Understanding Entities: (ANSWERED)

QUESTION

PURPOSE

This form has been designed to assist the auditor in:

      Gathering audit evidence about the entity and its environment including its component entities and segments, if applicable;    Identifying and documenting pertinent facts about the entity to be used in further risk assessment procedures; and

      Documenting any potential risks of material misstatement that arise as a result of obtaining an understanding.

This form is designed for use in audit engagements of complex entities. For audit engagements of non complex entities, either this form or KBA-302N Understanding the Entity and Its Environment: Non complex Entities may be completed.

INSTRUCTIONS

The information in this form is not gathered in isolation; rather, it represents audit evidence that is integral to performing the audit because it provides vital information used in other areas.

The auditor should gather as much information on the entity’s business and industry as is needed to assist in (1) determining the nature, timing and extent of further risk assessment procedures, (2) assessing the risk of material misstatement in the financial statements, and (3) developing an overall audit strategy.

The auditor should use professional judgment to determine the extent of the understanding required of the entity and its environment, including its internal control. The auditor’s primary consideration is whether the understanding that has been obtained is sufficient to assess the risks of material misstatement of the financial statements and to design and perform further audit procedures.

Obtaining an understanding of the entity, its components, and its environment is a continuous, dynamic process of gathering, updating, and analyzing information throughout the audit. Identifying significant changes in the entity and its environment from previous periods is particularly important in gaining a sufficient understanding of the entity to identify and assess risks of material misstatement. To highlight significant changes in the current year, including changes in internal control over financial reporting, the auditor should designate the degree of change from the previous year using the drop-down menu. A significant change from the previous year may be an indication of a necessary change to the assessment of risk and design of further audit procedures related to that item. While performing each audit, the auditor should continually update this form to reflect the knowledge gained in previous years.

AU-C Section 315, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement, requires the auditor to obtain an understanding of the entity’s internal control over financial reporting for an audit of financial statements in order to identify the types of potential misstatements, assess the factors that affect the risks of material misstatement, and design further audit procedures. In an audit of financial statements, the nature, timing and extent of procedures necessary to obtain an understanding of the entity’s internal control will depend on the size and complexity of the entity; the auditor’s existing knowledge of the entity’s internal control over financial reporting, including the use of IT; the nature and extent of changes in systems and operations; and the nature of the entity’s documentation of its internal control over financial reporting. Additionally, in the audit of financial statements only, the auditor is required to obtain an understanding of the design of internal controls and whether those internal controls have been implemented. If the auditor intends to rely on internal controls to reduce the nature, timing and extent of his or her substantive audit procedures or has identified a risk for which substantive procedures alone will not provide sufficient appropriate audit evidence, then the auditor should obtain sufficient appropriate audit evidence that the key controls identified to mitigate the risk of material misstatement are operating effectively.

When intending to use information about the entity and its environment obtained in previous periods, the auditor should determine whether changes have occurred that may affect the relevance of such information in the current audit. The auditor should make inquiries and perform other appropriate audit procedures, such as walk through of systems, to determine whether changes have occurred that may affect the relevance of such information.

The auditor should obtain sufficient appropriate evidence regarding the presentation and disclosure of segment information in accordance with the applicable financial reporting framework by obtaining an understanding of the methods used by management in determining segment information and evaluating whether such methods are likely to result in disclosure. Also, the auditor should test the application of such methods and perform analytical procedures or other audit procedures appropriate for the circumstances.

Audit procedures to obtain the understanding are referred to as risk assessment procedures. AU-C Section 315 provides that risk assessment procedures performed to obtain an understanding of the entity and its environment should include the following:

 Inquiries of management and others within the entity;  Analytical procedures; or

      Observation and inspection.

The work paper reference column should be used when the procedures performed to gain an understanding are documented elsewhere.

