TECHWEAR DATA ANALYTICS CASE

STUDY

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 TECHWEAR Data Analytics Case
Overview:
This is a four-part case where your group is asked to assume the role of an audit engagement
team and perform various audit procedures on the order-to-cash business cycle (accounts
receivable and sales) for TechWear, a start-up company that manufactures and sells upper-end,
high-tech sportswear. Throughout the case, your group will be developing an analytics mindset in
an audit context by learning how to:
► Ask the right business questions
► Extract, transform and load relevant data (i.e., the ETL process)
► Apply appropriate data analytic techniques
► Interpret and share results with stakeholders
The following is a brief overview of each part with more detailed insights provided in later
sections of the case. Note that each part builds on the previous part. Therefore, you must
complete the requirements in sequence. Each part is described in more detail below.
Part I: Your group will become familiar with the background of TechWear, and will start with an
initial risk assessment. Your group will become familiar with the initial data file from year one
(2015) of TechWear’s operations and perform some basic ETL procedures on this file.
Part II: Using the data from Part I, your group will be required to develop an accounts
receivable trial balance and perform some analyses to inform their assessment of the
collectability risk on the December 31, 2015, accounts receivable balance.
Part III: It is now year two (2016) of TechWear’s operations and your group will be provided
with more background on the order-to-cash cycle based on interviews the audit team conducted
with key personnel. Your group is required to review the audit assertions for accounts receivable
(at the account-balance level) and sales (at the class-of-transactions level) and complete an audit
data-planning analysis template. For each assertion, explain the auditing objective, what could go
wrong (risks), the mitigating control, the data analysis auditing procedure to be performed and
the corresponding data required for each procedure.
Part IV: It is now early year three (2017) and the year-end audit has begun and your group will
be provided with the data file from 2016. Your group will be required to perform select audit
procedures (identified on the audit data analysis planning template) on the December 31, 2016,
accounts receivable balance. After performing the audit procedures, your group will be required
to document your findings, propose any necessary audit adjustments, and prepare a one-page
overall memorandum for the audit committee summarizing their results and recommendations.
Analytics tools:
The analysis will be performed using Excel and Tableau. You will use Excel for Parts I and II
and Tableau for the remaining parts. You will use different tools because one disadvantage of
Excel is that it is not as easy to replicate for future uses (e.g., other years, other companies).
Once developed, a Tableau workbook can be adapted easily to other years. It can also
accommodate larger file sizes. It is also easy to update data with live connections.

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To assist in learning these Excel and Tableau skills, a complete set of “how to” videos that
accompany the case is provided. In addition, a good Google search will likely yield step-by-step
instructions for both tools.
If you haven’t used Tableau before, note that it is freely available for students at
http://www.tableau.com/academic. Online Tableau learning videos can be found at
http://www.tableau.com/learn/training. The following are helpful videos:
► Getting Started video to show an overview of using Tableau (23 minutes):
http://www.tableau.com/learn/tutorials/on-demand/getting-started
► Understanding The Tableau Interface (4 minutes): http://www.tableau.com/learn/tutorials/on-
demand/tableau-interface
► Getting Started with Data (5 minutes): http://www.tableau.com/learn/tutorials/on-
demand/getting-started-data

TechWear
Part I:
Background:

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TechWear is a privately owned business that began operations in March 2015. Its sole business is
the manufacture and sale of upper-end, high-tech sportswear. It only sells to large distribution
outlets. Its primary product is a line of lightweight exercise clothes that contain a new, long-
range RFID chip that captures the following information about the user based on personal data
(age, weight, etc.) entered by the user:
► Heart rate
► Perspiration rate
► Calories burned
► Exercise efficiency (percent of capacity)

The chip is able to continuously send this information to a host device as far away as 15 miles.
The clothes are also GPS enabled and able to track routes, distances and elevations. Management
prides itself on being on the cutting edge. The company expects to conduct an IPO within a year
or two.

TechWear recently retained your firm as its auditors, largely because of your commitment to
conduct a highly efficient, technology-enabled audit.

