1 - What do you understand by public accounting firms?

Describe the different categories of

public accounting firms. Also, name the external auditor of Mcdonalds. Give some
introduction on the Functions of an external auditor and provide a reference from the report.

Public accounting firms are firms consisted of public accountants that serve clients such as businesses
(manufacturers, service companies, ...), individuals, governmental organizations , and nonprofit
organizations through various services such as bookkeeping, tax consulting, and other accounting and
audit services. Therefore, public accounting firms could specialize in one or more of these services,
which in turn make these firms have diverse types that differ in size of operating, and types of offered
services as follows:

1. Accounting and Audit firms: type of public accounting firms that perform basic
accounting, bookkeeping, and audit services for small and medium enterprises and
individuals, also they may deliver some tax services like preparing tax returns, and other
services related to the businesses of these enterprises such as payroll processing and
financial statements preparation.

2. Forensic Accounting firms: this type of firms is unique and essential because it
specializes in inspecting financial misconducts like money laundering, fraud
embezzlement, or stock price manipulation, by using distinctive financial analysis to the
financial reports and tracing of funds sources along with the knowledge of legal policies
and procedures. Forensic accounting firms are essential for local and federal law
enforcement and presenting the evidences of financial crime.

3. Big Four firms: Yes, there are four international public accounting firms that conduct
the same previous services as accounting and audit firms accompanied by management
consulting services on a multinational range for large corporates. The competitive
advantage these firms enjoy often is their specialized industry knowledge. The Big Four
firms are: Deloitte, PricewaterhouseCoopers (PwC), KPMG, and lastly Ernst & Young
(EY) which it's the external auditor of Mcdonalds' that prepared its annual audit report
for the year 2022.

In terms of external auditing, the external auditor perform important functions through the audit
procedures in order to obtain a reasonable assurance about the validity and reliability of financial
statements of a company as follows:

1. Financial statement audit: The external auditor's primary function is to audit the financial
statements of an organization, which include the balance sheet, income statement,
statement of cash flows, and statement of changes in equity. The auditor expresses an
opinion on whether the financial statements are free from material misstatements and
fairly present the organization's financial position, performance, and cash flows in
accordance with the relevant financial reporting framework, such as GAAP or IFRS.
Therefore, the auditor performs procedures such as obtaining an understanding of the
organization's business and industry, evaluating the risks of material misstatement, testing
the accounting records and supporting documentation, and assessing the accounting
policies and estimates used by the firm audited.

In the audit report of Ernest & Young Co., the report states that they have audited the consolidated
balance sheets of McDonald's Corporation as of December 31, 2022 and 2021, and the related
consolidated statements of income, comprehensive income, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 2022. Expressing an Unqualified opinion on
these financial statements.

2. Internal control evaluation: from the important functions of external auditors that they
evaluate the organization's internal controls to determine their effectiveness in preventing
and detecting fraud, errors, and other material misstatements in the financial statements.
Thus, it involves understanding the organization's control environment, measuring the
design and implementation of control activities, and examining the operational
effectiveness of controls throughout the organization. External auditor may well also
pinpoint control deficiencies and provide recommendations for improving internal
controls.

In a reference from the Audit report, the external auditor states that they have evaluated and audited
the work of internal control over financial reporting based on the criteria established by the
Committee of Sponsoring Organizations of the Treadway Commision( 2013 framework) or the COSO
Criteria. , the external auditor for MCdonalds' express its opinion regarding the internal control over
financial reporting, and from its opinion, MCdonalds' corporate preserved effective internal control
over financial reporting in accordance with the COSO Criteria.

3. Risk assessment: it's worth to mention that external auditors also implement the function
of assessing the organization's risk management practices by analyzing the risks that
could disturb the organization's financial reporting and internal control processes. This
involves understanding the organization's risk appetite, identifying significant risks and
trivial ones, and evaluating the adequacy of the organization's risk management
processes. In addition to that, the external auditor may well provide recommendations for
improving the organization's risk management practices.

As stated in the audit report, E&Y audit procedures acquired an understanding of the corporate
internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as it considered necessary in the circumstances. Which in turn
indicates that the auditor performed a risk assessment of the company's internal control over financial
reporting.

4. Communication with stakeholders: External auditors must also perform the function of
communicating their findings and endorsements to the organization's management, board
of directors, and other stakeholders, such as investors and regulators. This communication
may take the form of written reports, oral presentations, or meetings. The auditor's
communication is vital because it helps to increase stakeholders' understanding of the
organization's financial reporting and internal control practices and to identify areas for
improvement.

