Premium Essay

Companies and Business Risk Auditing

In: Business and Management

Submitted By timothys
Words 3025
Pages 13
ACCTG20040 Auditing and Ethical Practice

Assessment item 1: Term 3, 2013

Understanding Companies and Their Business Risk

Prepared by: Timothy Supandji

Table of Contents EXECUTIVE SUMMARY 3 Factors in understanding company and business risk before accepting as New Client 4 Comparison of the Overall Financial Conditions of BHP Billiton Ltd and Rio Tinto Limited during the GFC 6 Explanation of risks associated with BHP and Rio Tinto Ltd during GFC 8 Managing Business Risk: BHP Billiton Ltd Vs Rio Tinto Limited 10 CONCLUSION 11

EXECUTIVE SUMMARY
There are four purposes for this report. It attempts to provide description of what factors that the auditors need to consider in understanding a company and assessing business risk before attempting any audit work on a particular client. The second aim is to explain the comparison of financial conditions between BHP Billiton Ltd and Rio Tinto Limited during the Global Financial Crisis that occurred in 2007 to 2008. Further, the risk that is associated with BHP and RIO during the Global Financial Crisis will be explained. Finally, this report intends to explain of which company is better in handling and managing the business risk during the Global Financial Crisis.

Factors in understanding company and business risk before accepting as New Client
Generally speaking, at the time when there was a Global Financial Crisis, it has detrimental effect to the companies globally with downfall of share prices. Because of these results, all of the investors are forcedly lost their money. In addition to this, the global economic condition was also declined including the rise of the unemployment rate as well as the increase in the level of debt [Martinelli, 2013]. As in the context of business risk, the increase level of debt will create uncertainty and give unclear direction to determine whether the business…...

Similar Documents

Premium Essay

Business Risk

...Introduction and Overview Business complexity and increase in uncertainty amplifies the conflict between documented means of managing risk and current practices. While companies had been conventionally addressing issues of foreign exchange, taxation, interest rate and prices, the widespread adaptation of internet in sourcing customers and online facilities are creating a new wave of corporate risks. Do current corporate risk practices prove wrong the established academic theories? Large Corporation such as Lehman Brothers, Northern Rock, Royal Bank of Scotland and many organisations had fallen to receivership all across the world showing the evident of the necessity of risk management strategy and a business continuity strategy. Some multi national organisations had also been exposed to risks such as Sony with unidentified battery issue before release of product in 2006, Dell supply chain problem in 2007, fiasco caused by software failure in 2008 to British Airways etc. This is because they had failed to take into account risks that could be created by people, resources and occurrence that is outside the normal business practises. Risk management is now an essential element of organisation’s strategy by putting in place a process to handle risk in priority of the likelihood of occurrence. The managerial decisions necessary for smooth running of organisation cannot be taken without element of risk. As a cornerstone of business practice the question management need to......

Words: 2842 - Pages: 12

Premium Essay

Business Risk

...Business Risks: 1. Apollo specializes in technologically superior athletic podiatric products which has huge R&D expense. However, there is possibility that there is only small market demand even none. 2. Company products are shipped to large and small retail outlets in a six-state area; we need to further information to investigate if Apollo has diversified his marketing strategy (targeted customers) 3. On September 15, 2010, the Company agreed to settlement totaled $11,695,000 (4.86% of net sales; 267.56% of net income) of a law suit for patent infringement for the Company’s use of the Siren. 4. The management believed that 2% increasing in sales in year 2010 compared to year 2009 is due to the introduction of new products and 8% decreasing in gross profit in year 2010 compared year 2009 is due to the suppliers for raw materials. Generally speaking, the new product often comes along with higher profit margin. There are possibilities that the Company is losing customers or the Company is not developing new products for the needs of the market. | Yr 2010 | Yr 2009 | % | Gross Sales | 245,075 | 237,199 | 0.03 | Sales Return & Allowance | 4,500 | 900 | 4.00 | Net Sales | 240,575 | 236,299 | 0.02 | 5. The Company’s principal source of operating funds has been from the proceeds from short-term borrowing against a $50 million line of credit which is on annual renew basis. The Company would have the ongoing concern if it cannot be qualified......

