Omega Airways is a public company and a new client of your audit firm. Its accounting policy for revenue is to credit unearned revenue

when cash is received and subsequently transfer to revenue in the income statement when passengers or freight are transported.

Your review of last year's financial statements reveals that realized revenue from passengers represents $80\%$ of total revenue and that

this year there is little change in realized revenue from passengers but an $11\%$ decrease in unearned revenue from passengers. You

have also read articles in the financial press that suggest an increased incidence of fraud due to a global decrease in the number of

passenger air miles. At quarter$-$end, Omega Airways' controller evaluates the unearned revenue account and related revenue

recognition. This adjusting journal entry is later reviewed by the CFO and the company's disclosure committee.

Research PCAOB AS $2201$ and summarize the auditor's responsibility to address the risk of fraud when understanding the

entity's system of internal control.

Consider what you know about Omega Airways and explain why the revenue in the income statement is at significant risk of

fraudulent financial reporting by management.

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Evaluate the internal controls Omega has established over unearned revenue and revenue recognition.