Data
You are first responsible for performing a risk assessment of TechWear related to its order-to-
cash function. Therefore, you know that your focus needs to be on sales and cash transactions.
Your first task is to acquire the data for these transactions. You work with TechWear’s IT group
to gain access to its sales and cash receipts data for its start-up period of operations, March
through December 2015. You have been provided with an Excel file with this data
(Analytics_mindset_case_studies_Techwear_P1.xls) so you can begin your analysis. The data
file includes the following fields:
► Type: this is the type of transaction, which is either a sale (Sales) or a cash receipt
(CashReceipt).
► TransactionNumber: this is the transaction number (beginning with 1001).
► AppliedToTransaction Number: this is the sales transaction number to which a cash receipt is
applied.
► CustNum: this is a unique customer number used to identify each customer.
► CustName: this is the customer’s name.

► TransactionDate: this is the date of the sale or cash receipt.

► Amount: this is the amount of the sale or cash receipt. Cash receipts will show a negative
amount.
► InvoiceDate: this is the date the sale was invoiced (billed).
► ShipDate: this is the date the goods were shipped.

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Required (Due April 19th, 2019)
Become familiar with your data file. Make certain that your data is complete and accurate before
performing any analysis. Complete the following using Excel:
1. You’ve been told that the accounts receivable balance on the general ledger at December 31,
2015, is $684,491.19. You also know that as a start-up company, the beginning accounts
receivable balance is zero. You are also told that there are no returns or write-offs in 2015.
Verify this balance.
2. You’ve also been told that TechWear only conducts business with the following 15 approved
customers. Validate that there are no other customer names and that no customer names are
misspelled.
– Bigmart
– Cool Threads
– Corner Runner
– Cross Country Mart
– Family Fit
– Fit N Fun
– Goodway
– Neighborhood Athletic Supply
– Northern Lites
– Runner's Market
– Southeast Regional
– Southern Runners
– Super Runners Mark
– Urban Runner
– ValueChoice
3. The sales transaction log shows that 230 sales were transacted this year, beginning with
transaction 1001. Verify that the data for all of these invoices has been captured and that there
are no additional invoices or duplicates included in the file.
Part II:
Required: (Due April 19th, 2019)
Now that you have your data, you need to perform appropriate analytics techniques to inform
your risk assessment for the order-to-cash cycle for TechWear.
1. Develop an accounts receivable (AR) trial balance (by customer and by invoice) as of
December 31, 2015.

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 – Recall that beginning AR + sales – sales returns – cash receipts – bad debt write-offs =
ending AR. As mentioned in Part I, the beginning accounts receivable balance is zero and
there are no returns or write-offs in 2015.
Perform the following analyses relating to collectability risk (which is the risk the company
won’t collect money for its sales) on the December 31, 2015, accounts receivable balance. For
each procedure, provide a brief statement regarding your findings.
2. Display the year-to-date trend in sales and cash receipts by month for 2015 (with dollars on
the x-axis and months on the y-axis). Use a visualization to best highlight any concerns about
potential collection issues.
3. Compute the year-to-date days-sales-outstanding (DSO) ratio for each month. Show the
results numerically and with a visualization. For the latter, use a column chart, also called a
vertical bar chart (with DSO as the x-axis and months as the y-axis), to best highlight any
concerns about potential collection issues.
– DSO = ending AR balance for the period / total sales for the period (year-to-date)) *
number of days in the period (year-to-date)
4. Develop an aging analysis by customer and invoice using 30-day increments (0–30 days, 31–
60 days, 61–90 days and > 90 days). Display this at the customer level with the ability to drill
down to the transaction (invoice) level. Provide a visualization of the percentage of accounts
receivable in each aging category at the company level using a column chart (with percentage
as the x-axis and aging category as the y-axis).

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Part III:
Background:

One year has passed and it is now time to begin the 2016 audit. TechWear’s business has
continued to expand. Our initial analysis of 2016 data indicates a much greater risk in accounts
receivable (compared with 2015). When the audit team discussed this with company
management, we were reminded that last year’s accounts receivable proved to be fully collectible
and we were assured that this year accounts receivable would also prove to be fully collectible as
well. Management indicated that, similar to 2015, there have been no product returns or accounts
written off in 2016.

