Coca Cola Auditing Project

Last Updated: 03 Feb 2023
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Introduction: The Coca-Cola Company (Symbol: KO) was incorporated in September 1919 under the laws of the State of Delaware and succeeded to the business of a Georgia corporation with the same name that had been organized in 1892.

The Company is the manufacturer, distributor and marketer of nonalcoholic beverage concentrates and syrups in the world. Finished beverage products bearing its trademarks, sold in the United States since 1886, are now sold in more than 200 countries. Along with Coca-Cola, the Company markets nonalcoholic sparkling brands, including Diet Coke, Fanta and Sprite. It manufacture beverage concentrates and syrups, which the Company sells to bottling and canning operations, fountain wholesalers and some fountain retailers, as well as finished beverages, which the Company sells to distributors.

The Company owns or licenses more than 450 brands, including diet and light beverages, waters, enhanced waters, juices and juice drinks, teas, coffees, and energy and sports drinks. The Company is one of numerous competitors in the commercial beverages market. Of the approximately 53 billion beverage servings of all types consumed worldwide every day, beverages bearing trademarks owned by or licensed to the Company account for approximately 5 billion. The reason we chose this company is because it has enormous market share in countries around the world.

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In order to expand its market share, The Coca-Cola Company cooperated with the major fast food chain company. Today, The Coca-Cola Company become a well known and globalization company. We want to know how it can be sustainability and venerability company in the world. From its reports, we also found out it has tremendous benefit from its advertising. In this paper, we concern that how the auditors build a good audit plan in such large company and such complex business.

Understanding of the client There are five major reasons that we consider to accept The Coca Cola Company to be out client. Management Integrity Based upon assertions of management ranging from the existence of an element in the financial statements to disclosures of information regarding that element, we examines The Coca Cola Company financial statements that are no responsible practitioner would knowingly place reliance on assertions of a client's management which had questionable integrity. Relationships with Other Professionals We will follow the GAAS requirement to communicate with the predecessor auditor prior to committing to provide audit services to The Coca Cola Company.

Matters of interest include the opinions issued by the predecessor auditor, resignation of the prior auditor or the refusal to stand for reelection, disagreements between the prior auditor and management regarding accounting principles or auditing procedures and any "opinion shopping" issues. Inquiry of other professionals having dealings with the client should, however, not be limited to the predecessor auditors. Furthermore, we will ask bankers, lawyers, and other professionals can provide important valuable information about The Coca Cola Company and its management.

Risk of Association The Coca Cola Company engaged in legitimate business activities that do not violate the laws of the jurisdiction where the company is headquartered or carries on its business. After reviewing its financial statement, we believed that its financial is stability and liquidity. Technical Competence The auditors who will perform the auditing are well trained due to the complexities of the modern business world. And also, the auditors have the necessary technical competence to perform the required work or risk potential liability or damage to reputation.

Professional Fees Audit fees charged to The Coca Cola Company will base on commensurate with the risks to the providing the services requested. The fees will cover adequately the cost of the services provided. Obtaining an understanding of the entity and its environment In the 21st century, the beverage industry has been become one of the fastest developing industries and the competition in this industry become significantly. Even in this market share campaign, The Coca Cola Company still remains its leader position in the beverage industry.

The Coca-Cola Company and six of their largest bottling partners developed a strategy for sustainability in 2002. That plan focuses on the role and impact of the Coca-Cola system in four key areas: workplace, marketplace, environment and community. Furthermore, The Coca-Cola Company uses this strategy to guide the approach to sustainability issues and to report the progress. [3] In last year, when lots of companies in the industry are going down, The Coca-Cola Company still delivering consistent performance.

For its internal control, the company follows the independent and experience requirement of NYSE and SEC for many years. And the audit committee has been composed entirely of non-management directors. [4] Preliminary Engagement Activities Every member in our audit team is well trained and performs follow by the conduct of AICPA and SEC. Regarding to the ethical and independence matter, we has three major requirements.

1. Our auditor have to sign the contract to make sure that he/she will not take a position in the The Coca-Cola Company in two years

2. We will not hire the auditor who uses to work in The Coca-Cola Company.

3. We required the auditor to report to the partner who has special relationship with the The Coca-Cola Company.

The Coca-Cola Company is a globalization company; it faces various issues. For example, Obesity concerns, water scarcity and poor quality, increased competition, and evolving consumer preferences are risks having the potential to have a material adverse effect on our client.

To be an auditor, we assess client’s RMM (risk of material misstatement) with understanding the client entity and industry. After audit risk is set, we go further to assesses inherent and control (environment) risks. In addition, assessing client’s inherent and control risks which can influence the level of detection risk directly. Base on the case, we make an assumption in order to maintain the audit risk.

According to conservative assumptions that we decide inherent risk is assessed at moderate (50%). The Coca-Cola Company is a multinational company, so there are not only lots of accounts receivable which come from different branches in the world, but also lots of inventories which were made or stored in different factories and warehouses in the world. As the reasons above, The Coca-Cola Company may face some risks, such as is there reason to believe that receivables include significant balances in foreign currencies?

