Background of LiveWire
Where did LiveWire originally incorporate from?
Cayman Islands
What are the Top Three CAMS?
Revenue recognition, Warranties, and Goodwill
What should you expect from the controls of a fairly new company?
Small accounting team and a lack of controls
What is Substantive testing?
An audit procedure that gathers evidence to see if the financial statements are complete and accurate
What are the two segments that LiveWire has?
STACYC and Electric Motorcycles
What is the top CAM for LiveWire?
Warranties
How is Audit Risk effected by the status of Controls?
It increases if internal controls are weak and decreases if the controls are strong
What is the difference between Substantive Testing and Test of Controls
Test of Controls solely focuses on determining if whether or not the controls are working
Substantive Testing focuses on data in the financial statements and checks for misstatements in the financial statements.
Who is the Chairman?
Jochen Zeitz
What are the assertions for the main CAM identified?
(Hint: There are three)
Completeness, valuation, and rights and obligations
How management determines the estimate
Example using LiveWire’s information from previous years
Example using another company’s information from previous years
How do these ratios compare?
How can you determine the companies true Warranty Expenses?
Warranty Exp, as a percentage of sales
Warranty Liability a percentage of cost of goods sold
How did LiveWire Originate?
It was the electric motorcycle division of Harley-Davidson
Relevant Accounts related to our Main CAM
(Hint: There are five)
Warranty Expense, Estimated Warranty Liability, Unearned revenue, Inventory, and Cash
What should an auditor do after testing the controls of LiveWire?
Increase the N,T, and E of the audit to lower detection risk.
How do you calculate the Warranty Expense Revenue?
Warranty expense ratio/Sales Revenue
What is a STACYC?
E-bikes for kids to speed up the transition to a real BMX bike or dirt bike. It bridges the gap from bikes to motorcycles.
How is a CAM different than a significant risk?
Significant risk is where a misstatement is most likely to happen.
A CAM is where the audit was most complex or judgment-heavy.
Factors that can affect judgment in determining the estimated warranty amount
How long has the company been in operation?
How many sales did the company make this year?
Any new products that might affect the rate that warranties are exercised? Will there be a recall this year?
What was the warranty expense ratio for 2024 for LiveWire?
5.8165%