The senior has asked you to assist with planning the 2016 audit, beginning with the order-to-cash
cycle, by focusing on accounts receivable and sales. In particular, she has provided you with the
following key audit assertions that need to be addressed:

Accounts receivable – account balance Sales – class of transactions

Existence Occurrence
Completeness Completeness
Valuation and allocation Accuracy
Classification and understandability Cutoff
Classification

She has asked that, for each of these assertions, you describe the following at a high level:

► Audit objectives
► Things that could go wrong in TechWear’s sales and accounts receivable system
► Mitigating controls designed to prevent or detect such occurrences
► Audit tests that use data analysis (including graphical views) to obtain evidence
► Data requirements needed to run the tests

Your senior has already interviewed a number of key personnel (Director of Marketing and
Sales, Shipping Supervisor, Business Office Director (responsible for billing and collections),
Accounting Supervisor and the IT Director) and taken notes during these interviews, as follows:

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General notes
TechWear has some very aggressive growth goals (targeting $38 million in global sales for
calendar year 2016).
The excitement on social media has been very encouraging, resulting in very positive trends in
the number and size of orders from existing customers, as well as some prominent new
customers.
Sales personnel are under a significant amount of pressure to meet their monthly targets.
The production department is barely able to keep up with the orders. Some have expressed
concern that product quality may be impacted in the future unless changes are made to improve
the manufacturing infrastructure.
Management is planning a major renovation in early 2017 that will greatly expand its production
capacity.
One individual involved with R&D expressed concern that the product may not function as
designed in some less technologically developed environments with sporadic connectivity and
slower transmission speeds.
Like many start-up companies, TechWear has operated with a very limited staff, resulting in an
inadequate segregation of duties. At least two key employees are related, including the Director
of IT and a top sales representative.
Director of Marketing and Sales
The Director oversees a small team of salespeople that market TechWear’s products to
distribution outlets.
An order cannot be entered into the system unless the customer has been set up in the customer
master file, which reflects data such as the customer’s name, identification number (assigned by
TechWear), billing information and credit limits. Historically, the process to set up a new
customer involved running an extensive background and credit check, which could take up to 30
days. However, due to complaints from sales personnel, management decided to create a
“provisional status” that would enable immediate order fulfillment while the credit check is in
process.
TechWear uses an order-entry system that enables sales personnel to generate an order. Once an
order is entered, the system automatically generates a shipping order that appears on the shipping
department’s order fulfillment log.
Shipping Supervisor
TechWear’s goal is to fulfill an order within 24 hours of its receipt. Orders entered near the end
of the day (after the FedEx pickup time) are marked as “pending” and cleared out the following
business day.
At the time of shipment, TechWear’s shipping clerk enters the shipping number into the system
and the FedEx identification number (all shipments for the same day have the same FedEx
identification number), which then releases the order, resulting in the sales transaction being
posted (with a transaction number that matches the shipping number) and an invoice being