The tables in sections II through VII contain examples of matters that the auditor may consider in obtaining an understanding of the entity and its environment, including components or segments, if applicable. The factors included cover a broad range of matters applicable to many engagements; however, not all matters are relevant to every engagement and the list of factors is not necessarily all-inclusive. While each of the factors included in sections II through VII may not be applicable to an engagement, the auditor is nevertheless required to gather sufficient information to obtain an understanding of each of the aspects of the entity and its environment (i.e., sections II through VII).

In determining others within the entity to whom inquiries may be directed, or the extent of those inquiries, the auditor should consider what information may be obtained that might help in identifying the risks of material misstatement. For example:

      Inquiries of management may help in identifying actual, suspected or alleged fraud, including understanding how management becomes aware of (including tips or complaints) and responses to fraudulent activities when they occur.

      Inquiries directed toward those charged with governance may help in understanding the environment in which the financial statements are prepared and whether those charged with governance are aware of fraudulent activities through tips or complaints, including those received through internal whistleblower programs.

      Inquiries directed toward internal audit personnel may relate to their activities concerning the design and effectiveness of the entity’s internal control, procedures performed to identify or detect fraud, and whether management has satisfactorily responded to any findings from these activities.

      Inquiries of employees involved in initiating, authorizing, processing, or recording complex or unusual transactions may help in evaluating the appropriateness of the selection and application of certain accounting policies.

Practice Point: When reporting on financial statements prepared in accordance with a financial reporting framework generally accepted in another country, the auditor should obtain an understanding of such framework.

      Inquires of employees with different levels of authority in the entity (e.g., entity personnel with whom the auditor comes into contact during the course of the audit (1) in obtaining an understanding of internal control, (2) in observing inventory or performing cutoff procedures, or (3) in obtaining explanations for significant differences identified when performing analytical procedures) may help to identify unexpected or unusual transactions.

      Inquiries directed toward in-house legal counsel may relate to such matters as litigation, compliance with laws and regulations, knowledge of fraud or suspected fraud affecting the entity, warranties, post sales obligations, arrangements (such as joint ventures) with business partners, and the meaning of contract terms.

      Inquiries directed toward marketing, sales, or production personnel may relate to changes in the entity’s marketing strategies, sales trends, production strategies, or contractual arrangements with its customers.

Corroboration and consideration of the source of the information gathered is important. Additionally, the auditor should ensure that the documentation of the source, procedures, and conclusions is included in the work papers.

This form is divided into the following sections:

      Section I: Entity Information;

 Section II: Industry, Regulatory, and Other External Factors;  Section III: Nature of the Entity;

      Section IV: Group, Its Components, and Their Environments;

      Section V: Objectives and Strategies, and Related Business Risks;

      Section VI: Measurement and Review of the Entity’s Financial Performance;

      Section VII: Fraud Risk Factors and Noncompliance with Laws and Regulations; and

        Section VIII: Significant Matters or Issues Identified in This Form.

One of the required aspects of understanding the entity and its environment is related to the internal controls within the organization. Because this is such a significant aspect and has many other requirements and procedures related to it, this understanding should be documented at KBA-403 Understanding Activity-Level Controls: Revenue, Accounts Receivable, and Cash Receipts through KBA-411 Understanding Activity-Level Controls: Financial Reporting and Closing Process.

The auditor should refer to Chapter 4, “Obtaining an Understanding of the Entity and Its Environment,” for further guidance on understanding the entity and its environment.

ANSWER

 

UNDERSTANDING THE ENTITY AND ITS ENVIRONMENT: COMPLEX entities

ENTITY NAME:	Amazon
DATE OF FINANCIAL STATEMENTS:	December 31, 2020

 

SECTION I: ENTITY INFORMATION

1. Describe the individuals that use the financial statements:

Creditors, investors, Amazon’s competitors, and internet users would all be interested in the statements.

