Last week you answered a question for me dealing with auditing and the company Lockheed Martin Corporation. was wondering if you could answer this following up on last week question.

In further preparation for your audit of the company your team selected, you decided to gather your team and discuss Audit Evidence and Documentation Standards for this audit. Your preparation included a review of evidence and documentation literature (Chapter 7). To properly prepare the staff that will be working with you, you decide to create a Cheat Sheet on Evidence and Documentation to be used in your presentation.

Preparea "Cheat Sheet" that briefly describes Audit Evidence and Documentation Standards, which includes the following topics. Each topic should be 90 to 175 words:

• Comparison of Audit, Scientific and Legal Evidence Standards.
• Consideration of Sample Sizes and Methods (random, haphazard, monetary unit sample, judgmental) and how sampling affects evidence.
• Relevance, Reliability and Sufficiency of Evidence.
• Brief statement on the 80 types of audit evidence (physical examination, observation, confirmations, inquiry, recalculation, etc.).
• Purpose,Ownership,ConfidentialityandRetentionofDocumentation.

The bold is what I need answered...attached is what my team submitted last week

LOCKHEED MARTIN 10-K REVIEW 1 ACC/491: Contemporary Auditing I 08-01-2016 Lockheed Martin Lockheed Martin is the leadership in aerospace and global security. The company has spent the entire year expanding, enhancing, and driving innovation in all departments of the company. Lockheed Martin has expanded their reach by taking on the leader of military and commercial helicopters, Sikorsky. (Lockheed Martin, 2016) The company combined their IT and tech services with Leidos to create a more efficient LOCKHEED MARTIN 10-K REVIEW 2 tax entity separate of the company. Reorganization of energy portfolio into their Missiles and Fire Control to be more competitive in the energy business. All of this is to ensure a competitive edge for continued growth whilst delivering performance and exceptional value. (Lockheed Martin, 2016) To make all of these movements and steps, Lockheed Martin has covered and detailed all of their strategy through their annual report. Initial Risk Assessment General Audit and General Business Concerns The requisite background I and my team will need to adequately audit this company is the industry specific expertise. My audit team will need an intensive aerospace, defense, security and advanced technologies knowledge in order to successfully audit Lockheed Martin Corporation. Industry specific expertise and resources is a requisite for me and my audit team to enable us perform the engagement with competence and due professional care. The audit process will close within 28 days of the date the company files the tax return. The audit will take one month to adequately audit this company. Has the company you're auditing recently increased or decreased their operations due to mergers or sales of parts of the business? Lockheed Martin Corporation has recently increased their operation due to a merger. Leidos Holdings merged with the government information technology and services business being shed by Lockheed Martin Corporation in a deal which valued around 5 billion (Reuters, 2016). This merger increased the operations of Lockheed Martin Corporation since it created the largest government services provided in the LOCKHEED MARTIN 10-K REVIEW 3 United States and this put the two merging companies a stronger footing to cope with the increased competition, lower government spending, and delays in the new contracts. Lockheed Martin Corporation and Leidos Holdings are a conglomerate with lots of different kinds of goods and services. Lockheed Martin Corporation is a global aerospace, security, defense, and advanced technology American company having worldwide interests (Lockheed Martin Corporation, 2016). It is one of the largest company in this industry and is the largest contractor in the world based on its revenue in the 2014 fiscal year. Leidos Holdings on the other hand is a defense company based in Virginia and it provides a range of services including engineering, scientific, technical, and systems integration services. It operates extensively with United States Department of Defense and it was the fourth largest contractor in the fiscal year 2012. Some of its commercial markets includes United States Department of Homeland Security, National Security Agency, U.S. government civil agencies and the United States Intelligence Community. The operating supplies of these companies include technology equipment, aerospace, security equipment, technical services. These operating supplies are not in short supply but they are subject to wild pricing swings on the open market. There is a stiff competition in the industry and the cost of operating supplies are subject to demand and supply. The price of technologic equipment and supplies would change in response to a change in the demand of such products. The two companies have worldwide operations and subsidiaries. Leidos Holdings has subsidiaries located in different part of the world including Leidos Canada, Leidos LOCKHEED MARTIN 10-K REVIEW 4 Australia and Varec, Inc. in 2015, Leidos won a $4.34 billion contract for the U.S. military health records to work for the current and retired military service members throughout the United States and overseas. Lockheed Martin Corporation also provides services and technology products that