HELP ME WITH RISK ASSESSMENT,analysis company: GOOGLE INC.

UNDERSTANDING THE ENTITY AND ITS ENVIRONMENT: COMPLEX ENTITIES PURPOSE This form has been designed to assist the auditor in: Gathering audit evidence about the entity and its environment including its component entities and segments, if applicable; Identifying and documenting pertinent facts about the entity to be used in further risk assessment procedures; and Documenting any potential risks of material misstatement that arise as a result of obtaining an understanding. This form is designed for use in audit engagements of complex entities. For audit engagements of noncomplex entities, either this form or KBA-302N Understanding the Entity and Its Environment: Noncomplex Entities may be completed. INSTRUCTIONS The information in this form is not gathered in isolation; rather, it represents audit evidence that is integral to performing the audit because it provides vital information used in other areas. The auditor should gather as much information on the entity's business and industry as is needed to assist in (1) determining the nature, timing and extent of further risk assessment procedures, (2) assessing the risk of material misstatement in the financial statements, and (3) developing an overall audit strategy. The auditor should use professional judgment to determine the extent of the understanding required of the entity and its environment, including its internal control. The auditor's primary consideration is whether the understanding that has been obtained is sufficient to assess the risks of material misstatement of the financial statements and to design and perform further audit procedures. Obtaining an understanding of the entity, its components, and its environment is a continuous, dynamic process of gathering, updating, and analyzing information throughout the audit. Identifying significant changes in the entity and its environment from previous periods is particularly important in gaining a sufficient understanding of the entity to identify and assess risks of material misstatement. To highlight significant changes in the current year, including changes in internal control over financial reporting, the auditor should designate the degree of change from the previous year using the drop-down menu. A significant change from the previous year may be an indication of a necessary change to the assessment of risk and design of further audit procedures related to that item. While performing each audit, the auditor should continually update this form to reflect the knowledge gained in previous years. AU-C Section 315, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement, requires the auditor to obtain an understanding of the entity's internal control over financial reporting for an audit of financial statements in order to identify the types of potential misstatements, assess the factors that affect the risks of material misstatement, and design further audit procedures. In an audit of financial statements, the nature, timing and extent of procedures necessary to obtain an understanding of the entity's internal control will depend on the size and complexity of the entity; the auditor's existing knowledge of the entity's internal control over financial reporting, including the 2014 Wolters Kluwer. All Rights Reserved. KBA-302 Page 1 of 18 use of IT; the nature and extent of changes in systems and operations; and the nature of the entity's documentation of its internal control over financial reporting. Additionally, in the audit of financial statements only, the auditor is required to obtain an understanding of the design of internal controls and whether those internal controls have been implemented. If the auditor intends to rely on internal controls to reduce the nature, timing and extent of his or her substantive audit procedures or has identified a risk for which substantive procedures alone will not provide sufficient appropriate audit evidence, then the auditor should obtain sufficient appropriate audit evidence that the key controls identified to mitigate the risk of material misstatement are operating effectively. When intending to use information about the entity and its environment obtained in previous periods, the auditor should determine whether changes have occurred that may affect the relevance of such information in the current audit. The auditor should make inquiries and perform other appropriate audit procedures, such as walkthroughs of systems, to determine whether changes have occurred that may affect the relevance of such information. The auditor should obtain sufficient appropriate evidence regarding the presentation and disclosure of segment information in accordance with the applicable financial reporting framework by obtaining an understanding of the methods used by management in determining segment information and evaluating whether such methods are likely to result in disclosure. Also, the auditor should test the application of such methods and perform analytical procedures or other audit procedures appropriate for the