Words: 516 - Pages: 3

Free Essay

Business Risk

...A risky business Dodie: We are all here now. As you know that Zelal Sulen is our new boss now. After she took up the official post, she found that Hi-Style is out of touch with its target consumers and is losing direction. As the member of manager consultants, for this point, today we need to think out at least two options to advise her to improve the situation. Am I understood? And think a while... Okay, let's make a start. Who want to speak first? Lily: Well, in my opinion, Hi-Style could allocate £10m to new investment in the business. For example, it could improve distribution and sales through an exclusive agreement with a major retailer, which could provide a steady marketing channel. Second, to launch new product ranges with major advertising campaigns. Thus, new products will be known to customers. Hi-Style could definitely reach wide publicity. Thirdly, to employ brand development consultants so as to improve its image. Brand development consultants are more professional so that better brand image will be built, leading to its properous future. Fourthly, to hire a top retailing executive to run the business. Therefore, the business will be more smooth and sales will be increased. The last one is to commission City Associates to do a thorough review of all Hi-Style's activities, from which Hi-Style could catch a better understanding of the whole business to control its operation. Dodie: Good.Thanks. Lily. And what's your opinion, Serena? Serena: Well, I prefer......

Words: 1463 - Pages: 6

Premium Essay

Risk Based Auditing

...135734 Difference Between Traditional and Risk Based Auditing Danny Spadaccini, Weatherford International Copyright 2010, Society of Petroleum Engineers This paper was prepared for presentation at the SPE Annual Technical Conference and Exhibition held in Florence, Italy, 19–22 September 2010. This paper was selected for presentation by an SPE program committee following review of information contained in an abstract submitted by the author(s). Contents of the paper have not been reviewed by the Society of Petroleum Engineers and are subject to correction by the author(s). The material does not necessarily reflect any position of the Society of Petroleum Engineers, its officers, or members. Electronic reproduction, distribution, or storage of any part of this paper without the written consent of the Society of Petroleum Engineers is prohibited. Permission to reproduce in print is restricted to an abstract of not more than 300 words; illustrations may not be copied. The abstract must contain conspicuous acknowledgment of SPE copyright. Abstract Auditors are trained to make detailed examinations of the internal control systems such as ISO 9001, ISO 29001, ISO 14001, OSHAS 18001, API, accounting systems and various legislative requirements and; focus their audit planning, testing, and reporting on internal controls in the business process. The Evaluation of controls without first examining the purpose of the business process and its risks provides no context for the......

Words: 581 - Pages: 3

Free Essay

Business Risk

... | | Page no. | Project Brief | 1 | SECTION 1: IDENTIFICATION AND CLASSIFICATION OF RISKS | 3 | 1.11.1.11.1.21.1.31.1.41.1.51.1.61.21.2.11.2.21.2.31.2.41.2.51.2.61.31.3.11.3.21.3.31.3.41.3.51.41.4.11.4.21.4.31.4.41.4.51.51.5.11.5.21.5.31.5.41.5.51.61.6.11.6.21.71.7.11.7.21.81.8.11.8.21.8.31.8.41.91.9.11.9.21.9.31.9.4 | Political, Legal and Regulatory RiskExclusive rights granted by the government of PrussiaImport bansChange in legal requirementsChange in political situation between Azerland and PrussiaChange in CapitalChange in RegulationsBusiness risk and Operational RiskReduced demand for ticket salesIncreased ticket pricesDelays or cancellations due to technical faultsTotal disregard to airline safetyFlight crew stress and fatigueNegligence of airline to check policy proceduresEnvironmental RiskAccessibility increases tourismGenerous CargoBusiness and infrastructure development in AzerlandNoise and Air PollutionAirport ExpansionReputation Risks * Lack of Public Confidence in Airline Operator – Through Technology Risks * Lack of Public Confidence in Airline Operator – Through Human RisksNegligence of Airline Technical Staff * Unreliable Journey Times * Airport Security and Terrorism * International Risks * Rights Granted by Government of Prussia Revoked * Termination of Lease Agreement of International Airline * Contract with Mosco, Prussia Based Catering Company * Outbreak of War – Force Majeure * Change of LegislationTechnology RiskComputer......

Words: 10067 - Pages: 41

Premium Essay

Auditing Publicily Trading Company

...Auditing a Publicly Traded Company Darren Bruneck, Andrew Green, Shalatikka Smith ACC/541 October 20, 2014 Christine Errico MEMORANDUM TO: Christine Errico, Manager FROM: Darren Bruneck, Andrew Green, Shalatikka Smith DATE: October 20, 2014 SUBJECT: Auditing a Publicly Traded Company The goal of any publicly traded company is to make a profit. Many factors come contribute to the equation to achieve this goal. The most important factor is compliance with the Accounting governing bodies, such as GAAP (Generally Accepted Accounting Principles). As an accounting firm it is essential to review your financial statements for consistency regarding the accounting treatment of share-based payment and accounting consolidation theory as it relates to special purpose entities and consolidations. Non Compensatory stock options are options that are not meant to compensate employees, but rather to raise capital or increase employee ownership in the company. If the option is non-compensatory then the company would treat them like any other stock sale. These types of options do not generate an expense for the company, so in this respect there is no affect to net income. Non-compensatory options must meet certain qualifications such as time in service, being a full time employee, and the same option must be available to all eligible employees. These types of options also have to be exercised in a specific period. Compensatory stock options are considered......

