Microsoft

Corporation
Audit Report

Amy Smallwood | Nathan Tipsword

Justin Wong | Azin Zomorodian

COMPANY HISTORY
Microsoft is an American corporation founded by
Paul Allen and Bill Gates in 1975.
The company was founded when Allen and Gates
made a deal with MITS to write a form of the new
BASIC programming language for Altair
microcomputers.

MICROSOFT TODAY
Microsoft invents, manufactures, and licenses
goods and services related to computing.
Products of Microsoft include operating
systems, devices, computers, tablets, servers,
phones, video games, and many more.

WHY WE SELECTED
MICROSOFT

Our team chose to audit Microsoft

Corporation because we were intrigued to
deepen our understanding of a beloved
company that creates products and services
we use daily.

INVENTORY ACCOUNT

Our team chose to audit Microsofts

inventory account because we are interested
in analyzing the tangible goods produced
and sold.

MICROSOFTS ENVIRONMENT

Microsoft is the worlds largest software

company and does business in over 120
countries and employs over 100,000 people.

Microsoft is in the technology sector, which is

a rapidly changing environment.

EVENTS AND RISKS

Events

Affected
Accounts

Possible
Manipulation

Inventory, A/P

Under-record
Purchase
Record Purchase
in Later Period

Sell Inventory

COGS, Inventory

Not recording
COGS
Record the Low
Amount of
Inventory

Obsolete Inventory

Loss on Inventory,
Inventory

Not recording

Inventory Count

Inventory
Shrinkage,
Inventory

Over-counting
Inventory

Purchase Materials

ILLEGAL ACTIVITY & RED FLAGS

Theft of Inventory
Overstatement of
inventory to
misguide financial
statement users
Fictitious Vendors
Inventory Shortage
Adjustment
Photocopies
Customer
Complaints

MATERIALITY
Type of Transaction

Materiality Threshold

Three-way match,
automatic vouching,
approvals

$125M

Without any internal

control oversight

$5M

Based on total Inventory balance

Reliance on internal controls
Transactions 5% total balance

AUDIT PROGRAM

Inventory account overview

High-risk, prone to manipulation
Illegal acts
Theft, management fraud, fictitious venders
Procedures to check for each
Related parties
Arms-length transactions
Proper disclosure, valuation assertion
Preliminary analytical procedures
Current balances with over amounts
Materiality
Transaction and ratio tests, common size analysis
Expectations vs. reality
Documentation
Audit strategy
Transaction assertions (valuation and occurrence)
Balance assertions (valuation)
Presentation and disclosure assertions