| Course | ACC-7010 Auditing and Accounting Information Systems |
|---|---|
| Module | Module 1 |
| Paper type | Module 1 written assignment: planning an audit, assessing risk and evaluating controls |
| Length | About 738 words, 5 pages |
| Format | APA 7 student paper |
| School | Thomas Edison State University |
| Program | MBA in Accounting |
| Updated | October 2026 |
Free sample paper for ACC 7010 Module 1
Planning the Audit of a Medical Supply Distributor: Materiality, Risk and the Order-to-Cash Process
Student Name
MBA in Accounting, Thomas Edison State University
ACC-7010: Auditing and Accounting Information Systems
Mentor Name
Month Day, Year
Planning the Audit of a Medical Supply Distributor: Materiality, Risk and the Order-to-Cash Process
Introduction
An audit provides reasonable assurance that financial statements are free of material misstatement. Planning determines how much evidence is enough and where to look for it. The auditor sets materiality, assesses the risk of material misstatement at the assertion level and designs further procedures so that the remaining detection risk is acceptably low (Whittington & Pany, 2016). For a public company, the auditor also tests internal control over financial reporting under the Sarbanes-Oxley Act and PCAOB standards.
Part A: Materiality
Pretax income is the usual benchmark for a stable, profitable company. Performance materiality is set below overall materiality to allow for undetected and uncorrected misstatements in aggregate. Qualitative factors can make smaller amounts material: a misstatement that turned a missed earnings target into a beat, or that affected a debt covenant, would matter regardless of size.
Materiality is revisited during the audit. If actual pretax income comes in well below the $38 million used in planning, the auditor lowers materiality and reconsiders the extent of testing.
| Level | Benchmark and rate | Amount |
|---|---|---|
| Overall materiality | 5 percent of pretax income of $38 million | $1,900,000 |
| Performance materiality | 75 percent of overall, given few prior misstatements | 1,425,000 |
| Clearly trivial threshold | 5 percent of overall | 95,000 |
Part B: The Audit Risk Model for Revenue
Audit risk is the product of inherent risk, control risk and detection risk. Revenue recognition is a presumed fraud risk under auditing standards, and the distributor's sales team is paid quarterly bonuses on shipments. The auditor assesses inherent risk for the occurrence and cutoff of revenue as high, 0.9, and control risk as moderate, 0.6, pending tests of controls. To hold audit risk at 5 percent, detection risk must be no more than 0.05 divided by 0.54, about 9 percent. That low detection risk requires substantive tests that are extensive, performed near year end and focused on the days around it.
Part C: Risks of Material Misstatement
Doyle et al. (2007) found that material weaknesses are more common in companies that are smaller, more complex, growing quickly or under financial strain, and complex rebate and inventory accounting places this company in the second group.
| Risk | Assertion | Why it arises |
|---|---|---|
| Shipments recorded early to meet quarterly targets | Cutoff, occurrence | Bonuses tied to shipments |
| Bill-and-hold sales recorded before control transfers | Occurrence | Hospitals ask the company to hold stock |
| Rebates to group purchasing organizations understated | Accuracy, valuation | Complex, estimated rebate terms |
| Slow-moving and expired inventory overstated | Valuation | Products with expiration dates |
| Allowance for doubtful accounts too low | Valuation | Some hospital customers in financial distress |
Part D: The Order-to-Cash Process and Its Controls
A customer order enters the ERP system through electronic data interchange. The system checks the customer's credit limit and the price against the contract, and orders exceeding the limit go to the credit manager. The warehouse picks and ships, scanning each item, and the shipment confirmation generates the invoice automatically. Cash is received through a bank lockbox and applied by an accounts receivable clerk who has no access to customer master data. A process flowchart would show these steps across columns for sales, credit, warehouse, billing and cash application, with controls marked at each handoff.
| Key control | Risk addressed | Test of control |
|---|---|---|
| System credit check with approval override | Collectibility | Inspect override log for approvals |
| Invoice generated only from shipment confirmation | Occurrence, cutoff | Test system configuration; reperform for a sample |
| Monthly review of bill-and-hold agreements by the controller | Occurrence | Inspect review evidence and signed agreements |
| Segregation of cash application from customer master data | Misappropriation | Review user access rights |
Part E: Substantive Tests Linked to Risks
For cutoff, the auditor examines shipping documents and invoices for the last ten and first ten days around year end and traces them to the period recorded. For bill-and-hold sales, the auditor reads agreements, confirms terms with customers and verifies that the goods were segregated, ready for shipment and not available for other orders. For rebates, the auditor recomputes accruals from contracts and compares them with rebates paid after year end. For inventory, the auditor observes the count, tests expiration dates and examines sales after year end for slow-moving items. For receivables, the auditor confirms balances with major customers and reviews cash collected after year end. Bell et al. (2001) found that auditors charge higher fees for clients with greater business risk, reflecting the extra work that risks like these require.
