Document your understanding of the relationship between audit risk, audit evidence, and financial statement assertions as it specifically relates to RNS and the industry.

A. Describe the audit data or evidence the team will review. Why is proof important? B. What if a significant portion of the data is overseas and beyond the auditor's jurisdiction or audit universe? Analyze how the audit team will compensate for that risk. What governing rules and regulations must be taken into consideration? C. Describe analytical procedures you will use to determine the sampling program. How will the internal control evaluation affect this step? Be specific. D. List and then describe the types of audit evidence you will request from RNS. E. Describe any considerations the team will make in auditing subjective areas, including any governing rules and regulations that were factored into the auditing decisions. F. Describe the factors you took into consideration when planning the nature and extent of the audit documentation. G. Describe how responsibility for IT (computers, software, internet, usage, databases) risk coverage for companies in the IT industry is defined. Is it adequate? Describe how that definition addresses or fails to address current and future risks related to social media. H. Describe the internal controls that are put in place to specifically protect computer data and proprietary information. How well do these controls operate within the IT industry? I. Where do current and future vulnerabilities exist for IT, and what must be done to manage these gaps?

RNS Scenario

RNS sells and installs computers and networking hardware and software, and provides information technology consulting to businesses. It is currently developing its own computer networking software to sell to customers.

RNS's success depends on attracting and retaining personnel with a high level of technical expertise who are able to provide a broad range of services. The market for staff is highly competitive.

The market for computers and networking products is extremely competitive. RNS's main competitors are companies like Dell, Hewlett Packard, and Apple. RNS also competes with local and regional resellers that provide similar products and consulting services directly to customers. To be competitive, RNS has relied on its ability to provide its customers with state-of-the-art products in a timely manner. Because the company does not have the buying power of some of its competitors, it generally must charge a higher price for its products, but it is also able to provide a higher level of service and expertise to its customers to compensate for the higher price.

The market for computer products and technology services is sensitive to economic conditions. Economic indicators predict that the U.S. economy will be relatively stagnant for the next few years, with the annual growth in spending for information technology products and services expected to be 1 percent per year for the next three years. In the past year, RNS has decided to increase sales by relaxing credit rules to provide credit to customers with slightly higher credit risk.

RNS is a closely held company owned by six stockholders. Two stockholders are active members of the company's board of directors. None of the other owners take an active part in the management of the business.

RNS's primary business objectives are to increase sales, services, and consulting revenues by five percent and increase net income by seven percent each year for the next three years. Strategies to achieve those objectives include: New software development Aggressive marketing of products and services through increased advertising Sales to customers with a higher credit risk profile

The primary business risks associated with the company's strategies include the following:

The U.S. economy may suffer a significant downturn. Competitors may engage in predatory pricing to gain market share. Increased advertising expenditures may not produce desired results. Credit losses may exceed the benefits of increased sales. Software development activities may not generate viable products.

The company has developed the following responses to these risks:

Frequent monitoring of economy and industry conditions Monitoring of competitor actions Hiring of a marketing consulting firm to evaluate the performance of advertising methods Daily review of aging of the accounts receivable Adherence to a controlled software development budget

Management uses the following measures to monitor the company's performance:

Inventory and receivables turnover Aging of accounts receivable Sales and gross margins by type of revenue Net income Total inventory balance