circumstances. Audit procedures to obtain the understanding are referred to as risk assessment procedures. AU-C Section 315 provides that risk assessment procedures performed to obtain an understanding of the entity and its environment should include the following: Inquiries of management and others within the entity; Analytical procedures; or Observation and inspection. The workpaper reference column should be used when the procedures performed to gain an understanding are documented elsewhere. The tables in sections II through VII contain examples of matters that the auditor may consider in obtaining an understanding of the entity and its environment, including components or segments, if applicable. The factors included cover a broad range of matters applicable to many engagements; however, not all matters are relevant to every engagement and the list of factors is not necessarily all-inclusive. While each of the factors included in sections II through VII may not be applicable to an engagement, the auditor is nevertheless required to gather sufficient information to obtain an understanding of each of the aspects of the entity and its environment (i.e., sections II through VII). In determining others within the entity to whom inquiries may be directed, or the extent of those inquiries, the auditor should consider what information may be obtained that might help in identifying the risks of material misstatement. For example: Inquiries of management may help in identifying actual, suspected or alleged fraud, including understanding how management becomes aware of (including tips or complaints) and responses to fraudulent activities when they occur. Inquiries directed toward those charged with governance may help in understanding the environment in which the financial statements are prepared and whether those charged with governance are aware of fraudulent activities through tips or complaints, including those received through internal whistleblower programs. Inquiries directed toward internal audit personnel may relate to their activities concerning the design and effectiveness of the entity's internal control, procedures performed to identify or detect fraud, and whether management has satisfactorily responded to any findings from these activities. Inquiries of employees involved in initiating, authorizing, processing, or recording complex or unusual transactions may help in evaluating the appropriateness of the selection and application of certain accounting policies. Practice Point: When reporting on financial statements prepared in accordance with a financial reporting framework generally accepted in another country, the auditor should obtain an understanding of such framework. 2014 Wolters Kluwer. All Rights Reserved. KBA-302 Page 2 of 18 Inquires of employees with different levels of authority in the entity (e.g., entity personnel with whom the auditor comes into contact during the course of the audit (1) in obtaining an understanding of internal control, (2) in observing inventory or performing cutoff procedures, or (3) in obtaining explanations for significant differences identified when performing analytical procedures) may help to identify unexpected or unusual transactions. Inquiries directed toward in-house legal counsel may relate to such matters as litigation, compliance with laws and regulations, knowledge of fraud or suspected fraud affecting the entity, warranties, postsales obligations, arrangements (such as joint ventures) with business partners, and the meaning of contract terms. Inquiries directed toward marketing, sales, or production personnel may relate to changes in the entity's marketing strategies, sales trends, production strategies, or contractual arrangements with its customers. Corroboration and consideration of the source of the information gathered is important. Additionally, the auditor should ensure that the documentation of the source, procedures, and conclusions is included in the workpapers. This form is divided into the following sections: Section I: Entity Information; Section II: Industry, Regulatory, and Other External Factors; Section III: Nature of the Entity; Section IV: Group, Its Components, and Their Environments; Section V: Objectives and Strategies, and Related Business Risks; Section VI: Measurement and Review of the Entity's Financial Performance; Section VII: Fraud Risk Factors and Noncompliance with Laws and Regulations; and Section VIII: Significant Matters or Issues Identified in This Form. One of the required aspects of understanding the entity and its environment is related to the internal controls within the organization. Because this is such a significant aspect and has many other requirements and procedures related to it, this understanding should be documented at KBA-403 Understanding Activity-Level Controls: Revenue, Accounts Receivable, and Cash Receipts through KBA-411 Understanding Activity-Level Controls: Financial Reporting and Closing Process. The auditor should refer to Chapter 4, \"Obtaining an Understanding of the Entity and Its Environment,\" for further guidance on understanding the entity and its environment. 