markdowns after year end by style, and evaluating management's estimate of the price at which discontinued styles will be sold.

Lessons for Next Year

Several decisions will change in year two. Performance materiality can move toward 70 percent if the remediated controls hold and uncorrected misstatements stay small, which would reduce sample sizes. The order-matching analytics, built this year, can run quarterly and catch cutoff problems before year end. The returns reserve will remain a significant risk until the lifetime policy has a full year of data, and the team will ask management to adopt our product-line approach in its own model. The wholesale return credit control should be tested early, in the second quarter, so that any remaining gap is known well before the integrated opinion is due.

Conclusion

Each CAM describes a judgment specific to this company and the procedures that addressed it, not a general policy. Burke et al. (2023) examined early U.S. CAM disclosures and their consequences, and their findings support writing CAMs that are specific enough to be useful rather than defensive boilerplate. The plan as revised linked every significant risk to procedures, adapted when findings required it and supports the opinions to be issued (Arens et al., 2020).

References

Arens, A. A., Elder, R. J., Beasley, M. S., & Hogan, C. E. (2020). Auditing and assurance services (17th ed.). Pearson.

Burke, J. J., Hoitash, R., Hoitash, U., & Xiao, S. (2023). The disclosure and consequences of U.S. critical audit matters. The Accounting Review, 98(2), 59-95. https://doi.org/10.2308/TAR-2021-0013

Eilifsen, A., & Messier, W. F. (2015). Materiality guidance of the major public accounting firms. Auditing: A Journal of Practice & Theory, 34(2), 3-26. https://doi.org/10.2308/ajpt-50882

Public Company Accounting Oversight Board. (2017). The auditor's report on an audit of financial statements when the auditor expresses an unqualified opinion (AS 3101). Author.