 

2. The section describes relevant data concerning vital stakeholders (in there are individual creditors or owners):

Name of Key Stakeholder	Title	Ownership Interest	Background
Jeffrey Bezos	Chairman, CEO, and President	Majority (approximately 12%)	Founded Amazon in 1994.
Other Stakeholders

 

3. The section describes relevant data concerning vital personnel:

Name of Employee	Title	Years with Entity	Background
Jeffrey Bezos	Chairman, CEO, and President.	From 1994	Mr. Bezos has been Chairman of the Board of Amazon.com since the company’s formation and CEO from 1996. He worked as the company’s President its formation up to 1999 and from October 2000 to 2020.
David Clark	Global Consumer, CEO	From 2014	Mr. Clark has served as CEO Worldwide Consumer since January 2021, and Senior Vice President, Worldwide Operations, from May 2014 until January 2021.
Andrew R. Jassy	CEO Amazon Web Services	From 2006	Mr. Jassy has served as CEO Amazon Web Services since April 2016, and Senior Vice President, Amazon Web Services, from April 2006 until April 2016.

 

4. The following describes pertinent information about those charged with governance:

Names of Key Governance Individuals	Years with the Entity	Related-Party Implications	Background
Brian T. Olsavsky	Since 2011	n/a	Mr. Brian Olsavsky has worked in different positions in the company over the years including; the CFO and Senior VP from 2015, VP Finance the International Consumer Business starting 2011 to 2015, and many other leadership roles with international responsibility.
Shelley Reynolds	Since 2007	n/a	Since 2007, Ms. Shelley Reynolds has worked in different positions including as VP, Principal Accounting Officer, and Worldwide Controller.
David Zapolsky	Since 2012	n/a	From 2012, Mr. David Zapolsky occupied different positions including General Counsel, and Senior VP. He also served as Associate General Counsel for Regulatory matters and Litigation from 2012.

 

5. The following describes pertinent information about the audit committee members:

Name of Member	Years on Audit Committee	Related-Party Implications	Background
Judith McGrath	Since 2014	n/a	From July 2014, Judith McGrath has played the role of director. Between 2004 and 2011, she served as CEO and Chairperson of MTV Global, a subsidiary of Viacom, Inc., which includes Nickelodeon and Comedy Central. She also participated as a member of the founding and launch team in 1981. Since leaving Amazon, she co-founded a company called Astronauts Wanted: No Experience Necessary, which is a multi-media partnership with Sony Inc. The company creates and identifies using contemporary digital media talent. Ms. McGrath also worked as the company’s president from 2013 to 2018, and as a senior advisor between 2018 and 2019.
Daniel P. Huttenlocher	From 2016	n/a	Since September 2016, Daniel P. Huttenlocher has served as a director. Since August 2019, Mr. Huttenlocher has served as Dean of the MIT Schwarzman College of Computing. From 2012 to July 2019, Mr. Huttenlocher served as Vice Provost and Dean at Cornell University, and prior to that, he severed in different capacities in the university between 1988 and 2012. Mr. Huttenlocher has served as a director of Corning Inc. since February 2015.
Jamie S. Gorelick	From 2012	n/a	Since February 2012, Jamie S. Gorelick has served as a director. Since July 2003, Ms. Gorelick has been a partner at Wilmer Cutler Pickering Hale and Dorr LLP (law firm). She has also served in the US government in different capacities including Assistant to the Secretary of Energy, Deputy Attorney General, and General Counsel of the Department of Defense. Since 2015, she has served as one of the directors of VeriSign, Inc.

 

The following procedures were carried out to get a better grasp of the company (what was reviewed):

The information above was retrieved from the Amazon website (investor.amzn.com).

 

SECTION II: INDUSTRY, REGULATORY, AND OTHER EXTERNAL FACTORS

AU-C Section 315, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement, shows that regulatory, industry, and other external influences comprise of industry conditions, for example, technological developments, customer and supplier relationships, and the competitive environment. The regulatory environment includes, among other aspects, the political and legal environment, pertinent accounting pronouncements, and environmental obligations affecting both the entity and the industry. Other external influences include issues like the general economic circumstances.

 

1. Industry Conditions

 

For the following factors, indicate those that were considered in gaining a better understanding of the company and the environment it operates in. For each factor considered below, provide a narrative of your understanding related to industry conditions.