And the audit report in itself is a written communication to the Board of Directors and shareholders of
McDonald's Corporation about the external auditor's findings and opinion. On top of that, the audit
report itself is publicly available on the official site of Mcdonalds' corporate to interested investors
and officials to access it.
4 - What do you understand by material misstatement? Does Mcdonalds' have strong internal
control over financial reporting to overcome material misstatements?

A material misstatement is an error or omission in the financial statements that, in the context of the
financial statements as a whole, is considered significant enough to affect the judgment of a
reasonable person relying on the financial statements. Material misstatements can arise from errors or
fraud and can be caused by mistakes in accounting or reporting, or by a absence of appropriate
internal controls.

In reference to the audit report, the external auditor expresses an unqualified opinion that the financial
statements of McDonald's Corporation are fairly presented, in all material respects, the financial
position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2022, are in conformity with U.S.
generally accepted accounting principles. Which in turn indicates that the external auditor did not
detect any material misstatements in the financial statements.

When it comes to the question of the strength of Mcdonalds' internal control over financial reporting
to overcome material misstatements, what previously mentioned imply that auditor did not pinpoint
any significant deficiencies or material weaknesses in the Company's internal control over financial
reporting that could result in material misstatements in the financial statements.

5 - Briefly elaborate on the principle of assurance and provide the details of assurance from
the Annual report of Mcdonalds'.

The principle of assurance is a necessary concept in auditing and accounting that refers to the process
by which an independent auditor provides an opinion on the reliability and accuracy of financial
information presented by an organization. The aim of assurance is to enhance confidence in the
financial information provided by the organization and to help stakeholders make informed decisions
about the organization's performance and forecasts.

In the Annual Report of McDonald's Corporation for the year ended December 31, 2022, the company
provides various forms of assurance to its stakeholders. These include:

· Audit Opinion: The company's financial statements are audited annually by an

independent auditor, Ernst & Young LLP, in accordance with generally accepted auditing
standards and standards of the Public Company Accounting Oversight Board (PCAOB).
The auditor provides an opinion on the fairness of the financial statements and the
effectiveness of the company's internal control over financial reporting.

· Management's Discussion and Analysis : The Management discussion and analysis

section of the annual report provides management's perspective on the company's
financial performance, prospects, and risks. While this section is not audited, it provides
additional information and insights that can help stakeholders better understand the
financial information presented in the financial statements.

· Sustainability Reporting: The company also provides assurance on its sustainability

reporting. In 2022, the company's sustainability information was assured by an external
auditor, KPMG, in accordance with the International Standard on Assurance
Engagements (ISAE) 3000. This provides stakeholders with additional confidence in the
company's sustainability reporting and commitments.
6 - What is the external audit report on the presentation of the financial statement of
Mcdonalds'? Name the different financial statements that were audited by an external auditor.

Auditors have a responsibility to detect and report material misstatements in the financial statements,
whether they arise from errors or fraud. However, it is important to note that the primary
responsibility for preventing and detecting fraud lies with management, not the auditor. The auditor's
role is to provide reasonable assurance that the financial statements are free from material
misstatement, but this does not guarantee that fraud will be detected or prevented.

In the Annual Report of McDonald's Corporation, the auditor's responsibility for the detection of
errors and fraud was described in the audit report provided by Ernst & Young LLP. The audit report
states that the auditor is responsible for obtaining reasonable assurance about whether the financial
statements are free from material misstatement, whether caused by error or fraud. The auditor also
states that the audit is designed to obtain reasonable assurance about whether the financial statements
are free from material misstatement, but not to provide assurance on internal control over financial
reporting or to detect misstatements that are less than material.

The audit report also states that the auditor plans and performs the audit to obtain reasonable
assurance about whether the financial statements are free from material misstatement, whether due to
fraud or error. This includes obtaining an understanding of the entity and its environment, assessing
the risks of material misstatement, and designing and performing audit procedures that are responsive
to those risks.

While auditors have a responsibility to detect and report material misstatements in the financial
statements, they cannot guarantee that fraud will be detected or prevented. This is because fraud can
be difficult todetect, particularly if it involves collusion or sophisticated schemes to deceive auditors.
Therefore, it is important for auditors to maintain a skeptical attitude and to exercise professional
judgment throughout the audit process.

