Case 18-10 — Handout 1 Antelope Run Inc. — Controls With a .docx

Case 18-10 — Handout 1
Antelope Run Inc. — Controls With a Review Element
Note: This handout is based on a form that audit teams can use
to document their tests and evaluation of the
design and operating effectiveness of controls in accordance
with PCAOB standards. Although the form is
presented in its entirety for informational purposes, certain
input boxes of the form have been shaded gray
because they are either given as case facts or are otherwise not
applicable to this activity in the case.
Component A — Control Description
Control Activity — Summary Description
C-5: Antelope Run Inc.’s (Antelope’s) fitness trackers business
planning committee (the “BPC”) meets to
review, challenge, and approve the revenue forecast for the
fitness trackers reporting unit (Fit Stride) for
appropriateness using historical performance and its knowledge
of the company’s strategic plans as well as
industry projections and peer-company data.
Control Description — Detailed Description of How the Control
Is Expected to Be Performed
To review, challenge, and approve the revenue forecast for each
fitness tracker product and for the fitness
trackers reporting unit overall, the BPC performs the following

procedures:
Step 1 — Sales Volume
Step 1a: For sales volume, the BPC will compare the historical
sales volumes for each product to the
forecasted sales volume by comparing (based on judgment) the
year-to-year percentage change in volume
to identify any anomalies. The BPC will pose questions to the
Fit Stride director of sales and marketing
(the “Director”) for further explanation to understand what is
driving the forecasted sales volume.
Step 1b: For sales price, the BPC will compare the historical
sales price to the forecasted sales price by
comparing the year-to-year percentage change in price to
identify anomalies. The BPC will pose questions
to the Director for further explanation to understand what is
driving the forecasted sales price changes.
Step 1c: The BPC will compare the forecasted price of each
product to competitor prices and, based on
judgment, identify differences to investigate. To complete this
review, the BPC uses the following report:
Forecasted sales price per unit vs. competitor sales prices per
unit for each fitness tracker product.
Step 1d: The BPC will also perform a retrospective review by
comparing the forecasted revenues by
product for each of the past three years to actual sales revenue
in those years to evaluate (based on
judgment) the reasonableness of the forecast.
Step 2 — Revenue
The BPC reviews the revenue forecast for the fitness trackers
reporting unit.
Step 2a: The BPC will (1) compare the historical revenues to
the forecasted revenues for the fitness
trackers reporting unit overall and (2) compare the most recent

three years’ revenues to the annual
percentage change in forecasted revenues to identify anomalies.
The BPC will pose questions to the
Director for the respective reporting units for further
explanation to understand what is driving the
forecasted revenue.
Case 25 — Handout 1: Antelope Run Inc. Page 2
Copyright 2018 Deloitte Development LLC
All Rights Reserved.
Step 2b: The BPC will also compare the forecasted revenues to
the prior-year forecast for the fitness
trackers reporting unit overall to identify any anomalies.
Step 2c: The BPC will also compare the percentage change in
forecasted revenues to industry forecasts
(e.g., Heart Healthy Quarterly publication and peer-company
forecasts published by industry analysts) to
identify any anomalies.
Step 2d: Lastly, the BPC will also perform a retrospective
review by comparing the forecasted revenues for
the fitness trackers reporting unit for each of the past three
years to actual sales revenue in those years to
evaluate the reasonableness of the revenue forecast.
Step 3: The revenue forecast for the fitness trackers reporting
unit is revised.

Risk of Material Misstatement Addressed by the
Control
RoMM Classification Significant
Management’s revenue projections and revenue growth rate
assumptions that are used in various estimates
may not be based on the best and most supportable information
and contain a high degree of estimation
uncertainty. Specifically, management’s estimates of revenue
growth are not only aggressive when
compared to the historical performance of the Fit Stride
products, but also incorporate subjective
assumptions associated with revenue growth of the new Fit Belt
product line.
Significant Account(s) and Related Assertion(s) Addressed
Significant Account: Goodwill
Related Assertion: Valuation and Allocation
Component B — Test of Design
Procedures Performed to Test the Design of the Control
Test of design for each step of the review:
Step 1: Inquiry X Observation X Inspection X
To evaluate the design effectiveness of this control, we attended
the annual BPC review meeting that
took place on September 15 of the current year. The meeting