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generated. The invoice is sent either electronically or via mail to the customer. At the same time,
the cost of inventory relieved for items sold is automatically generated and recorded based on the
shipping number. Typically, the cost of sales ranges between 35% and 45%.
The ERP system automatically logs the date of shipment.
A listing of unfilled (pending) orders can be generated from the system based on orders entered
that do not list a shipping number, FedEx identification number and shipping weight. One is
rarely produced because the company historically has not had a problem with orders being
unfulfilled beyond 24 hours.
The system allows an order entered late one day (noted as pending) to be overridden and released
by the Director of IT as if the order had been fulfilled. The ERP system leaves no trail when this
occurs, and simply removes the pending flag.
TechWear strongly believes in its products and has an unlimited 90-day return policy that allows
a customer to return any product for any reason within 90 days of purchase. Additionally, it
warrants its products against manufacturing defects for two years.
If a product is returned (which has not happened yet) the Shipping Department issues a credit
memo to the customer, which results in a reversal of the sale.
Business Office Director (responsible for billing and collections)
Cash is collected either via checks received through the mail or a bank lockbox (which is the
preferred method, given the size of its customers), whereby payments are posted by the bank
directly into TechWear’s depository account.
Customer billing disputes, which management says have been rare, are resolved by the Business
Office. Thus far, there have been no bad debt write-offs, which management credits to the quality
of its products and its extensive background checks. On a quarterly basis, the Business Office
reviews an “Aged AR” listing of old accounts warranting further attention. If necessary, an
allowance for “bad debts” would be recorded in the general ledger. Actual bad debts would be
charged against the allowance.
Accounting Supervisor
The Accounting Office is responsible for making the bank deposit. It also reconciles the
depository bank account at month-end, ensuring that all cash receipts have been accounted for.
The main responsibility of the Accounting Office is to monitor daily sales and produce action
reports for management. These are system-generated reports that are reviewed by an accounting
analyst who flags adverse sales trends. The focus is on meeting company targets.
Director of IT
The IT Department (consisting of two individuals) is responsible for ensuring that TechWear’s
website is running efficiently and is protected from internal and external threats. The Director
has “super user” rights and can access any system. His assistant has full read-only rights and can
only make changes to test files. The assistant has been charged with monitoring sales activity and
ensuring continuity and security.

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Required: (Due April 30th, 2019)
Complete the audit data analysis planning template on the following page. Note the following:

► This template has been partially completed for you to provide examples about how to
complete the template.1
► The scope of this case study is limited to internal data (i.e., only internal data is provided and
no external data). External data provides a higher form of evidence. Examples of external
data include data from a bank, a vendor (like FedEx) or others. Additionally, some internal
data supplied externally (such as sales tax filings) often is better than data only used
internally.
► Note that testing of journal entries involving the general ledger, IT general and application controls,
and controls over the financial statement close process are beyond the scope of this case study.

1
The American Institute of Certified Public Accountants Audit Data Standards related to the order-to-cash cycle
provides a helpful guide. A process map for this cycle is included as well and this might be helpful to review
(Figure 2: Data Relationships among Tables in the O2C Audit Data Standard).
https://www.aicpa.org/interestareas/frc/assuranceadvisoryservices/pages/assuranceandadvisory.aspx

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 Audit data analysis planning template

What could go Data analysis

Assertion Auditing objectives wrong? Mitigating controls auditing procedures Data requirements

Accounts receivable – account balance

Existence Amounts reported in An order is placed Debits to accounts ► Compare debits to ► Sales amounts
the financial and a receivable is receivable are only accounts ► Cash receipt
statements represent recorded without generated from the receivable against amounts
valid receivables. any product being order entry system. recorded sales. ► Customer names
shipped. ► Review and test ► Transaction
subsequent dates
receipts. ► Transaction
► Evaluate proper numbers
segregation of ► General ledger
duties by postings by
examining postings preparer and
by source and source (e.g.,
preparer (e.g., sales order entry)
only entered by
authorized
salesclerk).

A shipping number ► Verify that every ► Customer names

and FedEx sales transaction ► Transaction
identification has a shipping numbers
number are entered number and FedEx ► Shipping
into the system as identification numbers
evidence of order number. ► FedEx ID
fulfillment and ► Analyze gross numbers
discrepancies are margin percentage ► Sales amounts
investigated. trends by month ► Cost of goods
and by customer. sold amounts
► Transaction

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 What could go Data analysis
Assertion Auditing objectives wrong? Mitigating controls auditing procedures Data requirements

dates

Completeness

Valuation and
allocation

Classification
and
understandability

Sales – class of transactions

Occurrence Amounts reported in An order is placed A shipping number Verify that every sales ► Customer names
the financial and a sale is and FedEx transaction has a ► Transaction
statements represent recorded without identification shipping number and numbers
valid sales. any product being number are entered FedEx identification ► Shipping
shipped. into the system as number. numbers
evidence of order ► FedEx ID
fulfillment and numbers
discrepancies are ► Sales amounts
investigated.

