Applying Regression Analysis in an Auditing Context: A Learning Strategy Available to Purchase

We begin the lecture by introducing an example. Students are asked to imagine that they have been hired to audit Homeware Plus, LLC, a company that owns 100 retail stores selling home and outdoor living goods. During the audit planning phase, it is discovered that two years ago, the company implemented a management incentive plan that rewarded managers with bonuses based on store sales revenue. Although sales have increased significantly, one concern raised is that the new incentive plan may have tempted store managers to overstate sales revenue to boost their bonuses. The audit plan includes testing the reasonableness of reported sales revenue for each store. The client has provided data on reported sales revenue and store square footage for each of the 100 store locations. Students must consider whether it is reasonable to expect a relationship between store size and store sales, with larger stores able to display and...