ACC3600/ACF3600 Auditing and Assurance
Individual Assignment Semester 2, 2019
INDIVIDUAL SUBMISSION – 18 percent
Due date: August 23 (Friday at 4pm) in week 4 (Moodle submission)
You were recently promoted to audit senior at your firm, Aoife & Josephine LLP, and one
of your primary clients is Souper Bowl Inc. Souper Bowl (“the company”) is a privately-held
business headquartered in Maine with a fiscal year end of December 31. The company has been in
business for ten years and prides itself on offering creative soups made with locally sourced
ingredients at a reasonable price. The most popular soups include sweet potato corn chowder,
curried root vegetable and lentil, and maple-roasted butternut squash. Souper Bowl typically
experiences increased sales during winter months since soup hits the spot on a cold and snowy
day. To further encourage sales on days when customers often avoid venturing outside, the
company provides a delivery service and guarantees that soup can be delivered to anyone no matter
the weather. The company found this strategy to be particularly successful in 2015 when New
England (including Maine) experienced record snowfall during February and March.
Souper Bowl sells soup out of several restaurant locations throughout Maine. The company
employs three managers that direct the day-to-day operations for a set of stores that are organized
by approximate geographic region: northern Maine (store type 1), mid-Maine (store type 2), and
coastal Maine (store type 3). Appendix A provides a map of these store locations. Each manager
knows their local market well and has the flexibility to advertise and offer promotions with the
overall goal of increasing sales year over year. Because of warmer weather and less snowfall in
2016, the company developed a new incentive plan for 2017 to boost sales. The manager whose
set of locations (i.e., “store type”) has the highest year-over-year growth (%) will earn a monetary
bonus from the company.
An audit of the company is required to comply with the debt covenants related to a large
bank loan that the company entered into when it began operations. Specifically, Souper Bowl must
provide audited annual financial statements to the bank within 90 days of the fiscal year end. The
company must also provide unaudited quarterly financial statements to the bank within 45 days of
each quarter end. The debt contract includes a financial covenant requiring that pre-tax income in
each quarter is greater than zero. If not met, the bank has multiple remedies at its disposal including
calling the loan such that the entire balance is due immediately, seizing the company’s assets that
are posted as collateral, or providing a waiver for the violation. Souper Bowl’s net income for the
year ended December 31, 2017 is $668,654, while net income for the prior year ended December
31, 2016 was $468,810.
As part of your new role as audit senior, you will be performing a large portion of the
planning and testing of sales for the 2017 audit of Souper Bowl. ASA 240.26 states that “when
identifying and assessing the risks of material misstatement due to fraud, the auditor should, based
on a presumption that risks of fraud exist in revenue recognition, evaluate which types of revenue,
revenue transactions, or assertions give rise to such risks.” During planning for the audit, the
partner and manager determined that the following three management assertions represent
significant risks for revenues:
1) recorded sales occurred;
2) sales are accurately recorded; and,
3) sales are recorded in the proper period.
In prior years, the audit approach relied on random sampling to test revenues. However, the partner
wanted to develop more focused procedures in the current year to hone in on potentially riskier
sales transactions. As a result, the plan is to perform disaggregated sales analytics to identify
unusual trends in the daily sales data with the goal of identifying sales on specific days at specific
store locations that should be subjected to substantive testing due to heightened risks. The
remainder of the population would then be sampled using a random sampling approach.1
Based on your experience from prior audits, you know that Souper Bowl’s daily sales
fluctuate with temperature and snow accumulation. To perform your revenue analytics, you
request a file from the client that includes daily sales by store location for both 2017 (current year)
and 2016 (prior year). You also retrieve daily weather data from the National Oceanic and
Atmospheric Administration’s (NOAA) website for the weather centers closest to Souper Bowl’s
store locations.2 Total revenue for the current year ended December 31, 2017 is $18.2 million,
while total revenue for the prior year ended December 31, 2016 was $17.4 million. The audit
team’s workpapers include the following lead sheet for revenue testing, and the total balances for
each year agree to the trial balance and the company’s draft financial statements for 2017.
|Souper Bowl, Inc.||PBC3|
|Revenue Lead Sheet|
|December 31, 2017|
|Revenue, Store Type 1||$ 3,890,244.32||$ 4,035,814.75||$ 145,570.43||3.74%|
|Revenue, Store Type 2||5,781,201.43||6,040,997.40||259,795.97||4.49%|
|Revenue, Store Type 3||7,744,638.90||8,079,430.08||334,791.18||4.32%|
|Total Revenue||$ 17,416,084.65||$ 18,156,242.23||$ 740,157.58||4.25%|
1 As noted in Christensen et al. (2015), most of the large accounting firms emphasize the use of specific identification
testing before random sampling to increase the efficiency and effectiveness of substantive tests. Specific identification
testing, also referred to ask directed sampling, is usually applied to select and test individually significant items and
those items identified as having a higher risk of misstatement.
2 Please use the data provided by the instructor to complete the project (Available on Moodle).
3 Provided by client.
Your manager stated that Microsoft Excel is a popular data visualization tool that your firm
recently adopted and she instructed that you learn how to use it to perform these sales analytics.
Since she is very busy overseeing the planning and testing of other audit areas, she wants you to
take the first pass and then document your results in a memo for her review. The manager wants
to see thoughtful analyses and a thorough exploration of the possible relationships in the data. You
are eager to impress her with your work, especially following your recent promotion to senior.