2014 Wolters Kluwer. All Rights Reserved. KBA-302 Page 3 of 18 UNDERSTANDING THE ENTITY AND ITS ENVIRONMENT: COMPLEX ENTITIES ENTITY NAME: DATE OF FINANCIAL STATEMENTS: SECTION I: ENTITY INFORMATION 1. Describe the users of the financial statements: 2. Change in the above information from the previous year: N/A Similar to Previous Year Significant Change from Previous Year If the change is a \"Significant Change from Previous Year,\" please describe the change here: 2. The following describes pertinent information about key stakeholders: Name of Key Stakeholder 2014 Wolters Kluwer. All Rights Reserved. Title Ownership Interest Background KBA-302 Page 4 of 18 Name of Key Stakeholder Title Ownership Interest Background 3. Change in the above information from the previous year: N/A Similar to Previous Year Significant Change from Previous Year If the change is a \"Significant Change from Previous Year,\" please describe the change here: 3. The following describes pertinent information about the key personnel: Name of Employee Title Years with Entity Background 4. Change in the above information from the previous year: N/A Similar to Previous Year Significant Change from Previous Year If the change is a \"Significant Change from Previous Year,\" please describe the change here: 2014 Wolters Kluwer. All Rights Reserved. KBA-302 Page 5 of 18 4. The following describes pertinent information about those charged with governance: Names of Key Governance Individuals Years with the Entity Related-Party Implications Background 5. Change in the above information from the previous year: N/A Similar to Previous Year Significant Change from Previous Year If the change is a \"Significant Change from Previous Year,\" please describe the change here: 5. The following describes pertinent information about the audit committee members: Name of Member 2014 Wolters Kluwer. All Rights Reserved. Years on Audit Committee Related-Party Implications KBA-302 Background Page 6 of 18 6. Change in the above information from the previous year: N/A Similar to Previous Year Significant Change from Previous Year If the change is a \"Significant Change from Previous Year,\" please describe the change here: We performed the following procedures to gain an understanding of the above entity information: SECTION II: INDUSTRY, REGULATORY, AND OTHER EXTERNAL FACTORS AU-C Section 315, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement, indicates that industry, regulatory, and other external factors include industry conditions, such as the competitive environment, supplier and customer relationships, and technological developments. The regulatory environment encompasses, among other matters, relevant accounting pronouncements, the legal and political environment, and environmental requirements affecting the industry and the entity. Other external factors include such matters as general economic conditions. 1. Industry Conditions For the following factors, indicate those that were considered in obtaining an understanding of the entity and its environment. For each factor considered below, provide a narrative of your understanding related to industry conditions. Factor Considered? (Yes, N/A) Our Understanding Procedures We Performed to Gain Our Understanding a. Entity's industry (including recent changes). 2014 Wolters Kluwer. All Rights Reserved. KBA-302 Page 7 of 18 Factor Considered? (Yes, N/A) Our Understanding Procedures We Performed to Gain Our Understanding b. Market and competition, including demand, capacity, and price competition. c. Cyclical or seasonal activity of the entity's business. d. Product technology relating to the entity's products. e. Supply availability and cost. 2. Regulatory Environment For the following factors, indicate those that were considered in obtaining an understanding of the entity and its environment. For each factor considered below, provide a narrative of your understanding related to the regulatory environment. Factor Considered? (Yes, N/A) Our Understanding Procedures We Performed to Gain Our Understanding a. Regulatory framework for a regulated industry (e.g., high degree of complex regulation). b. Accounting principles (i.e., applicable financial reporting framework) and industry-specific practices. c. Legislation and regulation that significantly affect the entity's operations (including regulatory requirements and direct supervisory activities). 2014 Wolters Kluwer. All Rights Reserved. KBA-302 Page 8 of 18 Factor Considered? (Yes, N/A) Our Understanding Procedures We Performed to Gain Our Understanding d. Taxation (e.g., Corporation, Partnership, State and Local). e. Government policies currently affecting the conduct of the entity's business, including monetary (foreign exchange controls), fiscal, financial incentives (e.g., government aid programs), and tariffs and trade restrictions. f. Inquiries into the entity's operations or financial results by regulatory or government bodies. g. Environmental requirements affecting the industry and the entity's business. h. Communications from regulatory agencies regarding noncompliance or possible noncompliance. 