01
Overview
The question: should an audit partner take on Etsy, and if so, where should the audit focus?
For our Auditing course, our team analyzed Etsy as if we were planning its audit. We reviewed its business model and audit history, assessed the risk of material misstatement, identified the accounts most exposed to that risk, proposed procedures and timing, and closed with a recommendation on client acceptance.
Etsy earns most of its revenue from required seller fees on its marketplace, and the rest from optional services sellers choose to buy.
- Company
- Etsy, Inc. (ETSY)
- Business
- E-commerce marketplace
- Headquarters
- Brooklyn, New York
- Founded
- 2005
- Public since
- 2015
- Fiscal year end
- December 31
Marketplace revenue — $2.0B, 69.6% · transaction, payment processing, and listing fees
Services revenue — $876.3M, 30.4% · on-site ads, shipping labels
2025 consolidated revenue of $2.9B, up 2.7% year over year, as presented in the team’s analysis of Etsy’s reporting.
02
Audit environment
We started with Etsy’s audit history: who audits it, what opinions it has received, which matters its auditor called out as critical, and how audit fees have moved.
- External auditor
- PwC, New York
- Auditor since
- 2012
- Opinions, 2016–2025
- Unqualified, every year
- Financial statements
- Audited under PCAOB standards
- Internal control
- Evaluated against the COSO framework; unqualified
- Audit deadline
- March 1
Critical audit matters by year
- Reverb acquisition valuation
- Convertible notes
- Depop acquisition valuation
- Goodwill impairment — Depop and Elo7
- Reverb goodwill assessment
- Revenue recognition
The most recent critical audit matter, revenue recognition, lines up with revenue being the highest-risk account in our assessment.
Audit fees
View as table
| Year | Audit fees (approx.) |
|---|---|
| 2016 | $3,175K |
| 2017 | $2,430K |
| 2018 | $3,235K |
| 2019 | $2,880K |
| 2020 | $2,730K |
| 2021 | $3,650K |
| 2022 | $3,535K |
| 2023 | $3,460K |
| 2024 | $3,170K |
| 2025 | $3,605K |
03
Risk assessment
We worked through the audit risk model — audit risk as the product of inherent, control, and detection risk — and named the specific drivers of each for a business like Etsy.
Inherent risk
Risk of misstatement before considering controls
- Cybersecurity and technology
- Fraud
- Dependence on third parties
Control risk
Risk that controls fail to prevent or catch it
- IT general controls
- Revenue processing controls
- Fraud monitoring controls
Detection risk
Risk that audit procedures miss it
- Extremely high transaction volume
- AI and automated systems
- Fraud concealment
04
Key accounts
We flagged four accounts as risky. Two of them, revenue and accounts receivable, were carried into detailed procedures as the high-risk areas.
| Account | Assessment | Detailed procedures |
|---|---|---|
| Revenue | High risk; subject of the auditor’s 2024–2025 critical audit matter | Yes |
| Accounts receivable | High risk | Yes |
| Cash and cash equivalents | Risky account | Not planned in detail |
| Refund liabilities | Risky account | Not planned in detail |
05
Audit response
For revenue and accounts receivable we proposed control testing, tests of detail, and analytical procedures.
Revenue
- Test internal controls over revenue recognition systems
- Select sample transactions and trace them to accounting records
- Perform cutoff testing near year-end
- Compare revenue trends with prior years
- Reconcile platform reports to the general ledger
- Verify payment processor reports
Accounts receivable
- Review subsequent cash collections
- Reconcile receivable balances to the general ledger
- Review aging schedules and allowance estimates
- Perform cutoff testing
06
Timing & group audit
| Account | Interim | Year-end |
|---|---|---|
| Revenue | Test internal controls; compare revenue trends | Trace sample transactions, cutoff testing, reconciliation, and payment processor reports |
| Accounts receivable | Review aging schedules and allowance estimates; reconcile balances | Review subsequent cash collections; cutoff testing |
Group audit
Our plan used in-network component auditors for certain foreign operations and subsidiaries. The lead auditor takes full responsibility for their work after evaluating their competence, independence, and procedures, so the component auditors may not need to be named in the audit opinion.
Component work follows the same timeline as the overall audit, so it is finished before the final opinion is issued.
07
Conclusion
Team recommendation
The audit partner should accept Etsy as a client.
- Significant risks, but manageable with the planned procedures
- Unqualified opinions for each of the past ten years
- Audit fees trending higher over the period reviewed
- Independence: no direct ownership in the investment portfolio
What this project built
- Risk-based planningStarting from the audit risk model and naming concrete risk drivers.
- Linking risks to proceduresChoosing tests that respond to the accounts most likely to be misstated.
- Reading audit reportsUsing opinions, critical audit matters, and fee history to understand an audit environment.
- Planning the calendarSplitting work between interim and year-end, including component auditors.