included an evaluation of the revenue
forecast assumptions used in management’s projections on a
product-by-product basis. We attended the
meeting to observe the nature of the review performed by the
BPC of the revenue forecast for the fitness
trackers reporting unit by product. We also inspected the
revenue forecast detail schedules (see working
paper XXXX for each schedule used). We noted that each
schedule included fluctuation analyses for each
of the fitness tracker products, and that detail was at an
appropriate level to facilitate the discussions that
took place at the meeting. All variances outside management’s
established thresholds were discussed by
the BPC.
To evaluate the design effectiveness of this control, we attended
the annual BPC review meeting that
took place on September 15 of the current year. The meeting
included an evaluation of the revenue
forecast assumptions used in management’s projections for the
fitness trackers reporting unit on an
overall basis. We attended the meeting to observe the nature of

the review performed by the BPC over
the fitness trackers reporting unit revenue forecast. We also
inspected the revenue forecast detail
schedules (see working paper XXXX for each schedule used).
We noted that each schedule included
fluctuation analyses for each of the fitness tracker products, and
that detail was at an appropriate level to
facilitate the discussions that took place at the meeting. All
variances outside management’s established
thresholds were discussed by the BPC.
During the annual review meeting, in addition to observing the
BPC’s decision and agreement to reduce
the fitness tracker reporting unit revenue forecast, we also
inspected the meeting minutes and subsequent
e-mail communications among the members of the BPC (dated
October 10) to obtain evidence that the
appropriate actions were taken after the meeting to adjust the
forecast. We inquired with Antelope’s
controller and director of financial planning and analysis
(FP&A), who corroborated that the forecast was
adjusted for the recommendations that were made at the
meeting.
Component C — Evaluation of Design
How the Control Satisfies the Control Objectives
Document whether the control satisfies the corresponding
control objective, including whether it addresses
the risks of material misstatement to the relevant assertion of

the significant account or disclosure.
Risk Addressed by the Control
On the basis of our understanding of the detailed description of
this control above, we have
determined that the entity has a sufficiently precise control
process to ensure that the revenue forecast
for the fitness trackers reporting unit is reviewed, challenged,
and approved. As such, the purpose of
the control is appropriate given the risks associated with it.
Competence and Authority of the Person(s) Performing the
Control
Document the person(s) who performs the control, including the
competence and authority of the person(s).
This content is not included for purposes of the case study;
please do not consider.
Frequency and Consistency of the Performance of the Control
Document the frequency and consistency of performance of the
control, that is, whether the review occurs
often enough to prevent or detect misstatements before they
have a material effect on the financial
statements.

Level of Aggregation and Predictability
Document the appropriateness of the level of aggregation and
predictability of the control.
Criteria for Investigation (i.e., threshold) and Process for
Follow-Up
Document the factors affecting the precision of the review,
including the objective of the review and the
appropriateness of the expectations, level of aggregation, and
criteria for investigation for identifying
potentially material misstatements. Also document the steps
involved in identifying, investigating, and
resolving significant differences from expectations.
As noted in the detailed steps of the control, the BPC
investigates the reasonableness of forecasted
results as compared to historical, peer, and industry
performance, with consideration of entity-
specific events. If any variances are noted between the
forecasted results and these other data points,
the BPC will discuss and evaluate whether an adjustment to the
forecast is necessary. If an
adjustment is deemed necessary, the forecast will be adjusted in
the Hyperion Financial Management
software (Hyperion).
Dependency on Other Control(s) or Information

Is the control dependent on other controls?
If yes, indicate which other control(s), where the other
control(s) is (are) tested, and the conclusion reached on the
design and operating effectiveness of the control.
This content is not included for purposes
of the case study; please do not consider.
Information Used in the Review
Is the effectiveness of the control dependent on information
used in the review?
If yes, identify the controls that address the accuracy and
completeness of the information used in the review, where
this information is tested, and the conclusions reached as a
result of that testing.
This content is not included for purposes
of the case study; please do not consider.
Design Effectiveness Conclusion Effective
If design effectiveness conclusion is deemed ineffective,
document the basis for this conclusion.
N/A
Risk Associated With the Control
Considering the factors in PCAOB AS 2201.47, conclude on the
risk associated
with the control.

Higher
Document the basis for the conclusion on the risk associated
with the control.
As noted above, this control is designed to address a significant
risk of material misstatement. We
considered the risk associated with the control to be “higher” on
the basis of the nature of
misstatements that the control is intended to prevent (valuation
errors), as well as the complexity of
the revenue forecasting process for Antelope’s fitness trackers
reporting unit, the specialized
expertise required to operate the control effectively, and the
significance of the judgments that are
made in connection with its operation.