are used in dangerous parts of the world (Reuters, 2016). The security systems, aerospace, and defense provided by Lockheed Martin Corporation are used in various parts of the world including dangerous countries. Competition in this industry is very robust as there are many companies that provide the same products and services. The top competitors of Lockheed Martin Corp and Leidos holdings include United Technologies Corp, Boeing Co, Airbus Group, Airbus Group General Dynamics Corp, Raytheon Co, Northrop Grumman Corp, Safran BAE Systems PLC, BAE Systems PLC, Rolls-Royce Holdings PLC, Rolls-Royce Holdings PLC, Thales TransDigm Group Inc, and L-3 Communications Holdings. There are other small companies that provide the same services and gradually gaining market share in the industry. Lockheed Martin Corporation announced that its board of directors appointed John Mollard as vice president and treasurer on February 29, 2016. John Mollard succeeded Ken Possenriede who served as corporate treasurer since 2011. This replacement has been done because the outgoing corporate treasurer, Ken Possenriede has moved to vice president position in the finance and business operations at Aeronaurics in Texas (Lockheed Martin Corporation, 2016). Seasonality is a factor in the operation of Lockheed Martin Corporation because some of the products and services are required in certain seasons more than others. The company mostly works on contracts which is highly seasonal. This affects the LOCKHEED MARTIN 10-K REVIEW 5 revenue of this company in that during the peak seasons when it has received several contracts with the government, it records very huge revenue unlike the off seasons when the contracts are less. Ethical, Legal, Regulatory, and Compliance Issues Lockheed Martin engages in research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services, global security and continuing economic pressures in the U.S. and global. (Lockheed Martin, 2016) The company covers five separate segments: aeronautics, information systems and global solutions, missiles and fire control, mission systems and training and space systems. (Lockheed Martin, 2016) They organize everything by the nature of the products and services being offered. For this company, the potential for conflicts and complications to arise among the various departments and segments of the company is rather large. It carries the same variety and diversification and some retail companies. There has to be a great concern for the commitment to integrity. Lockheed Martin strives to do what is right each day. The vision set forth by top management is to \"be the global leader in supporting our customers to strengthen global security, deliver citizen services, and advance scientific discovery\". (Lockheed Martin, 2016) The company's values are centered around \"doing what's right, respecting others, and performing with excellence.\" (Lockheed Martin, 2016) Lockheed Martin considers ethics and integrity are reflected in the value statements. Upper management encourages employees to report ethical problems to whoever they feel they should to get the problems resolved. LOCKHEED MARTIN 10-K REVIEW 6 With this many areas of diversification, the possibility of litigation goes up substantially. Lockheed Martin is subject to federal, state, local, and foreign environmental requirements. It is illogical to believe that a company of this size will not receive some sort of litigation. On October 26, 2015, a violation related to hazardous waste compliance was issued by New Mexico. This violation involved Sandia National Laboratories which is operated by Sandia Corporation for the Department of Energy. This violation targeted several instances where Sandia Corporation violated hazardous waste regulations related to determination, disposal, documentation, training, inspection, recording, labeling, and time-based storage limitations. The Department of Justice also filed that there have been violations of improper handling, storing, and transportation of hazardous waste and a violation of False Claims by misleading officials about the nature and extent of environmental noncompliance. It appears as though the company needs to work on their regulatory and compliance protocols and procedures. Analytical Procedures Selected Ratios Liquidity Accounts Receivable Turnover Lockheed Martin 12/31/2015 Boeing 12/31/2015 6.62 11.69 46132/((8061+5877)/2) 96114/((8713+7729)/2) 14.86 13.76 46031/3097 88011/6397 12.66 9.22 4031/((315+322)/2) 6328/((666.6+706.7)/2) Ability to Meet Long-Term Obligations Debt to Equity Profitability Ratios Earnings per share LOCKHEED MARTIN 10-K REVIEW 7 For our analytical procedures we chose to look at Accounts Receivable Turnover, Debt to Equity, and Earnings per Share for Lockheed Martin for the year end, December 31, 2015 compared to one of its major competitors Boeing, for their year-end, December 31, 2015. Below we will analyze the results. Accounts receivable turnover is a measure of the number of times per year a company collects its average accounts receivable. In this instance, it was calculated by dividing Net Sales by the average of annual accounts receivable for years 2015 and 2014, respectively. Normally, a higher accounts receivable turnover ratio indicates an aggressive collection policy and high quality customers who pay on time. Alternatively, it can represent companies that operate on a cash only basis. Boeing's accounts receivable turnover is almost double that of Lockheed Martin at 11.69 vs. 6.62. This definitely