Restatement Analysis Paper

To begin, our group decided to analyze the retail industry to find the components to help predict restatements. We found that the retail industry is constantly changing and evolving, because of technological and economic factors. In order to prepare the audit, we had to first had to understand the industry and the various factors that are affecting the industry. We decided to focus on the industry as a whole, in order to find the most significant accounts that can cause restatements, as per the PCAOB’s AS#2 which requires an auditor to use a top-down approach. We believe that these are critical factors which may not necessarily be a CAM. We saw that revenue is the most significant account which can cause a restatement in the retail industry.

In order to optimize our auditing tool, we decided to consider technological advancements which change the way that retailers conduct business. When determining critical measures, we decided that online retailing has been a recent trend in the retail industry. To accommodate for economic and technological changes, we made adjustments to the auditing tool. The tool allows the user to separate online and brick and mortar (B&M) retailers, which allows the user to view trends between the two types of retailers. When viewing the different trends for two types of retailers, auditors can better understand how to prepare their audit, focusing on either the online or the B&M portion of the company they are auditing. The auditing tool we created is useful in determining current industry trends as a whole and in determining trends within the sections of the retail industry. Many retailers have evolved their business and serve both online and B&M, however an auditor is able to distinguish trends between online and B&M within the same company. Seeing overall trends in online and B&M allows for an auditor to plan out the audit depending on which section they are auditing within the retailer’s

Economic and social factors play a role in why retailers business is changing. Recessions, trends (fads), and life events can easily change what the consumer purchases. Technology plays a prominent factor in why the retail industry has been changing as well. Technology is constantly being developed and retailers must adapt their business models in order to stay competitive in the changing retail industry. Online shopping has become easy and convenient, you can even make purchases with the touch of one button (Amazon). Looking into the matter further, we noticed most retailers adapt by supporting online and brick and mortar (B&M) retailing, but we made a distinction between the two retailers to better understand the different trends within the retailing industry. The determining factor for separating online and B&M retailers is using net revenues divided by fixed assets. With the separation of the two retailers we can see different trends, and determine significant accounts for each type of