Prepare a broad audit plan: Papa John\'s International, Inc. What material types
ID: 443023 • Letter: P
Question
Prepare a broad audit plan: Papa John's International, Inc.
What material types of transactions and transaction cycles are involved?
What are the high-risk areas?
What are the low-risk areas?
If management faced tremendous pressure regarding the entity's financial performance, what opportunities might exist for them to engage in fraudulent financial reporting?
To what extent do you believe it will be appropriate to reduce assessed control risk?
How will the audit effort be allocated among geographical areas?
Will any areas of the audit require outside expertise?
Will there be reliance on an internal auditor(s)? If so, why? If not, why not?
What form of auditor's report do you expect will be issued? What does it mean?
Explanation / Answer
Transactions include sale of product, restaurant and commissary leases, restaurant sales, franchise and development fees, and franchise royalties.
Some high risks areas are competition, number of suppliers, and cost of ingredients.
Low risks areas are management estimates. They have had minimal management turnover. Growth estimates could be low risk becasue pizza consumption could thrive in difficult economic times due to low costs. Cost expectation is also a low risk area. Some other low risk area include prepaid expenses which by nature have low inherent risk.
The management of Papa John is considered high on integrity. They have been not involved in any issue. Thus, there would be less scope of them engaging in fraudulent financial reporting.
It will not be appropriate to reduce the assessed control risk as the risks represent the actual threat faced by the compeny.
The information technology system used for transactions involving online orders need information technology specialist to audit the controls.
Yes, there will be reliance on internal audit in order to reduce the workload and lessen the cost of the audit on the client.
An unqualified report will be issued based on business trends and previous integrity of the management. This mean that the management will not misstate the financials materially.