All right. So hopefully, you thought about that deferred revenue case at Caribou. So let's walk through an example. So one of the audit objectives in a company procedure that you would use in this setup, is that you want to verify that all gift card liabilities are real. This is an unusual case because most of the time, you worry about companies understating liabilities. But a lot times, if a company already has satisfactory revenue for a period, what they'll want to do is store revenue in a cookie jar, so that they can pull it out as needed in future periods. So sometimes, it's to a company's interest to actually overestimate deferred revenue, especially if they think a lot of the deferred revenue is already convertible to revenue, because they think there's a lot of gift cards in that pipeline that are never going to be converted. In other words, there's breakage that has occurred. So, this is an interesting setup. Verify that all gift card liabilities are real, non-fictitious. So what you'd want to do here, is vouch from the gift card sub-ledger, to sales, invoices, and card sales. So in other words, you're testing existence here. So you start with the recorded items, and you want to make sure that they are legitimate. So if they are in fact, legitimate, every one of them should have some supporting documentation. If you see select deferred revenue numbers for specific customers and you go to look for support and you don't see that support, you don't a see a sales invoice, you might have a fictitious customer. In regular English, start by looking at the system, or the report that summarizes all of the deferred revenues, pick a sample of recorded customers' liabilities, and then, work backwards to match the report details for each item in the sample to a physical or electronic sales invoice or record. Now when it comes to things like Caribou coffee cards, some of these sales may have occurred at third parties. If you go to CVS or Walgreens, you'll see all kinds of gift cards, for iTunes, for your favorite restaurants, including, perhaps, Starbucks, Caribou, all kinds of gift cards. So some of these may come from a third party, and you may be able to get access to those, or you may have trouble getting access to those. So let's look at another example that pertains to deferred revenue. I'll give you a couple of objectives, and then what we want to do is ultimately, match these objectives to an audit procedure. So, you're thinking assertion, objective, audit procedure. How many of these audit procedures do I need to perform that relates to how low I need detection risk to go, which in turn, depends on how high or low risk of material misstatement is, to keep connecting it back to the big picture. So here's a couple of objectives. We're going to first match it to an appropriate assertion, and then we're going to tie out by matching it to an appropriate audit procedure or procedures. So, suppose an auditor wants to verify that unredeemed gift cards are recognized as deferred revenue and not revenue. The second objective is, verify that all gift card balances are recorded. Well that first objective, verifying that unredeemed gift cards are recognized as deferred revenue and not revenue, it's implicitly assuming that the system is recording it somewhere, either as revenue or deferred revenue. This is therefore a classification issue, which falls under the valuation assertion. The second one, verifying that all gift card balances are, in fact, recorded, that's a completeness assertion. This is getting at the concern that there could be some sales... Maybe Caribou's doing a great job of rolling up every time someone buys a gift card, physical gift card, at their Caribou stores or that pulls out their Driod or their iPhone, and then, ads are balanced to their Caribou app. Maybe they're really good at wrapping those up into deferred revenue. But all of the CVS cards, all of the Walgreens cards that are selling [inaudible] Caribou gift card, maybe they're not rolling those up. So, what you'd want to do is test the completeness assertion with regard to that.