 

Factor	Considered? (Yes, N/A)	Our Understanding	Procedures We Performed to Gain Our Understanding
a.    Entity’s industry (including recent changes).	Yes	E-commerce company	Found on the website Finance. Yahoo under the Amazon information
b.    Competition and market, including price, capacity, and demand.	Yes	Our businesses includes different delivery channels, service offerings, and product types. The global marketplace where compete is very competitive and evolving quickly, and we encounter a wide range of competitors from several different industries.	Found in Part 1, Item 1: “Business”, subcategory: “Competition” in 10k
c.    Cyclical or seasonal activity of the entity’s business.	Yes	Our operations are heavily impacted by seasonality, which traditionally has led to increased volumes of sale in the fourth quarter, ending December 31.	Found in Part 1, Item 1: “Business”, subcategory: “Seasonality” in 10k
d.    Technology linked to the company’s products.	Yes	Content and technology expenditures include staff and associated costs for personnel involved in the development and research of existing and new services and products, design, development, infrastructure costs, and store maintenance, display and curation of services and products made accessible in our online stores. Infrastructure costs comprise networking equipment, servers, data center related amortization and depreciation, utilities, and rent. These costs cumulatively indicate the investments made by the company in order to provide a wide array of services and products to our clients.	Found in Part II, Item 7: “Results of Operations”, subcategory: “Technology and Content” in 10k
e.    Supply availability and cost.	Yes	Cost of sales are mainly made up of the buying price of products, outbound and inbound shipping costs, including expenses linked to delivery and sortation centers and where the company functions as the transportation service provider, and digital media content expenses where revenue gross is recorded, including music and video. The rise in the amount of sales in dollars during 2020, in comparison to the years before is mainly because of the rise in shipping and product costs due to increased sales. The company anticipates that the cost of sales as a proportion of net sales will continue to be adversely affected throughout the first quarter of 2021 due to COVID-19 associated costs.	Found in Part II, Item 7: “Cost of Sales”, subcategory: “Technology and Content” in 10k

 

2. Regulatory Environment

For the factors below, show those that were taken into account in gaining a better understanding of the company and the environment it operates in. For each factor considered below, provide a narrative of your understanding related to the regulatory environment.

 