Words: 1070 - Pages: 5

Free Essay

Risk-Based Auditing, Strategic Prompts, and Auditor Sensitivity to the Strategic Risk of Fraud

...Risk-Based Auditing, Strategic Prompts, and Auditor Sensitivity to the Strategic Risk of Fraud ACC650M Auditing Principles January 30th, 2015 a. What is the issue being addressed in the paper? This paper are focus on the risk-based auditing. As the paper mentioned that Risk-based auditing is a way to guide auditor to devote more audit resources to account that may take more misstated. On the contrary, fewer resources to those are focused on the less misstated. Kendall Bowlin expect to guide effective and efficient audits. In the other words, the inaccurate assess misstatement risk may result in misallocated of audit resources and undetected misstatement. In additional, Kendall Bowlin seemingly consider that the low risk accounts may also caused high risk of fraud, because of managers and auditors (business operating and audit strategy) allocated audit resources to high risk accounts. That means if the audit resource concentrate on high risk accounts, it may create opportunities for intention people to manipulation low risk accounts. The study’s purpose is to demonstrate the potential threat with risk-based auditing that lead auditors allocate resources among accounting with different of non-strategic risk and account specific misstatement risk, and use prompting strategic for auditors to reduces this threat. There are two important ways of prompting auditors in the paper. The first one is auditors allocate limited pools of resources among client accounts......

Words: 934 - Pages: 4

Premium Essay

Business Risk

...of risk and uncertainty on business growth and sustainability in Nigeria. Introduction Business Risks Facing Small and Medium Enterprises (SMEs) and large firms operate in the same business environment but there are evidences that they derive different benefits and opportunities therein. More so, they are exposed to diverse categories of risks. This is because of their differences in economic capacity including asses to human capital and material resources. Kelkar (2008) posits that SMEs are weak in terms of business plan, management structure and in decision making when compared to large organizations. This further increases SMEs’ inability to absorb most business uncertainties and risks. According to Suh (2010) SMEs sector is worst affected by the economic environment and is the first to be hit by any external shock. As a result, there are more SMEs closures than establishments, with approximately only 1% of SMEs growing from having five or less employees to ten or more (Mead and Liedholin 1998; cited in Smith and Watkins, 2012). The implication is that SMEs face a wider range of business risks which are rooted in both the internal and external environment of the enterprises (AIRMIC, ALARM and IRM, 2002). There are various ways of categorizing risks faced by business organizations (SMEs inclusive). Business risks are commonly categorized into four major types. This categorization is developed with the emergence of Enterprise Risk Management (ERM). Impact of Business......

Words: 1544 - Pages: 7

Premium Essay

Auditing a Publicly Traded Company

...Auditing a Publicly Traded Company ACC/541 June 8, 2015 MEMO TO: Manager FROM: DATE: SUBJECT: Auditing a Publicly Traded Company ________________________________________________________________________ An objective of any publicly traded corporation is to make a return. There are many influences, which can be contributed in completing this goal. The most significant factor is compliance with the accounting governing bodies, such as GAAP (Generally Accepted Accounting Principles). As an accounting firm, it is vital to examine your financial statements on a constant basis. You will need to look for the accounting handling of share-based payment and accounting consolidation theory, as it pertains to special purpose entities and consolidations (Schroeder, Clark, & Cathey, 2011). Share-Based Payments are another way for a publicly held company to offer compensation to his or her employees or other parties, without using the company’s assets. These compensation awards are usually a set number of stocks within the organization. There was already a system in place to account for these transactions, but a revision to the Statement No. 123 was made in 2004. This statement was geared toward Share-Based Payments and was released December 16, 2004, with the original Statement being published in 1995. This revision was created to provide more accurate financial information to users of publicly traded entities, such as our client. Costs incurred by share-based......

Words: 772 - Pages: 4

Premium Essay

Risk Based Auditing

...Risk based internal auditing Background Over the last few years, the need to manage risks has become recognised as an essential part of good corporate governance practice. This has put organisations under increasing pressure to identify all the business risks they face and to explain how they manage them. In fact, the activities involved in managing risks have been recognised as playing a central and essential role in maintaining a sound system of internal control. While the responsibility for identifying and managing risks belongs to management, one of the key roles of internal audit is to provide assurance that those risks have been properly managed. We believe that a professional internal audit activity can best achieve its mission as a cornerstone of governance by positioning its work in the context of the organisation's own risk management framework. ________________________________________ What is risk based auditing? Our definition IIA defines risk based internal auditing (RBIA) as a methodology that links internal auditing to an organisation's overall risk management framework. RBIA allows internal audit to provide assurance to the board that risk management processes are managing risks effectively, in relation to the risk appetite. Is the organisation ready? Every organisation is different, with a different attitude to risk, different structure, different processes and different language. Experienced internal auditors need to adapt these ideas to the......

