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Accounting · Studypool

Auditing/Discussion Board and Reply

Post ID: 3478445

Overview

1. Auditing

(400 per DB post) (APA format)

(No Plagiarism)

Generative AI is emerging in usage in the auditing profession. In a recent survey of auditors conducted in 2023, nearly a third are using it in audit planning (32%) and brainstorming/summary (31%). Nearly a quarter say they’re using it in reporting (23%), auditing (22%) and audit scope (22%). And a fifth (20%) say they’re using it for data processing (Jefferson Wells, 2024).

For this week’s discussion, you will have the opportunity to use Generative AI (i.e., free versions of ChatGPT or Google Gemini) to review information from a company’s 10-K report. Here are the steps to follow:

  1. From the SEC’s website, access any company’s recent 10-K (within the last two years) and select the Management & Discussion Analysis (MD&A) or the Auditor’s Report (Report of Independent Registered Public Accounting Firm) to discuss. Make sure you choose a different company from your classmates.
  2. Sign up for a free account for ChatGPTLinks to an external site. or Google GeminiLinks to an external site..
  3. Enter the following prompts in the Chat Box based on which report you decided to review:
      • Management & Discussion Analysis (MD&A) Report Prompt: I am an auditor reviewing the Management & Discussion Analysis (MD&A) from the most recent 10K report for [insert the company name you selected]. Using the information below, please summarize the key points and state any concerns that I should share with my team: [copy and paste a section from the report]
      • Auditor’s Report Prompt: I am an auditor reviewing the Auditor’s Report from the most recent 10K report for [insert the company name you selected]. Using the information below, please summarize the key points and state any concerns that I should share with my team: [copy and paste a section from the report]
  1. Post your results on the discussion board. In using Generative AI, what steps would you take to ensure that the information generated is valid and used ethically?

Reference:

Jefferson Wells. (2024). Jefferson Wells' 2024 internal audit priorities survey. https://web.manpowergroup.us/hubfs/Landing%20Pages...

2. Auditing

(300 per DB reply ) (APA format)

(No use of Artificial Intelligence) (No Plagiarism)

(Make sure to include references at the bottom)

Zachary James

Dec 31 12:45pm

Reply from Zachary James

Hello class,

For this discussion, I reviewed the Auditor’s Report from the most recent Form 10-K for Starbucks Corporation. I picked Starbucks because it’s a large company with a lot of moving parts, which makes the audit process more interesting from a risk perspective. I used ChatGPT with the required prompt and pasted in the section titled “Report of Independent Registered Public Accounting Firm.” The AI summarized that the auditors issued a clean opinion and concluded that Starbucks’ financial statements were fairly presented in accordance with U.S. GAAP. It also pointed out that management is responsible for internal control over financial reporting, while the auditors are responsible for evaluating and testing those controls and forming an opinion.

One area that stood out from an audit standpoint was Starbucks’ reliance on estimates and judgment. Things like revenue recognition, asset impairment, leases, and income taxes all require assumptions that could have a material impact on the financial statements. Since Starbucks operates globally, the AI also flagged risks related to foreign operations and regulatory differences, which would likely require additional audit focus. Even though the AI summary was helpful, I would not rely on it without checking the source. To use AI ethically and responsibly, I would first compare the output directly to the actual 10-K to make sure nothing was misstated or left out. I would also verify that any audit-related language lines up with current PCAOB standards. In my view, AI should be used as a support tool to help with understanding and planning, not as a replacement for professional judgment. AI can definitely make parts of the audit process more efficient, but it also comes with risks like outdated information or incorrect assumptions. Keeping auditors involved at every step and validating the results is critical. At the end of the day, AI can assist auditors, but it can’t replace the experience, skepticism, and responsibility that come with the role.