Factor	Considered? (Yes, N/A)	Our Understanding	Procedures We Performed to Gain Our Understanding
a.    Regulatory structure for a controlled industry (for example, high level of complex regulation).	Yes	The company is subject to common business laws and regulations, and law and regulations geared towards specifically governing e-commerce, the Internet, digital content, advertising, web services, electronic devices, omnichannel retail, artificial intelligence services and technologies, as well as other services and products we sell or offer. These laws and regulations cover network security, content, data protection, transportation, electronic device certification, taxation, mobile communications, energy consumption, consumer protection, distribution, privacy, environmental regulation, copyrights, data security, electronic contracts, pricing, electronic waste, employment, competition, protectionist and trade measures, the provision of online billing services, web services, registration, information reporting obligations, licensing, access to our facilities or online access to our services, operations and design of websites, sanitation standards, safety, health, the quality, legality, and characteristics of services and products, product labeling, as well as other matters.	Found in Part 1, Item 1A: “Risk Factors”, subcategory: “Legal and Regulatory Risks” in 10k
b.    Accounting principles (that is, relevant financial reporting system) as well as industry-specific practices.	Yes	Preparing financial statements in line with the commonly recognized accounting values of the US (“GAAP”) requires assumptions and estimates that influence the stated amounts of expenses and revenues, assets and liabilities, as well as associated disclosures of contingent liabilities found within the consolidated fiscal statements and supplementary notes. The SEC has detailed an organization’s key accounting policies as the ones which are most vital to the accurate representation of the organization’s results of operations and financial condition, and which necessitate that organization to make its most subjective and difficult decisions, normally due to the need to make approximations of issues that are characteristically unclear.	Located within Part 2, Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, subcategory: “Critical Accounting Judgements” in 10k
c.    Regulation and legislation that considerably affect the company’s operations (including direct supervisory activities and regulatory requirements).	Yes	The organization is subject to income taxes within the U.S. (state and federal) and many foreign jurisdictions. Administrative practices and principles, tax laws, regulations, and interpretations in different jurisdictions might be subject to substantial change (sometimes without notice), because of political, economic, and other conditions. Therefore, substantial judgment is needed in estimating and evaluating our accruals and provision for these taxes. In addition, there are several transactions that happen in the normal course of operations for which the final tax determination is unclear. Furthermore, the company’s forecasted and actual earnings constantly change because of factors like political and economic conditions (like those brought about by the ongoing pandemic). Consequently substantial judgment is needed in establishing the company’s capacity to utilize its deferred tax assets.	Located within Part 2, Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, subcategory: “Income Taxes” in 10k
d.    Taxation (e.g., Corporation, Partnership, State and Local).	Yes	The company recorded a budget for income taxes of $2.4 billion in 2019 and $2.9 billion in 2020.	Located within Part 2, Item 7: “Management’s Discussion and Analysis of Financial Condition and Results of Operations” “Results of Operations”, subcategory: “Income Taxes” in 10k
e.    Government policies presently influencing he conduct of the company’s operations, including monetary, financial incentives (for example, government aid programs), trade restrictions, and tariffs.	Yes	As a progressive and innovative organization offering a broad variety of business and consumer services and products globally, we are often subject to threatened and actual claims, reviews, investigations, litigation, as well as other proceedings, for example, proceedings by regulatory authorities and governments, encompassing a broad range of matters, including taxes, employment and labor, patent and other intellectual property matters, network security, antitrust and competition, commercial disputes, data protection, consumer protection, privacy, data security, services and goods we offer those provided by third parties, as well as other issues. The scale and number of these proceedings have risen gradually as our operations have expanded in geographic reach and scope and our operations, services, and products, have become more used, complex and available to more customers. Any of these kinds of proceedings can have a negative impact the company due to disruption of our operations, negative publicity, alteration of management resources, legal costs, and other factors. The results of these issues are characteristically unpredictable and subject to substantial uncertainties.	Located within Part I, Item 1A: “Risk Factors”, “Operations Risk “Claims, Litigation, Government Investigations, and Other Proceedings May Adversely Affect Our Business and Results of Operations” in 10k ”
f.     Inquiries into the company’s financial results or operations by government or regulatory bodies.	Yes	The company is subject to claims linked to different indirect taxes (for example, service, consumption, value added, sales, and so on), including in areas where we already remit and collect such taxes. If the taxing authorities responsible were successful in pursuing these claims, the company could be subject to substantial extra tax liabilities. For instance, during June 2017, South Carolina issued a valuation for uncollected use and sales use taxes dating from January 2016 to March 2016, including penalties and interest. The state authorities claim that the company should have collected use and sales taxes on business transactions done by its third-party sellers. In September 2019, the state’s Administrative Law Court gave a ruling in in favor of the Department of Revenue that the company has appealed at the state’s Court of Appeals. The company believes the valuation was unfounded and intends to defend itself on this issue.	Found under Other Contingencies in Note 7 on page 58 in 10k
g.    Environmental requirements impacting the industry and the company’s operations.	N/A	N/A	N/A
h.    Communications from the regulatory agencies concerning noncompliance or likely noncompliance.	Yes	Marketing expenses include payroll and advertising and associated costs for personnel engaged in selling and marketing activities. The company directs its clients to its stores through various marketing channels, including television advertising, online and social advertising, third party customer referrals, as well as other initiatives. The company’s marketing expenses are mostly adjustable, based on changes in rates and growth in sales. To the extent our blend of these channels changes or the degree that there is decreased or increased competition, the company expects to see a matching shift in its marketing costs.	Found on page 28 under item 1A Risk Factors in 10k

 

3. Other External Factors

 

For the following issues, show those that were considered in getting a better understanding of the company and its business environment. For each factor considered below, provide a narrative of your understanding related to other external factors.