Is there reason to believe that the existence of the accounts receivables which generate from different oversea branch companies or subsidiaries? Are there significant foreign currency inventories balance? Are manufactured inventories transferred between locations, divisions, or subsidiaries within a consolidated entity? Are there material-inventories owned by the client but held by others (e. g. , on consignment with customers)? Therefore, we should assess the inherent risk in moderate level.

On the basis of our experience, after we read the predecessor auditor’s report and our client’s past annual report. We presumed that our client has well internal control so that we can assess the control risk in low level. Overall, in order to keep the audit risk in low level, we decided our detection risk in moderate level. Besides, in our client’s industry there are some companies that try to inflate their revenue and assets so in our audit we will focus on operating cycle.

In other words, we will put emphasis on auditing accounts receivable and inventory to make sure there are no major accounting schemes or fraud that will mislead the presentation of financial statements. Materiality “Materiality includes both the nature of the misstatement, as well as the dollar amount of misstatement, and must be judged in importance by financial statement users. ”[6]

According to the COSO’s definition of internal control, “ a process, effected by an entity’s board of directors, management, and other personnel designed to provide reasonable assurance regarding the achievement of objectives in the following categories: reliability of financial reporting, compliance with applicable laws and regulations, and effectiveness and efficiency of operations. ”[7]

On the basis of our experience, after we read the predecessor auditor’s report and our client’s internal control procedures. We can presume that our client has well internal control so we can assess the control risk in low level.

In addition to certifying the company’s financial |Auditors must provide their opinion on the effectiveness of statements , management must also report on client’s internal control. There were some fake transactions which were made by management or employees. If the sales don’t get proper credit authority, there will be huge bad debt subsidiaries?

The management may try to inflate the sales in the end of year so he may try to recognize consignment as sales revenue. The management may use consignment to control the company’s ending inventory or COGS. The management may use complicated related party transaction to generate fake or subsidiaries within a consolidated entity? The employees may have chance to steal the coke formula or inventories.

After we obtain and understand our client’s internal control, we should detect our client’s internal control. We can prepare a feedback report to our client and help our client to improve their internal control or accounting system. Besides, when our client’s face some problems about new accounting standards, we could help our clients to train their accountants

Perform a final review of the audit to be sure the financial statements are fairly presented and the audit documentation supports the audit report. In addition, we should get the management representation letter and letter of audit inquiry to make sure there are no material contingent liabilities and events subsequent to the financial statements and keep communicating with the audit committee. The follow data are made by assumption: Our client may lose the litigation about merger in oversea. It will cause a huge loss for our client. On January 8, 2009, our Company sold substantially all of our interest in Vonpar Refrescos S. A. ("Vonpar"), a bottler headquartered in Brazil. Total proceeds from the sale were approximately $238 million, and we recognized a gain on this sale of approximately $71 million.

Prior to this sale, our Company owned approximately 49 percent of Vonpar's outstanding common stock and accounted for the investment using the equity method. Our client is a multinational company so it may have the threat of expropriation of assets in a foreign country. Our client may get loss in the highly competitive nonalcoholic beverages industry.

If our client signs purchase and sale commitments with its supplier, it may get a huge loss in the future. Other important investments which will change our client’s accounting principle similar as above.

We have audited the consolidated balance sheets of the Coca-Cola Company and subsidiaries (the “Company”) as of December 31, 2007 and 2008, and the related consolidated statement of income, stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2008. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements bases on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements refereed to above present fairly, in all material respects, the financial position of the Coca-Cola Company and subsidiaries as of December 31, 2007 and 2008, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO), and our report dated March 14, 2009 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

References

  1. http://www. marketwatch. com/tools/quotes/profile. asp? symb=ko
  2. http://www. nysscpa. org/cpajournal/old/12543349. htm
  3. http://www. thecoca-colacompany. com/citizenship/strategic_vision. html
  4. http://www. thecoca-colacompany. com/investors/proxies. html
  5. Rittenberg, Schwieger, Johnstone, p105
  6. Rittenberg, Schwieger, Johnstone, p101
  7. Chris, Linsteadt, “2008 Audit Class Slides Ch6”
  8. http://ir. thecoca-colacompany. com/phoenix. zhtml? c=94566&p=irol-sec&se
  9.  “The company description,” Market watch < http://www. marketwatch. om/tools/quotes/profile. asp? symb=ko>
  10.  Deppe, Larry A. , “Client acceptance: what to look for and why. (Tips for accountants on deciding which new clients to accept) (Cover Story)”, The CPA Journal , May 1992
  11. “Strategic vision”, The Coca Cola Company website
  12. “2008The proxy statement”, The Coca Cola Company website
  13. Chris, Linsteadt, “2008 Audit Class Slides”
  14. Rittenberg, Schwieger, Johnstone. Auditing, A Business Risk Approach. Thomson&South-Western Publishing. 6th,2008
  15. “SEC filing” The Coca Cola Company website Retrieved from the World Wide Web

 

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Coca Cola Auditing Project. (2018, Feb 03). Retrieved from https://phdessay.com/coca-cola-auditing-project/

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