3. Auditing

(300 per DB reply ) (APA format)

(No use of Artificial Intelligence) (No Plagiarism)

(Make sure to include references at the bottom)

Aaron Squires

Dec 30 1:37pm

Reply from Aaron Squires

Hi Class,

For today's discussion, I chose to use prompt number one with UPS as the company. Below is the output from ChatGPT:

MD&A – Key points (what management highlights)

Overall 2024 snapshot

Strategic mix shift & customer concentration

Product / network changes

Portfolio actions

Where growth focus is pointed

  • Strategy reiterates targeted growth in Healthcare, B2B, SMBs, and International—areas where UPS believes its end‑to‑end network and specialized capabilities (e.g., cold chain / thermal monitoring) command better yield. [capedge.com]Links to an external site.

Segment framing in MD&A

Liquidity & financial posture (high level)

  • Management underscores maintaining financial strength and a strong credit rating to support ongoing investment in technology, facilities, transportation equipment and employee development. [capedge.com]Links to an external site.

Risk & governance areas surfaced in the filing

  • The filing highlights Risk Factors (Item 1A), Cybersecurity (Item 1C), and a dedicated MD&A section on Collective Bargaining Agreements, indicating management’s awareness of operational, regulatory, labor and cyber risks. [app.stocklight.com]Links to an external site.

Concerns / focus areas to share with the audit team

These are framed to support scoping, risk assessment, and targeted procedures.

  1. Customer concentration & revenue dependency
    • The volume reduction with UPS’s largest customer is explicitly disclosed and could materially affect revenue mix, network density, unit costs, and pricing dynamics in 2025; assess disclosures around customer concentration, sensitivity analyses in MD&A, and any subsequent‑events narrative connecting the agreement’s timing (Q1 2025) to operational forecasts. [investors.ups.com]Links to an external site., [capedge.com]Links to an external site.
    • Verify adequacy of risk factor and MD&A forward‑looking statements, and consider whether impairment indicators (e.g., asset utilization, route rationalization) have been evaluated, particularly for facilities or equipment dedicated to that customer’s lanes. [app.stocklight.com]Links to an external site.
  2. Operational transition risk from SurePost insourcing
  3. Disposition accounting & segment reporting (Coyote sale)
  4. Yield‑over‑volume strategy execution
    • Management states a deliberate pivot to higher‑yielding volume (SMB, healthcare, B2B, international). Evaluate MD&A’s explanation of pricing (yield) trends, volume elasticity, and capacity re‑optimization (air/ground) needed to protect margins as density changes—plus any disclosed KPIs supporting the strategy. [capedge.com]Links to an external site.
  5. Labor & collective bargaining exposure
    • MD&A includes a dedicated section on Collective Bargaining Agreements; ensure risks from wage inflation, benefits, work‑rules, and potential operational constraints are clearly described, and test that assumptions in cost projections (e.g., productivity, overtime, staffing) align with disclosed network changes. [app.stocklight.com]Links to an external site.
  6. Technology & cybersecurity posture
  7. Liquidity / capital allocation clarity
  8. Competition & regulatory risks
    • Ensure MD&A plus Risk Factors sufficiently detail competitive pressures (global integrators, regional carriers, postal operators, and vertically integrated large e‑commerce players) and regulatory exposures (aviation, customs, labor, environmental), given the shift in customer mix and product changes. [app.stocklight.com]Links to an external site.

Practical next steps (audit planning)

Just seeing this output with such a limited amount of input from me is insane. This definitely feels like some sci-fi type stuff.

To make sure AI outputs are true and used ethically, I believe we need to adopt a risk based framework, keep humans in the loop at all times, and require transparent documentation of data, model of the AI, limitations, and most importantly the steps taken to validate the information. I actually found that there already exists a framework that outlines many of these key points. It is known as the NIST AI Risk Management Framework. It is a backbone you can use to operationalize AI for many use cases. For auditing, the key is to verify that the data used and the rules cited are accurate. AI has the tendency to hallucinate or pull old data that is no longer applicable. Regardless, of how convenient they might be, AI is no replacement for well trained and educated auditors.