 

Factor	Considered?  (Yes, N/A)	Our Understanding	Procedures We Performed to Gain Our Understanding
a.    General amount of economic activity (for example, recession, growth).	N/A	N/A	N/A
b.    Availability of financing and interest rates and	Yes	The company’s exposure to market risk for shifts in interest rates is linked mainly to its investment portfolio as well as its lasting debt. Our long-term debt is carried at amortized cost and variations in interest rates do not affect the company’s consolidated financial statements. Nonetheless, the fair value of the company’s debt, for which interest is paid a fixed rate, will normally vary with changes of interest rates, increasing in times of decreasing rates of interest and decreasing in periods of rising interest rates.	Found on page 33 under item 7A Risk, “Quantitative and Qualitative Disclosures About Market Risk” in 10k
c.    Currency revaluation and Inflation. d.	Yes	The company has foreign exchange risk linked to cash equivalents, marketable securities, and foreign-denominated cash. Depending on the balance of foreign funds from Dec. 31, 2020, of $23.5 billion, an expected 5%, 10%, and 20% adverse shift to foreign exchange would lead to fair value reductions of $1.2 billion, $2.4 billion, and $4.7 billion. Variations in fair value are documented in “Accumulated other comprehensive revenue (loss),” a distinct aspect of stockholders’ equity.	Found on page 33 under item 7A Risk, “Quantitative and Qualitative Disclosures About Market Risk” in subcategory “Foreign Exchange Risk” 10k

 

SECTION III: NATURE OF THE ENTITY

AU-C Section 315, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement, indicates that the nature of an entity refers to the entity’s operations, its ownership, governance, the types of investments that it is making and plans to make, the way that the entity is structured, and how it is financed. Among other procedures, complete AUD-815 Audit Program: Related-Party Transactions to assist in obtaining an understanding of certain higher-risk elements of the nature of the entity. Also consider completing steps 1 and 2 of AUD-816 Audit Program: Fair Value Measurements and Disclosures if you are aware of a significant fair value measurement or disclosure.

 

4. Business Operations

 

For the following factors, indicate those that were considered in obtaining an understanding of the entity and its environment. For each factor considered below, provide a narrative of your understanding related to business operations.

 