Requirements (1000 words and at least 3 visualisatons/graphs)
1. As noted in the case, auditing standards specifically require auditors to identify revenue
recognition as a fraud risk in most audits. Based on your understanding of the company,
what factors may increase the risk of fraudulent financial reporting in Souper Bowl’s 2016
2. Use the daily sales by location from the client (2017 and 2016) and the weather data
from NOAA to perform disaggregated sales analytics in Excel.4 You can use pivot
tables and graphs in Microsoft Excel to make visualizations. Your goal is to develop
visualizations that identify potential outliers in the 2017 daily sales data related to the
significant risks identified by the partner and manager. Using the memo template in
Appendix B, document your analyses and conclusions as to the specific daily sales from
certain locations that you recommend selecting for focused substantive testing.
Note: Your conclusion needs to be precise enough to pull specific transactions—for
example, you would not list the ‘month of March’ in store 1010 because this would result
in too many observations to feasibly test. Also, you should not recommend testing
observations from 2016. Your engagement team completed that audit in the prior year—
instead, you are using 2016 data as a component of your baseline prediction for 2017.
Christensen, B., R. Elder, and S. Glover. 2015. Behind the numbers: Insights into large audit
firm sampling policies. Accounting Horizons 29 (1): 61-81.
4 Several other data visualization packages of varying degrees include Tableau, IDEA, Microsoft Power BI, Birst,
and Sisense. You can consider any one of these (instead of Excel) if you have access and knowledge on how to use
MAP OF STORE LOCATIONS FOR SOUPER BOWL, INC.
EXAMPLE MEMO TEMPLATE
Souper Bowl Inc. – December 31, 2017
Disaggregated Revenue Analytics
Purpose: The purpose of this memo is to document plausible trends and expectations for
disaggregated revenue data and to identify specific days and locations that warrant further
Data: We obtained a listing of daily sales by location from the client’s IT system. We tested the
details for mathematical accuracy, as summarized in the table below:
|Total Sales, 2016||Total Sales, 2017|
|Store Type 1||$||$|
|Store Type 2||$||$|
|Store Type 3||$||$|
Procedures: Based on our risk assessment process, we identified the following assertions as
significant risks related to revenues/sales:
Recorded sales occurred.
Sales are accurately recorded.
Sales are recorded in the proper period.
Because Souper Bowl’s operations are solely in the state of Maine, we obtained disaggregated data
that reports daily sales by store location and store type. Based on discussions with management
and our review of the board of director minutes, we are unaware of any new store locations or
other major changes to operations during the year. Therefore, we expect prior year to be a
reasonable baseline expectation for this year’s revenues (e.g., similar seasonal trends). Because
the business can also be impacted by weather conditions, which vary by year, we also perform
analyses that consider changes in weather patterns to predict expected changes from the prior
year’s sales. We performed several analytics to identify unusual trends compared to the prior year’s
sales, taking weather conditions into consideration. The purpose of these analytics is to identify
specific observations (or specific sets of observations) to select for further substantive testing. The
analytics that we performed are as follows:
Visualization Analysis #1: Title
[Provide a description of the relationship you expected to observe in the data, along with
screenshots of the visualization results. Clearly identify (using circles, arrows, etc.) the
part of the visualization that leads you to believe that a specific location/day is an anomaly.
Ensure that all tables and graphics are properly labeled (x axis, y axis, etc.).]
o Results: [In each of the “results” sections, include a brief summary of your findings
so that your manager can see (in words) the way that you interpret the visualization
Visualization Analysis #2: Title
[The number of analyses that you perform is up to you. Remember that you want to impress
your manager, but you also know that the manager’s time is valuable. Therefore, each
analysis that you report should offer new information and conclusions (e.g., avoid
repeating the same type of analysis with different coloring, shapes, etc., if the conclusions
drawn are the same.)
Conclusion: Based on the procedures described above, the audit team will pull supporting sales
information to substantively test transactions from the following locations and days:
This section of the memo can be achieved using lists or tables, but regardless of the style
of presentation, it should clearly describe which item(s) you’re recommending that the
audit team look into it further (based on all the analyses above). For each item, you should
reference which analysis # the item comes from. The item should be a specific location on
a specific day, or a sample of certain days from a set of observations that exhibit the same
unusual trend based on your analyses above (e.g., if you identify an unusual relationship
for Q4 for location #1001, but you can’t identify one specific day or set of days that is
driving the unusual relationship, you may choose to sample from Q4 instead). Remember
that it takes time and resources to test each selection, so be strategic in your selections and
include justification for your decisions in this section of the memo.
Grading Rubric and Feedback Sheet
(100 points for 18 percent of the overall Grade)
Writing (25 points) = Is your project submission well-written (grammatically correct; no typos;
use of active voice when possible; business writing style)?
Organization (15 points) = Is your project submission properly organized (easy to follow; use of
appropriate headings/annotations; logical flow)?
Discussion (35 points) = Is the discussion in your project submission complete, thorough, and
goes beyond the surface level of analysis (well-thought-out)?
Data analysis (25 points) = Did you perform adequate data analysis in Excel to hone in on specific
sales anomalies and potential risky transactions? Did you present your analysis adequately so that
I can understand what you did and the related conclusion for each visualization?