Component D — Test of Operating Effectiveness
Planned Nature, Timing, and Extent of Operating Effectiveness
Testing
Nature of Procedures
For each step, we will supplement the procedures performed as
a part of the design effectiveness
testing to obtain evidence of operating effectiveness through the
following additional procedures:
Step 1: Inquiry X Obser-
vation
X Inspec-
tion
X Reperform-
ance
X
We will attend the BPC meeting to observe the performance of
this control. In addition we will inspect
the information reviewed and discussed as part of that meeting
and reperform the review of the
variances in the revenue forecast by product as discussed by the
BPC.

vation
X Inspec-
tion
X Reperform-
ance
X
We will attend the BPC meeting to observe the performance of
this control. In addition, we will
inspect the information reviewed and discussed as part of that
meeting and reperform the review of
the variances in the revenue forecast for the fitness trackers
reporting unit as discussed by the BPC.
vation
X Inspec-
tion
X Reperform-
ance
X
We will inspect the meeting minutes and any supporting
documentation, if applicable, and verify that
feedback provided by the BPC was incorporated into the final
revenue forecast by product and by

reporting unit. Any revisions noted will be traced from the draft
revenue forecast to the final revenue
forecast to determine whether they were appropriately
addressed. To understand how the revisions
were to be made, we will inspect the instructions noted by the
BPC members in subsequent e-mail
communications. We will also perform inquiries with BPC
members to corroborate that the
adjustments to the forecast were consistent with what they
recommended at the meeting.
Timing and Extent of
Procedures
Because this control operates annually, we will test that
instance of
the control.
Control Activity Testing
For each step, we will supplement the procedures performed as
a part of the design effectiveness testing to
obtain evidence of operating effectiveness through the
following additional procedures:
Selection
Number
Selection
Date Procedures Performed
Exception or

Deviation?
1 N/A Step 1: We reperformed the review of the analysis by
comparing the forecasted revenue amounts to historical
No
amounts for the Fit Band product, as well as reperforming the
retrospective review of the prior forecasted revenues vs.
actual sales revenues for the prior three years for the Fit
Band. Our conclusions were consistent with those reached by
management at the meeting. When applicable, we inspected
the Q2 Board of Directors meeting minutes to corroborate the
items discussed by management during the meeting with
respect to the Fit Band product.
Step 2: We reperformed the review of the analysis by
comparing the forecasted revenue amounts to historical
amounts for the fitness trackers reporting unit overall, as well
as reperforming a retrospective review of the prior forecasted
revenues vs. actual sales revenues for the prior three years for
the fitness trackers reporting unit overall. We recalculated the
differences on the reports, noting that the variances were
consistent with those discussed at the meeting.

Step 3: No additional operating effectiveness procedures
were deemed necessary beyond those procedures performed
in the test of design.
Operating Effectiveness Testing Conclusion
Conclusion.
If deemed
ineffective,
document the
basis for this
conclusion.
Effective.
N/A
Case 18-10
Antelope Run Inc.
Antelope Run Inc. (Antelope) is a manufacturer of health and
fitness products. The
following is an excerpt of the process narrative that
management provided to the audit
engagement team for one of its reporting units, Fit Stride, which
produces wearable

fitness trackers. Read the narrative and complete the required
discussions that follow.
Annual Forecasting Process — Overview
On an annual basis, during the month of September, Antelope
prepares a revenue forecast
for the fitness trackers reporting unit that includes projected
revenue by product for the
next five years. The preparation of the revenue forecast is
owned by the Fit Stride
director of sales and marketing (the “Director”), who relies on
input from the sales
managers, each of whom oversees sales of all Fit Stride
products (Fit Band, Fit Clip, and
Fit Belt) in their respective regions. The sales managers’ input
includes information on
the following:
• The timing of new product launches.
• The price point for new products.
• Planned price changes in existing products.
• Customer relationship status.
• Customer demand cycles.
• Customer strategic plans, such as plans to add additional retail
locations, customer
contract terms, and historical sales trends by customer.
Once the Director receives input from the sales managers, the
revenue forecast is
developed on a product-by-product basis using historical sales