3. Other External Factors For the following factors, indicate those that were considered in obtaining an understanding of the entity and its environment. For each factor considered below, provide a narrative of your understanding related to other external factors. Factor Considered? (Yes, N/A) Our Understanding Procedures We Performed to Gain Our Understanding a. General level of economic activity (e.g., recession, growth). b. Interest rates and availability of financing. 2014 Wolters Kluwer. All Rights Reserved. KBA-302 Page 9 of 18 Factor Considered? (Yes, N/A) Our Understanding Procedures We Performed to Gain Our Understanding c. Inflation and currency revaluation. SECTION III: NATURE OF THE ENTITY AU-C Section 315, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement, indicates that the nature of an entity refers to the entity's operations, its ownership, governance, the types of investments that it is making and plans to make, the way that the entity is structured, and how it is financed. Among other procedures, complete AUD-815 Audit Program: Related-Party Transactions to assist in obtaining an understanding of certain higher-risk elements of the nature of the entity. Also consider completing steps 1 and 2 of AUD-816 Audit Program: Fair Value Measurements and Disclosures if you are aware of a significant fair value measurement or disclosure. 4. Business Operations For the following factors, indicate those that were considered in obtaining an understanding of the entity and its environment. For each factor considered below, provide a narrative of your understanding related to business operations. Factor Considered? (Yes, N/A) Our Understanding Procedures We Performed to Gain Our Understanding a. Entity's organizational structure and management personnel. b. Entity's operating characteristics, including its size and complexity. c. Revenue sources (e.g., manufacturer, wholesaler, banking, insurance or other financial services, import-export trading, utility, transportation, and technology products and services), including the relative profitability of key products and services. 2014 Wolters Kluwer. All Rights Reserved. KBA-302 Page 10 of 18 Factor Considered? (Yes, N/A) Our Understanding Procedures We Performed to Gain Our Understanding d. Products or services and markets (e.g., major customers and contracts, terms of payment, profit margins, market share, competitors, exports, pricing policies, reputation of products, backlog, trends, marketing strategy and objectives, and manufacturing processes). e. Key customer relationships. f. Product warranties. g. Developing or offering new products or services, or moving into new lines of business. h. Conduct of operations (e.g., stages and methods of production, subsidiaries or divisions, delivery of products and services, and details of declining or expanding operations). i. Alliances, joint ventures, and outsourcing activities. j. Involvement in e-commerce, including Internet sales and marketing activities. k. Geographic dispersion and industry segmentation. l. Operations in regions that are economically unstable (e.g., countries with significant currency devaluation or highly inflationary economies). 2014 Wolters Kluwer. All Rights Reserved. KBA-302 Page 11 of 18 Factor Considered? (Yes, N/A) Our Understanding Procedures We Performed to Gain Our Understanding m. Operations exposed to volatile markets (e.g., futures trading). n. Going-concern and liquidity issues, including loss of significant customers. o. Locations of production facilities, warehouses, and offices. p. Important suppliers of goods and services (e.g., long-term contracts; stability of supply; terms of payment; imports; and methods of delivery, such as \"just-in-time\"). q. Purchase commitments. r. Anticipated losses on long-term contracts. s. Employment (e.g., by location, supply, age levels, union contracts, pension and other post-employment benefits, share option or incentive bonus arrangements, and government regulation related to employment matters). t. Research and development activities and expenditures. u. Transactions with related parties (this would also encompass obtaining a complete listing of related parties from management). 2014 Wolters Kluwer. All Rights Reserved. KBA-302 Page 12 of 18 Factor Considered? (Yes, N/A) Our Understanding Procedures We Performed to Gain Our Understanding v. Pending or threatened litigation or contingent liabilities. w. Environmental remediation liabilities. 5. 6. 7. 8. 9. 2014 Wolters Kluwer. All Rights Reserved. KBA-302 Page 13 of 18 10. 2014 Wolters Kluwer. All Rights Reserved. KBA-302 Page 14 of 18 11. 1. 2. 0. a. b. c. 3. 2014 Wolters Kluwer. All Rights Reserved. KBA-302 Page 15 of 18 12. 13. 14. 2014 Wolters Kluwer. All Rights Reserved. KBA-302 Page 16 of 18 15. 16. 17. 2014 Wolters Kluwer. All Rights Reserved. KBA-302 Page 17 of 18 Performed by: Date: Reviewed by: Date: 2014 Wolters Kluwer. All Rights Reserved. KBA-302 Page 18 of 18