Question 1 (a) First and foremost, Tech Ltd seems at inherent risk due to a possibility of misstatement resulting from misappropriation of assets and fraudulent financial reporting. As an individual store which unauthorized raises the inventory requisition, it is not uncommon for the owners to use the store assets for personal use and manipulate or counterfeit the records or documents. Besides, Mr. Abbot believed that introducing of garment labels will increase sales revenues, but never understand the business model and conduct assess, it is easily lead to risks of material misstatement. Worse still, the company could be exposed to control risk resulted from the internal control. The company excessive reliance on computer systems can easily lead to internal control issues. If a poorly controlled company, it stands a chance to …show more content…
The highly competitive competitor's products affect the demand of Pluto Ltd that is expected to fall. Thus, the company may lose a major market. If the situation continued to decline, Pluto's sales revenues would be dropped but operating expenses would be kept to increase. In addition, it may encounter cash flow problem that would lead to going concern problem. Furthermore, if Pluto's demand was even worse, it may cause the inventory’s fair value will be lower than their original cost. When Pluto's financial performance get worse, the management may possibly have the motivation to manipulate or falsify the data or documents. (b) The key accounts of sales, accounts receivables, cost of goods sold and operating expenses, inventory and accounts payable which are likely to be manipulated by management to achieve a higher profit in the audit plan. Question 2 (c) The inherent risk is high due to the new competitive competitor who causes demand drop and lead to going concern
Threat from New Entrants There are currently no new threats from new entrants in this market. Company G’s technology, testing and production process that is very efficient for profitability cannot be easily replicated.
The objective of analytical procedures is to identify the existence of unusual transactions and events, and amounts, ratios and trends that might indicate matters that have financial statement and audit planning ramifications*. First, the auditors should consider information regarding the industry in which the client operates**. In this case, average machine setup time from start to finish is approximately six hours, which is slightly below the industry average. It means the company is efficient in preparation for production. Also, the auditors should compare client data with prior period data***. For example, days sales in receivables increased from 48.4 days (2004) to 56.3 days (2005). Though sales didn't increase a lot ,but days sales
Business risk evaluation – possible and moderate = medium business risk. The threat of new entrants and substitute products are very high, in addition to the high level of competition in the industry. Therefore, the business risk that MTI faces – losing customers due to lack of product differentiation, profit decrease due to increase in competition in the industry are likely possible to occur. In addition, the effects from new companies entering the industry will have a moderate effect on MTI’s revenue stream. As a conclusion, MTI faces medium business risk.
One of these consequences are the injection of a Trojan virus, which is a virus that is hidden to act like a legitimate program or file. Another consequence would be exposing the network to a worm, which could propagate throughout the network and cripple productivity by machine and network slowdowns; this is in addition to possibly injecting other viruses onto the system. Although these are possibilities of allowing outside resources access to the company network, user training, disabling resources, and even standalone virus scanners can prevent these unintentional
#2. Internal Control Risks; audit planning decisions. Some internal control risks common among large, high-volume retail stores include dealing with inherent limitations and potential fraud. Even if a well-designed internal control system is in place, the employees using it are ultimately the deciding factors in its effectiveness. For example, management may instruct an employee or easily-influenced executive (of another company) to alter information or confirmations or multiple employees may conspire to steal assets or misstate records (collusion; misappropriation of assets).
Threat of new entrants: Intensified price competition as new entrants sought their share of mature market had negative effect. However, high capital requirements positively affect Ford Motor Company. High capital was allocated for research and development which was and advantage against new entrants.
After carefully reviewing the income statement, balances sheet and cash flow it seems that the company has a negative cash flow for 1998, so even before thinking about obtaining internal and external resources for long term investment, the company must assure resources for their own working capital.
Home Depot and Lowe’s are both large successful home improvement retailers. This paper discusses the background of both companies and goes into detail about the financial ratios including profitability and liquidity ratios. The paper also discusses business risks, audit risks, and the proper audit procedures that are necessary. The paper focuses on audit procedures of three important asset accounts: Cash, inventories, and accounts receivable.
On the other hands, business will do what they can avoid profit loss; this could increase competition. Increase in sales from the
The threat of new entrants is measured by the level of entry barriers, brand reputation and customer loyalty, potential for existing competitors to expand, growth of buyer demand,
The threat of new entrants is high in the fast segment. There is a threat of new entrants is because the entry barriers are very low. The business barriers to entry the market could take those forms: first one is the capital costs, the higher the investment required, the less the threat from new entrants. Secondly, regulation and legal constraints are the main concerned points. In most industries, regulations related to health and safety, products handling, and licenses to operate, export, or install new facilities. And other forms of barriers could be brand loyalty which could be an important factor in increasing the costs for customers of switching products. The new entrants need to change the valuable brand suppliers with its efficient economies of scale to have a reasonable supply chain network or corporate with the low cost producers to supply the products in the market. Also it might gain a large market share in the market as well. For instance, Sports Direct Company reported retail sales were £371m while gross profit increased 9.6 percent to £149m, it
Threat of New Entrants: The threat of new entrants is very low in this industry. Most of the companies have over a hundred year’s history and their brands are based on their heritage and tradition. Even a new company with a large amount of initial
The threat of new entrants refers to the threat posed by new competitors within an industry. If it is easy for new firms to enter the industry barriers to entry are low and the threat of new entrants is high. A profitable industry attracts more competitors. Economies of scale, learning curve effects and other macro factors impact the nature of an industry 's
Threat of New Entrants – The threat of new competitors entering an industry is high when initial
If an industry is profitable, it will become a magnet to attract more competitors looking to do same business with us. If it is easy for these new entrants to enter the market, this poses a threat to the firms already competing in that market. Threat of new entrants is one of the forces that shape the competitive structure of an industry (Marc, 2014). A high threat of entry means new competitors are attracted by the profits of the industry and can enter the industry easily. New competitors entering the marketplace can make the market share and profitability of existing competitors more threaten cause the existing competitor to make some changes to existing product quality or price levels. A high threat of new entrance can make an industry more competitive and decrease profit potential for existing competitors whereas a low high threat of new entrance can make an industry less competitive and increases profit potential for the existing