Factor	Considered? (Yes, N/A)	Our Understanding	Procedures We Performed to Gain Our Understanding
a.    Entity’s management personnel and structure.	Yes	We have systematized our operations into three segments: International, AWS, and North America. We assign to segment results the operating costs “Fulfillment,” “General and administrative” and “Technology and content,” “Marketing,” based on usage, which is typically shown in the section in which the expenses are incurred. Most of the technology infrastructure expenses are allocated to the AWS segment based on usage. Most of the remaining non-infrastructure technology expenses are incurred within the U.S. and are assigned to our North America section.	Found under “Segments Information on page 64 in 10k
b.    The company’s operating features, including its complexity and size.	Yes	The company is not constantly able to precisely forecast its growth rate. Therefore, it bases its investment plans and expense levels on sales approximations. A substantial share of our investments and expenses are fixed, and we are not constantly able to regulate our spending fast enough if our sales are inadequate. The company’s revenue growth might not be sustainable, and its percentage growth rates might drop. Our operating profit growth and revenue relies on the sustained growth of demand for the services and products offered by the company to its vendors, and its operation is affected by general business and economic circumstances globally.	Found under “We Experience Significant Fluctuations in Our Operating Results and Growth Rate” on page 9 in 10k
c.    Revenue sources (for example, wholesaler, banking or insurance services, import-export trading, transportation, and technology including the relative profitability of main services and products.	Yes	Revenue is measured according to the level of consideration that the company expects to get, reduced by approximations for promotional discounts, rebates and return allowances. Revenue also does not include any cash collected on behalf of third parties, such as indirect taxes and sales. In arrangements in which the company has numerous performance requirements, the transaction price is assigned to every performance obligation based on the relative individual selling price. The company usually decides stand-alone selling prices according to the prices charged to clients.	Found under “Revenue” in Note 1 on page 44 in 10k
d.    Services and products and markets (for example., major contracts and customers, trends, pricing policies, profit margins, market share, terms of payment, competitors, exports, reputation of products, backlog, marketing objectives and strategy, and manufacturing processes).	Yes	Marketing costs comprise payroll and advertising and associated costs for personnel engaged in selling and marketing activities. The company directs clients to its stores through different marketing channels, for example, third party customer referrals, online and social online advertising, our sponsored search, television advertising, as well as other initiatives. The company’s marketing expenses are mainly variable, depending on changes in rates and growth in sales.	Found under “Marketing” on page 28 in the 10k.
e.    Vital customer relationships.	Yes	The company fulfills client orders in various ways, including through: International and North America fulfillment networks it operates; outsourced and co-sourced arrangements in specific countries; through our physical stores, and digital delivery. The company operates customer service centers worldwide, which are complemented by co-sourced provisions.	Found under Part 1 Item 1 “Business” subcategory “consumers” on page 3 in the 10k.
f.     Product warranties.	N/A	N/A	N/A
g.    Offering or developing new services or products, or moving into new areas of business.	Yes	The company might have partial or no experience in its newer markets, and its clients might not adopt our service or product offerings. These offerings that can present difficult and new technology challenges, might subject the company to claims if clients of these offerings experience any failures or service disruptions or other quality issues. Additionally, profitability, if any, in newer activities might not meet the company’s expectations, and it might not be adequately successful in the newer activities to recover its initial investments. Failure to appreciate the advantages of amounts the company invests in new services, products. Or technologies may lead to the value of those investments being written off or written down.	Found under “Our Expansion into New Products, Services, Technologies, and Geographic Regions Subjects Us to Additional Risks” on page 6 in 10k
h.    Conduct of operations (for example, methods and stages of production, divisions or subsidiaries, delivery of services and products, and details of expanding or declining operations).	Yes	The company is continuing to significantly and rapidly expand its international operations, including raising its services and product offerings and scaling its infrastructure to support its services and retail businesses. The complexity of the existing scale of its operations can place substantial strain on its personnel, technical performance, management, systems, financial resources, operations, and internal reporting and financial control functions, and the company’s growth increases these factors. If growth is not effectively managed it could limit our growth, damage our reputation, and negatively affect the company’s operating results.	Found under “Our Expansion Places a Significant Strain on our Management, Operational, Financial, and Other Resources” on page 9
i.     Joint ventures, alliances, and outsourcing activities.	N/A	N/A	N/A
j.     Participation in e-commerce, including marketing activities and Internet sales.	Yes	Net sales comprise service and product sales. Product sales signify income from the sale of products as well as associated digital media content and shipping fees where the company records revenue gross. Service sales mainly represent third-party seller fees, including commissions and any linked shipping and fulfillment fees, advertising services, Amazon Prime membership fees, AWS sales, and specific digital content subscriptions.	Found under “Results of Operations”: “Net Sales” on page 25 in 10k