In the case of McDonald's Corporation, the audit report provided by Ernst & Young LLP expresses an
unqualified opinion, which means that the auditor did not identify any material misstatements in the
financial statements. However, it is important to note that the absence of material misstatements does
not guarantee that fraud has not occurred. The auditor's responsibility for detecting fraud is limited to
the extent that it is reasonable to expect that the auditor will detect material misstatements resulting
from fraud.

7 - Are auditors responsible for fraud? Discuss the auditor's responsibility for the detection of
errors and fraud. Support your answer from the Annual report of Mcdonalds'.

Auditors bear the responsibility to detect and report material misstatements in the financial
statements, whether they arise from errors or fraud. However, it is important to note that the primary
responsibility for preventing and detecting fraud lies with management, not the auditor. The auditor's
role is to provide reasonable assurance that the financial statements are free from material
misstatement, but this does not guarantee that fraud will be detected or prevented.
In the Annual Report of McDonald's Corporation, the auditor's responsibility for the detection of
errors and fraud is described in the audit report provided by Ernst & Young LLP. The audit report
states that the auditor is responsible for obtaining reasonable assurance about whether the financial
statements are free from material misstatement, whether caused by error or fraud. The auditor also
states that the audit is designed to obtain reasonable assurance about whether the financial statements
are free from material misstatement, but not to provide assurance on internal control over financial
reporting or to detect misstatements that are less than material.

Furthermore, The audit report also states that the auditor plans and performs the audit to obtain
reasonable assurance about whether the financial statements are free from material misstatement,
whether due to fraud or error. This includes obtaining an understanding of the entity and its
environment, assessing the risks of material misstatement, and designing and performing audit
procedures that are responsive to those risks.

While auditors have a responsibility to detect and report material misstatements in the financial
statements, they cannot guarantee that fraud will be detected or prevented. This is because fraud can
be difficult todetect, particularly if it involves collusion or sophisticated schemes to deceive auditors.
Therefore, it is important for auditors to maintain a skeptical attitude and to exercise professional
judgment throughout the audit process.

In the case of McDonald's Corporation, the audit report provided by Ernst & Young LLP expresses an
unqualified opinion, which means that the auditor did not identify any material misstatements in the
financial statements. However, the absence of material misstatements does not guarantee that fraud
has not occurred. The auditor's responsibility for detecting fraud is limited to the extent that it is
reasonable to expect that the auditor will detect material misstatements resulting from fraud.

8 - Explain the term ‘Audit Risk’ and ‘Audit evidence’. How auditors can reduce audit risk,
support your answer from the annual report of Mcdonalds'.

Based on the audit report of McDonald's Corporation for the period ended December 31, 2022,
auditors can reduce audit risk by performing the following procedures:

1. Assessing the risks of material misstatement of the financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. This can involve examining evidence
regarding the amounts and disclosures in the financial statements on a test basis, evaluating the
accounting principles used, and reviewing significant estimates made by management.

2. Staying up-to-date with industry developments, regulations, and emerging risks. This can involve
attending relevant training and continuing education programs, conducting research and analysis, and
maintaining open communication with company management and the audit committee.

3. Obtaining an understanding, evaluating the design, and testing the operating effectiveness of
controls over the Company's process to assess the technical merits and measurement of unrecognised
tax benefits and related regulatory liabilities. This can involve reviewing the Company's
communications and agreements with relevant tax and regulatory authorities, assessing the inputs
utilized and the pricing conclusions reached in the transfer pricing studies executed by management,
and comparing the methods used to alternative methods and industry benchmarks.

By performing thorough and comprehensive audits of a company's financial statements, assessing the
risks of material misstatement, staying up-to-date with industry developments and emerging risks, and
evaluating the effectiveness of controls over financial reporting, auditors can help reduce audit risk
and provide assurance to stakeholders that a company's financial statements are reliable and accurate.

The audit procedure of the previous audit report for McDonald's Corporation's financial statements
was conducted in accordance with the standards of the Public Company Accounting Oversight Board
(PCAOB) and GAAP. The auditor's responsibility was to plan and perform the audit to obtain
reasonable assurance about whether the financial statements were free of material misstatement,
whether due to error or fraud. The audit procedure included assessing the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks.

In addition, the auditor obtained and evaluated management's representations about the financial
statements and related matters and assessed the risks of material misstatement, including the risk of
fraud. The auditor used specialized audit software and data analytics tools to identify potential issues
or anomalies in the financial statements. The auditor also engaged external experts to provide
additional expertise in areas where the auditor lacked expertise.