You are an audit senior with Gooch & Brown CPA, LLP, a local accounting firm specializing in audits of information systems and financial statements. Your1040Return.com engaged your firm to perform its financial statement audit. You have been asked by the partner to perform the following tasks:
(a) Why does Your1040.com need to have its financial statements audited? How might understanding the reasons for the audit of the financial statements inform the auditor about potential audit risk?
(b) Describe to Stephen Chicago why it is important for your firm to have an understanding of Your1040Return.com's business model.
(c) Identify Your1040Return.com's major business risks and describe how those risks may increase the likelihood of material misstatements in Your1040Return.com's financial statements.
(d) Indicate what Your1040Return.com should do to improve its internal control?
(e) Explain what audit implications arise if you decide that the controls over electronic records at Your1040Return.com are inadequate to ensure that records have not been altered?
(f) Steven Chicago has indicated that he is exploring upgrades to the company's IT systems. Your audit partner would like you to explore whether cloud computing is an option that your firm might recommend for consideration by Steven, Perform research to explain what cloud computing is and why it might offer benefits to Your1040.com.
(g) Authoritative literature provides guidelines for proper revenue recognition policies for transactions such as those discussed in the case. Analyze Your1040Return.com's revenue recognition policies for the three package services. Provide appropriate citations to authoritative literature.
(h) Explain how you can obtain evidence that ad swapping actually occurred between the Your1040Return.com and Amazon.com? Describe accounting issues that arise when Internet-based companies swap ad services and identify relevant authoritative literature.
(i) Address a memo to Steven Chicago detailing the appropriate contents for a customer privacy policy. (You may want to visit other company web sites, such as www.amazon.com, to see an example of a privacy policy.) Why is it important for Your1040Return.com to have an explicit privacy policy? How might the lack of a policy affect Your1040Return.com's financial statements in the future?