indicates that Boeing collects accounts receivable more often than Lockheed Martin. However, it is stated in Lockheed's 2015 Annual Report, that their average operating cycle is longer than one year, due to the complications and restrictions on government contracts, so it is important to keep this in mind when evaluating the financial ratios. As a result, we would recommend that special attention be paid to Lockheed's delinquent payments, extension of credit, and actual collection of payments. Debt to equity measures how much debt a company uses to finance its assets and increase overall value. In this case it was calculated by total liabilities divided by total equity. Lockheed and Boeing's debt to equity ratios are quite close in comparison, and after reviewing historical data, appear to normally stay in close range of each other, but our usually higher than the rest of the industry. As each other's main competition, it LOCKHEED MARTIN 10-K REVIEW 8 appears that both companies are utilizing aggressive borrowing in order to remain competitive with each other. This will bring value to the companies, but also represents a higher risk in investment. Lastly, the earnings per share ratio is the most common ratio in estimating a company's profitability. It is calculated by dividing net income by average common shares outstanding. The higher the ratio, the better, as this represents the value per share for stockholders, and often influences stock price. Lockheed Martin offers higher EPS than Boeing with these calculations, offering its stockholders higher return. Materiality and Risk Materiality According to Financial Accounting Standards Board (2008), materiality is defined as \"a pervasive concept that relates to the qualitative characteristics, especially relevance and reliability.\" Essentially, materiality has to do with the omission or misstatement of accounting information that would cause the judgment of the auditor depending on that information to change based on that omission or misstatement. An auditor must go through five steps to apply materiality when conducting an audit. The first step is to determine materiality for the whole of the financial statements. Next is to determine materiality for performance by analyzing segments of the audit such as disclosures of account balances. The third step is to approximate the misstatement of each individual segment. Next, an approximation is determined for the combined financial statements. Lastly, the approximations are compared to the preliminary judgment about the materiality of the statements. Auditors must determine whether the LOCKHEED MARTIN 10-K REVIEW 9 misstatements are large enough to make a substantial difference in audit or not and then make recommendations for corrections based on that opinion. Misstatement Misstatement is \"a difference between the amount, classification, presentation, or disclosure of a reported financial statement item and the amount, classification, presentation, or disclosure that is required for the item to be in accordance with the applicable financial reporting framework. Misstatements can arise from error or fraud,\" according to International Standard on Auditing (2009). A misstatement can occur in the form of omitting amounts on the financial statements or in disclosures, not entering correct information when preparing financial statements, over or underestimating accounting then not correcting the estimation, or unacceptable or inappropriate accounting policies. Misstatements without intention of causing harm are simply errors. Misstatements with the intent to enhance the financial statements are fraud. Audit Risk Audit risk is fundamentally the amount of risk an auditor is willing to take on when accepting a client. Auditors must accept some amount of risk in order to perform an audit. There is a level of uncertainty with taking on any client, ranging from zero risk to 100% risk. According to American Institute of CPAs (2006), audit risk is \"a function of the risk that the financial statements prepared by management are materially misstated LOCKHEED MARTIN 10-K REVIEW 10 and the risk that the auditor will not detect such material misstatement.\" Audit risk is affected by the intricacy of the entity and the experience of the auditor. Audit Risk Model Audit risk model \"helps auditors decide how much and what type of evidence to accumulate for each relevant audit objective\" (Arens, Elder, and Beasley, 2014). It is based on using an equation of: PDR = AAR/(IR x CR) where PDR is the planned detection risk, AAR is the acceptable audit risk, IR is the inherent risk and CR is the control risk. The planned detection risk is the range of evidence the auditor intends to gather for the risk audit. The acceptable audit risk is the willingness of the auditor to allow misstatements of material after the completion of the audit. The inherent risk is the expectation of material misstatement prior to using internal control. The control risk is the effectiveness of the internal controls in preventing or detecting misstatements. Ultimately, it is up to the auditor to determine how much risk he or she is willing to take on during the audit. Inherent Risk According to Arens, Elder, and Beasley (2014), inherent risk is the measure of \"the auditor's assessment of the susceptibility of an assertion to material misstatement, before considering the effectiveness of related internal controls.