References
Bell, T. B., Landsman, W. R., & Shackelford, D. A. (2001). Auditors' perceived business risk and audit fees: Analysis and evidence. Journal of Accounting Research, 39(1), 35-43. https://doi.org/10.1111/1475-679X.00002
Doyle, J., Ge, W., & McVay, S. (2007). Determinants of weaknesses in internal control over financial reporting. Journal of Accounting and Economics, 44(1-2), 193-223. https://doi.org/10.1016/j.jacceco.2006.10.003
Whittington, O. R., & Pany, K. (2016). Principles of auditing and other assurance services (20th ed.). McGraw-Hill.
ACC 7010 Module 1 instructions, in plain terms
In ACC-7010's four modules, a course project on a company you select is built in four milestones for 30 percent of the grade, and four written assignments, seven graded forums and a pair of Edison Live events make up the remaining 70. The Module 1 written assignment covers auditing standards, the auditor's role, independence and ethics, planning, materiality, risk assessment and internal control. Expect questions that set materiality, apply the audit risk model, identify risks by assertion, document a process with flowcharts and controls and design tests of controls and substantive tests. Many prompts give a company's background and ask for a planning memo, which this sample follows. Some versions also ask about the auditor's responsibilities under the Sarbanes-Oxley Act.
How this ACC 7010 Module 1 example is built
The introduction defines the audit's goal and the planning sequence. Part A sets overall, performance and trivial materiality with reasons. Part B applies the audit risk model to revenue and explains what the resulting detection risk requires. Part C tables five risks by assertion and cause, with evidence on where control weaknesses arise. Part D describes the order-to-cash process and tables key controls with the risks they address and their tests. Part E links each risk to substantive procedures. Each risk from Part C returns in Part D with its control and in Part E with its test, so the plan reads as one chain.
Where the marks sit in the ACC 7010 Module 1 rubric
Audit planning answers are worth 7.5 points of the ACC-7010 grade. Mentors check materiality computations with justified benchmarks, correct use of the audit risk model, risks identified by assertion, controls that address specific risks and substantive procedures that respond to those risks. Linking every risk to a control and a test shows understanding of the audit as a whole. Professional terminology, citations of standards and the textbook, and clear tables complete the grade. A plan that justifies each materiality benchmark, explains what a low detection risk means for the timing and extent of procedures and links controls to tests of controls shows the integrated understanding the course expects. Explaining how materiality would be revised if results changed during the year demonstrates that planning is iterative.
ACC 7010 Module 1 help from the desk
Audit planning answers often set materiality without justifying the benchmark, list risks without assertions and recommend generic procedures. Name the assertion for each risk. Say how each risk level changes what you test, when and how much. Link each procedure to the risk it addresses. Use the language of assertions throughout, since every risk, control and test should name the assertion it concerns. A flowchart described in words should still show who does what, in what order and where each control sits. A free first sample of your own ACC-7010 Module 1 assignment is available on request.
Write yours, or have the desk draft it
This paper is an original model document written by our desk, not a submitted student paper and not an official Thomas Edison State University document. Read it for the moves, then write your own to the instructions in your classroom. If you want one built to your exact prompt and rubric, the first custom sample is free and arrives in 24 to 48 hours.
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ACC 7010 Module 1 questions, answered
Where can I find a free ACC 7010 Module 1 sample paper?
The medical supply distributor audit plan appears above: materiality, the audit risk model for revenue, risks by assertion, order-to-cash controls and linked substantive tests.
How is audit materiality usually set?
Auditors apply a percentage to a benchmark like pretax income, revenue or total assets, then set performance materiality below it so small misstatements cannot add up unnoticed.
What is the audit risk model?
The model multiplies inherent, control and detection risk; when the first two are assessed high, the auditor must cut detection risk by testing more.
Why is revenue a presumed fraud risk?
Because management pressure to meet targets makes revenue recognition a common area of financial statement fraud.
What is a test of controls?
Work showing whether a control is well designed and actually working, for example inspecting sign-offs or redoing the control.