k.    Industry segmentation and Geographic dispersion.	Yes	The company has organized its operations into three sections: International, AWS, and North America. It allocates to section results the operating costs “Technology and content,” “Fulfillment,” “General and administrative” and Marketing,” according to usage, which is normally reflected in the section where the expenses are incurred. Most of the technology infrastructure expenses are assigned to the AWS section because of usage. Most of the remaining non-infrastructure technology expenses are incurred within the U.S. and are assigned to the company’s North America section.	Found under “Note 10” on page 64, and under “Segment Information” in 10k.
l.     Operations in areas that are economically unstable (for example, highly inflationary economies or countries with substantial currency devaluation).	N/A	N/A	N/A
m.  Operations in volatile markets	Yes	The company is quickly evolving its business model. The trading price of its common stock varies considerably in due to various factors. Volatility in the company’s stock price could negatively affect the company’s financing and business opportunities and force it to raise its cash compensation to workers or give larger stock awards than it has done historically, which could hurt its operating outcomes or lessen the ratio of ownership of its existing stockholders.	Found under “We Have a Rapidly Evolving Business Model and Our Stock Price Is Highly Volatile ” on page 13 in 10k
n.    Going-concern and liquidity issues, including loss of significant customers.	Yes	We have acquired and invested in a number of companies, and we may in the future acquire or invest in or enter into joint ventures with additional companies. As a result of future acquisitions or mergers, we might need to issue additional equity securities, spend our cash, or incur debt, contingent liabilities, or amortization expenses related to intangible assets, any of which could reduce our profitability and harm our business or only be available on unfavorable terms, if at all. In addition, valuations supporting our acquisitions and strategic investments could change rapidly. We could determine that such valuations have experienced impairments or other-than-temporary declines in fair value which could adversely impact our financial results.	Found under “Our Business Suffers When We Are Unsuccessful in Making, Integrating, and Maintaining Acquisitions and Investments” on page 11 in 10k
o.    Locations of production facilities, warehouses, and offices.	Yes	Amazon.com, Inc.’s principal corporate offices are located in Seattle, Washington. We completed our initial public offering in May 1997 and our common stock is listed on the NASDAQ Global Select Market under the symbol “AMZN.”	Found under Part I, Item 1, “Business” on page 3 in 10k
p.    Important suppliers of goods and services (e.g., long-term contracts; stability of supply; terms of payment; imports; and methods of delivery, such as “just-in-time”).	Yes	Marketing costs primarily consist of advertising and payroll and related expenses for personnel engaged in marketing and selling activities, including sales commissions related to AWS. We pay commissions to third parties when their customer referrals result in sales. We also participate in cooperative advertising arrangements with certain of our vendors, and other third parties. Advertising and other promotional costs to market our products and services are expended as incurred and were $8.2 billion, $11.0 billion, and $10.9 billion in 2018, 2019, and 2020.	Found under Note 1 “DESCRIPTION OF BUSINESS, ACCOUNTING POLICIES, AND SUPPLEMENTAL DISCLOSURES” subcategory “Marketing” on page 45 in 10k
q.    Purchase commitments.	Yes	We have entered into non-cancellable operating and finance leases and financing obligations for equipment and office, fulfillment, sortation, delivery, data center, physical store, and renewable energy facilities.	Found in Note 7 “Commitments and Contingencies” on page 58, and under “Commitments” in 10k.
r.     Anticipated losses on long-term contracts.	N/A	N/A	N/A
s.    Employment (e.g., by location, supply, age levels, union contracts, pension and other post-employment benefits, share option or incentive bonus arrangements, and government regulation related to employment matters).	N/A	N/A	N/A
t.     Research and development activities and expenditures.	Yes	The consolidated financial statements include the accounts of Amazon.com, Inc. and its consolidated entities (collectively, the “Company”), consisting of its wholly-owned subsidiaries and those entities in which we have a variable interest and of which we are the primary beneficiary, including certain entities in India and certain entities that support our seller lending financing activities. Intercompany balances and transactions between consolidated entities are eliminated.	Found under “Principles of Consolidation” on page 43
u.    Transactions with related parties (this would also encompass obtaining a complete listing of related parties from management).	Yes	General and administrative expenses primarily consist of costs for corporate functions, including payroll and related expenses; facilities and equipment expenses, such as depreciation and amortization expense and rent; and professional fees and litigation costs.	Found under “General and Administrative” on page 46
v.    Pending or threatened litigation or contingent liabilities.	Yes	We regard our trademarks, service marks, copyrights, patents, domain names, trade dress, trade secrets, proprietary technologies, and similar intellectual property as critical to our success, and we rely on trademark, copyright, and patent law, trade-secret protection, and confidentiality and/or license agreements with our employees, customers, partners, and others to protect our proprietary rights. We have registered, or applied for the registration of, a number of U.S. and international domain names, trademarks, service marks, and copyrights. Additionally, we have filed U.S. and international patent applications covering certain of our proprietary technology.	Found under “Intellectual Property” on page 4
w.   Environmental remediation liabilities.	N/A	N/A	N/A

 

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