\" If there is a high likelihood of misstatement, typically the auditor will determine the inherent risk is high. Inherent risk is likely to exist when business transactions are complex, regardless of the LOCKHEED MARTIN 10-K REVIEW 11 internal control. It is essentially risk before control. In situations where the inherent risk is particularly high, a CPA firm may assign more experienced staff to review the audit tests with a more trained eye. Relationship of Risk to Audit Evidence As noted by the Public Company Accounting Oversight Board (2010), the more risk that is involved with an audit for any particular client, the more evidence needs to be collected by the auditor. Evidence is the information the auditor uses to base his or her opinions on, so in order to provide the most accurate audit possible, the evidence must be comprehensive and supportive of the client's assertions. Also, the better quality evidence collected, the less of it the auditor will need. The evidence must be relevant and reliable as the auditor is likely not an expert on document authentication. Audit Tests Lockheed Martin Corporation is a global security and aerospace company. There are many test auditors can use when conducting audits on this company. However, the best suited test procedures that will work for this company is Test of Controls. Test of Controls allows auditors to test the effectiveness of the company internal control. According to companies 2015 Annual Report, Lockheed Martin Corporation is responsible for making sure their financial statement and reports are being produce accurate. (Lockheed Martin, 2016) By performing Test of Controls, this will help auditors to see if the internal control is weak. A weak internal control can cause misstatement information. Another great test the will be suitable for Lockheed Martin Corporation is Substantive Test of Transaction. Substantive Test of Transaction allows auditors to detect any misstatement on materials or any fraud. When this test is conducted, LOCKHEED MARTIN 10-K REVIEW 12 auditors examine the financial statements and any supporting documents to make sure there is no errors or misguided information. Since Lockheed Martin Corporation supposed to have a strong internal control and is reliable to produce accurate financial information both of these will be suitable. Auditors can use these two to make sure there is no fraud detected and make sure the company's internal control is strong (Arens, Elder, & Beasley, 2014, Chapter 13). The other three audits test are Risk Assessment Procedures, Analytical Procedure, and Test of Details Balance. These three test was not suitable for Lock Heed Martin Corporation. The Risk Assessment Procedures consist of knowing the nature of the company, the company's market overview, and the company's business strategy. By Lockheed Martin Corporation to be a well-known company and have been around for many years, this test was not suitable. Analytical Procedure was not suitable because this procedure consists of understanding the changes within the business and to identify any potential risk that may occur. This procedure is mainly for companies that had bad reports. Since Lockheed Martin Corporation is in good standing, this was not a suitable test. Test of Details Balance was not suitable for this company because this test focuses more on the accounts balances and disclosures. This test may require auditors to look at the company's accounts receivable and accounts payable. This will not be a need for Lockheed Martin Corporation, since this company have a well-equipped management team that oversees the financial statements (Arens, et al, 2014). Conclusion Lockheed Martin Corporation is a behemoth of a company. It offers a wide variety of services and products. With newly absorbed business and other companies, there LOCKHEED MARTIN 10-K REVIEW 13 are of course going to be some conflicts and issues in the auditing process. A through plan of which auditing protocols will be followed and with a meticulous approach of those processes, the auditing process should well maneuvered. References American Institute of CPAs. (2006). Audit Risk and Materiality in Conducting an Audit. Retrieved from http://www.aicpa.org/Research/Standards/AuditAttest/DownloadableDocuments/ AU-00312.pdf Arens, A. A., Elder, R. J., & Beasley, M. S. (2014). Auditing and Assurance Services (15th ed.). Retrieved from The University of Phoenix eBook Collection database. Financial Accounting Standards Board. (2008). Statement of Financial Accounting Concepts No. 2. Retrieved from http://www.fasb.org/cs/BlobServer? blobcol=urldata&blobtable=MungoBlobs&blobkey=id&blobwhere=117582090052 6&blobheader=application%2Fpdf International Standard on Auditing. (2009). INTERNATIONAL STANDARD ON AUDITING 450 EVALUATION OF MISSTATEMENTS IDENTIFIED DURING THE AUDIT. Retrieved from http://www.ifac.org/system/files/downloads/a021-2010iaasb-handbook-isa-450.pdf Public CompanyAccounting Oversight Board. (2010). Auditing Standard No. 15 Audit Evidence. Retrieved from https://pcaobus.org/Standards/Auditing/pages/auditing_standard_15.aspx Lockheed Martin 2015 Annual Report.\" 31 July 2016. http://www.lockheedmartin.com/content/dam/lockheed/data/corporate/documents /2015-Annual-Report.pdfBoeing Q4 2015 10-K.\" 31 July 2016. http://s2.q4cdn.com/661678649/files/doc_financials/quarterly/2015/q4/4Q10Q.pdf Accounts Receivable Turnover Ratio.\" Accounting Tools. 31 July 2016. http://www.accountingtools.com/accounts-receivable-turnover Earnings per share.\" My Accounting Course. 31 July 2016. http://www.myaccountingcourse.com/financial-ratios/earnings-per-share