Completeness

Accuracy

Cutoff

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 What could go Data analysis
Assertion Auditing objectives wrong? Mitigating controls auditing procedures Data requirements

Classification

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Part IV:
Background:
It is now February 6, 2017, and you are ready to begin the year-end audit procedures for the 2016
audit. The client has provided the 2016 data that you requested
(Analytics_mindset_case_studies_Techwear_P4.xls) so you can begin your work. Procedures
have already been performed by your team to ensure that the data you received is complete and
accurate.
The data file includes data on two tabs — 2016 AR data and 2016 inventory relief data.
2016 AR data tab
The data fields are the same as what you received for 2015, with the exclusion of the ship date.
Additionally, the “Type” field includes transaction information for the opening balance (Opening
Balance), which reconciles with the 2015 ending balance of $684,491.19 and the unapplied cash
receipts (Unapplied Receipts).
2016 inventory relief data tab
This data includes the following fields:
► ShipNum: this is the shipping number. This number becomes the sales transaction number
when the invoice is created, which is the transaction number field on the 2016 AR data tab.
► FedExID: this is the FedEx identification number. All items shipped on a given day will have
the same number.
► CustNum: this is a unique customer number to identify the customer (same field that is on the
2016 AR data tab).
► CustName: this is the customer name (same field that is on the 2016 AR data tab).
► InvoiceDate: this is the date the sale was invoiced (billed) (same field that is on the 2016 AR
data tab).
► ShipDate: this is the date the goods were shipped.
► InvCostReliefAmount: this is the inventory cost relief amount, or the cost of sales.

The December 31, 2016, working trial balance shows the following:
Accounts receivable $18,114,802.50 (no allowances have been recorded)
Sales $37,333,890.86
Cost of sales $14,269,387.17

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Required: (Due April 30th, 2019)
► You have been asked to perform each of the following select work steps that are based on the
auditing procedures documented in the audit data analysis template from Part III. Perform
your analysis in Tableau2.
► As you perform each work step, document your findings in detail and propose any audit
adjustment using the summary of auditing findings document on the following page. On this
document, add or remove “audit findings” rows as needed based on your work. Before you
perform the next work step, make certain to remove the corresponding data from your
analysis so you can gain the best insights from the work step.
► Prepare a brief, one-page summary of your overall findings for discussion with the audit
committee that includes your summary table and any relevant visualizations.

Audit work steps

1. Verify that every sales transaction has a shipping number and FedEx identification number.
Identify and quantify any sales that have not been shipped (including names of customers and
transaction numbers). Propose any necessary audit adjustment.
2. Verify that every shipping number has a recorded sales transaction. Identify and quantify the
cost of sales for products shipped without a sale being recorded (including names of
customers and transaction numbers). Propose any necessary audit adjustment.
3. Identify shipments that occurred in 2017 for 2016 sales. Identify and quantify any sales and
the cost of sales for amounts recorded in the improper period (including names of customers
and transaction numbers). Propose any necessary audit adjustment.
4. Analyze gross margin percentages by month and by customer, reporting results in a tabular
and graphical form, after considering your previous findings. Identify any percentages that
are outside the range of expectations.
5. Develop a trial balance of accounts receivable at December 31, 2016, after reflecting about
any proposed audit adjustments. Display this at the customer level with the ability to drill
down to the transaction (invoice) level.
6. Develop an aging analysis of accounts receivable at December 31, 2016, after reflecting
about any proposed audit adjustments. Use the following aging categories (0–30 days, 31–60
days, 61–90 days, > 90 days and unapplied cash). Display this at the customer level with the
ability to drill down to the transaction (invoice) level. Provide a visualization of the amount
of accounts receivable in each aging category.

2
You can download a free version of Tableau for students at https://www.tableau.com/academic/students.

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 Summary of audit findings
Accounts
Sales Cost of sales receivable Other
As of December 31, 2016 $37,333,890.86 $14,269,387.17 $18,114,802.50
Audit finding
Audit finding
Audit finding
Adjusted as of
December 31, 2016

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