data for existing products
or, for new product launches, historical sales data for similar
products, in addition to the
input provided by the sales managers as outlined above. The
historical sales data used is
disaggregated at the customer level. The Director also uses
industry data to refine the
revenue forecast, including data on the manufacture and retail
of wearable fitness
trackers. Example sources include analyst reports for peer
companies, analyst reports for
significant customers, and Heart Healthy Quarterly (a leading
industry publication on
fitness trackers).
Annual Fitness Trackers Revenue Forecast Review Meeting
The Director presents the revenue forecast to the fitness
trackers business planning
committee (the “BPC”) for review and comment during its
annual meeting. The BPC is
composed of the following:
• Chief executive officer — Antelope.
• Chief financial officer — Antelope.
Case 25: Antelope Run Inc. Page 2
• Chief operating officer — Antelope.

• Chief legal office — Antelope.
• Director of financial planning and analysis (FP&A) —
Antelope.
• Controller — Fit Stride.
• Director of finance — Fit Stride.
The purpose of the BPC’s review of the forecast is to ensure the
forecast is an appropriate
expectation of future results for the fitness trackers reporting
unit because this
information will be used in the annual goodwill impairment
assessment for the reporting
unit. The meeting begins with the presentation and review of the
forecast by product. The
following information is discussed:
• Forecasted vs. historical sales volumes for each fitness tracker
product.
• Forecasted vs. historical sales price per unit for each fitness
tracker product.
• Forecasted sales price per unit vs. comparable competitor’s
sales prices per unit
for each fitness tracker product.
• Prior forecasted revenues by product vs. actual sales revenue
for the prior three
years.
The meeting continues with the presentation and review of the
forecast for the overall

fitness trackers reporting unit. The following information is
discussed:
• Forecasted vs. historical revenues.
• Forecasted vs. historical year-over-year percentage change in
revenues.
• Current-year vs. prior-year forecasted revenues.
• Forecasted year-over-year percentage change in revenues vs.
forecasted year-
over-year percentage change in industry and peer-company
revenues.
• Prior forecasted revenues by reporting unit vs. actual sales
revenue for the prior
three years.
After the information has been presented, the Director is
responsible for compiling the
comments and questions posed by the BPC and making revisions
to the forecast using
Hyperion Financial Management software (Hyperion). The
Director then sends an e-mail
confirming the completion of the revisions, along with the
revised forecast, to the
Director of FP&A for final review and approval. The Director
of FP&A reviews the
amounts in the forecast in Hyperion to ensure the edits have
been made appropriately and
confirms completion of the review and approval of the revenue
forecast via e-mail.

Case 25: Antelope Run Inc. Page 3
The risk of material misstatement (RoMM) has been identified
as the following:
RoMM
Classification RoMM Description
Significant Management’s revenue projections and revenue
growth rate
assumptions that are used in various estimates may not be based
on
the best and most supportable information and contain a high
degree of estimation uncertainty. Specifically, management’s
estimates of revenue growth are not only aggressive when
compared to the historical performance of the Fit Stride
products,
but also incorporate subjective assumptions associated with
revenue growth of the new Fit Belt product line.
Management has identified the following relevant control to
address the RoMM:
Control
Number Control Activity Description
C-5 The BPC meets to review, challenge, and approve the
revenue
forecast for the fitness trackers reporting unit for
appropriateness
using historical performance, knowledge of management’s
strategic plans, industry projections, and peer-company data.

Required:
Evaluate the sufficiency of audit documentation, improvements
to audit documentation,
and key considerations for each of the following components of
the audit documentation
performed by the engagement team:
• Component A — Control Description
• Component B — Test of Design
• Component C — Evaluation of Design
• Component D — Test of Operating Effectiveness
1. Discussion 1 — Sufficiency of Audit Documentation
What are your observations regarding the sufficiency of the
audit documentation?
2. Discussion 2 — Improvements to Audit Documentation
What specific improvements would you make to the audit
documentation?
3. Discussion 3 — Key Considerations
What are some key points to remember when performing and
documenting
control procedures specific to each component?
Case 18-10Antelope Run Inc.Required:1. Discussion 1 —
Sufficiency of Audit DocumentationWhat are your observations
regarding the sufficiency of the audit documentation?2.
Discussion 2 — Improvements to Audit Documentation3.
Discussion 3 — Key Considerations

Case 18-10 — Handout 1 Antelope Run Inc. — Controls With a .docx

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