Operation Management Auditing and Assurance U.S.A 2022

Running head: AUDIT & ASSURANCE 1
Operation Management
Name:
Institution:
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AUDIT & ASSURANCE 2
MEMORANDUM
to: Johnathan Liljegren, Auditor, Deloitte consulting llp
from: Jun Liu, Accountant, Costco Wholesale Corporation Audit Engagement
subject: Costco WholeSale Corporation audit risk
date: December 15, 2019
Dear Mr. Liljergren,
At your request sir, I have compiled all the necessary and required information for the
company’s estimation of its audit risk. The company’s name is COACH Inc. the
memorandum shows an overview of the company’s background information and the
conclusion about the application of proper inherent risks, detection risks and control risks.
Costco Wholesale Corporation Overview and Background
Costco Wholesale Corporation, simply known as Costco was founded in Seattle Washington
in 1983. The company has subsidiaries and store located in 785 stores in major cities in the
United States of America and other countries. As of 2015, Costco was the second largest
retailer in America and across the entire globe only behind Walmart. In 2019, Costco was
ranked at position 14 on the Fortune 500 rankings as one of the largest corporation in the US
by revenue consideration. By 2019, Costco had 546 stores in the U.S, 100 stores in Canada,

AUDIT & ASSURANCE 3
39 stores in Mexico, 29 in the U.K, 26 store in Japan and the rest distributed all over
countries in Asia and Europe (Byrnes et al, 2019),. It is a member’s only hypermarket that
offer high quality products at low costs. It sells its own brand and other brands and its profit
strategy is through membership fees, high sales, high product turnover, low profitability and
large purchases. (Costco Wholesale Corporation 10-K).
Industry, Competitors and Operation
Costco Wholesale Corporations operates in the retail and wholesale industry. It is a
large membership. it is a large membership only hypermarket which offers a wide range of
products from groceries, clothing, alcoholic and non-alcoholic beverages, bakeries,
electronics, pharmaceutical products and many more. By 2019, the company operated 785
stores across the world with an average area of 146, 000 square feet. The warehouses are in
operation every single day of the week. Its marketing strategy is to provide high quality
products at low cost all across its customers and its members. Its competitors include the
largest retail store in the world Walmart, Amazon, Kroger and Target. Costco ancillary
business also provides its members with food courts, gas stations, eyewear and pharmacies.
(Costco Wholesale Corporation Capital IQ).
Management / Auditors conclusion on internal controls
The company’s management and audit committees determined that internal controls
are effective. The audit committee subsequently recommended to the Board of Director’s that
the 2012 audited financial statements be included in the annual report. Our firm expressed an
unqualified opinion with respect to the company’s internal controls and all consolidated
financial statements for 2012.

AUDIT & ASSURANCE 4
Technology Concerns
Costco is heavily dependent on technology. As noted in the 2017 10-K, the company
needs to implement new technologies to remain competitive and mitigate business risk . The
business risk associated with technology includes Costco’s ability to sustain its market share
in the industry and continue to grow. The company must implement new technologies to
maintain its differentiation from other manufacturers and, according to the 2012 10-K, to
achieve financial targets. A firm’s dependence on technology increases inherent risk for
audits (Farooq, & De Villiers, 2017).
Costco is a large, complex organization operating in a dynamic industry. As such,
reliance on technology creates risk for material misstatements. For example, when personnel
are not adequately trained on new information systems, inherent risk increases. Substantial
and timely training is required to minimize human error when entering transactions in
systems that provide data to the financial statements. Additionally, control risk fluctuates
until management and auditors evaluate the operating effectiveness of new information
systems.
Accounting policy and assertions to be evaluated
The significant accounting policy evaluated in this memo is revenue recognition and
Related Products Revenue Recognition. Revenue is recognized by Costco when products are
delivered to dealers or distributors and ownership is transferred. The primary assertion is
existence. Other relevant assertions include occurrence, accuracy, completeness and cut-off.
In this respect, transactions are tested to determine they took place, accounts receivables
exist, sales and accounts receivables are recorded at the proper amount, and all sales
transactions are recorded at the correct amount and in the proper period (Kanjanapradit,
Benos, & Angelidis, 2017)..