Words: 720 - Pages: 3

Premium Essay

Company Risk Prevention Plan

...Company Risk Prevention Plan Name Institutional Affiliation Introduction The overall thriving and success of a firm is partly reliant on its ability to forecast potential legal implications which may strangle its progress. The best shortcut of such disruption often results from potential crevices where malicious individuals, the state or other firms take advantage of and turn the knob to their advantage when least expected. The overall process of probing, analyzing and assessing risks coupled with coming up with practical tacts owing to effectively combat risks is referred to as risk management analysis. This risk management plan is vital in cutting down implications which accrue from such predicaments and aiding in quick business recover in case such predicaments occur. Part of some those potential risks include the production of counterfeit fraud products by other masquerading companies which could be imitating Advanced Technology products. In addition, Advanced Technology employees may face fatal mechanical injuries. As a result, citizens who often might have utilised the fraud products or those who may have faced injuries within the proximities of the firm may head to court to seek compensation for the harms or effects accrued. In such a predicament, Advanced Technology has the mandate to use the rules of law to cut down or eliminate such litigation risks. Part of the risk management involves having firm insurance agencies which can readily compensate parties...

Words: 261 - Pages: 2

Premium Essay

Auditing Risk

...Topic 15: Auditors Liability Auditing, EC – July-Dec 2007 Legal liabilities of auditors Auditors are supposed to perform their work in an honest and careful manner since they can be held liable for negligence in the following ways: a) They don’t carry out their work as required by the ISA b) They fail in the duty of protecting the interest of the various users of the financial statements i.e. any person who relies on his work. c) They don’t carry out their work with due care and skill i.e. what an ordinary skilled man or woman would do in that circumstance. N.B. The auditor’s liability falls under three categories: i) To their clients (company itself) ii) To third parties in case of negligence iii) Civil and criminal liabilities CIVIL LIABILITY UNDER THE STATUTE All auditors can be sued in a civil court when they have breached their position of trust e.g. if an auditor uses information acquired during the course of the audit to make financial gain , then in such a case he or she can be sued for breaching his position of trust and confidentiality. CRIMINAL LIABILITY UNDER THE STATUTE Section 46 of the Companies Act provide that an auditor shall be criminally liable if he willingly makes a material false statement in any report, certification or in the financial statement with the intention to deceive and mislead. Examples of criminal liabilities include: i) The auditor accepts appointment when he is ineligible to do so or continue in office after ...

Words: 1034 - Pages: 5

Premium Essay

Business Risk

...Responsibility (CSR) that can affect the company to make decision how to accomplish the CSR. We will discuss three issues of International Corporate Social Responsibility which are: 2.1) Type of International Corporate Social Responsible. 2.2) Advantages and Disadvantages of International Corporate Social Responsible. 2.3) Barrier of doing International Corporate Social Responsible. 2.1) Company must decide which type of International Corporate Social Responsible they must select rightly if not it can affect the company. There are three type of International Corporate Social Responsibility. 2.1.1) First is environmental responsibility. Environmental responsibility is organizations starting to focus on their waste and carbon footprint and find solution to reduce it. Besides that, companies must look for new ways that their operations can be more productive for the environment, by having a minimal impact. 2.2.2) Next is philanthropic responsibility. Philanthropic responsibility is like the organization gives money to donating to national and local charities. Usually, the organizations will have specific charities that they support, and these may be linked to business. 2.2.3) Besides that is ethical responsibility. It can be done by the organization meet their profitable which organization willing to pay higher wages, offering employees better benefits, avoiding trade with unscrupulous companies or providing jobs to......

Words: 2074 - Pages: 9

Free Essay

Auditing an Insurance Company

...I. Overview of the Insurance industry Insurance companies play a major role in today’s financial industries. While the banking industry is creating assets and wealth, the insurance industry is protecting that wealth. The primary business purpose of an insurance company is to spread risk among people or entities that are exposed to similar risks. The insurance industry thrives in marketing uncertainties, selling promises, and making more money by cycling their revenues back into the nation’s building process. Insurance companies are global by design massive in numbers. The insurance industry, like many other industries, have changed dramatically over the years and is constantly being reshaped by factors such as changing interest rates, tightening legislation, growing competition, and even medical advancements. However, the major difference between the insurance industry and all other industries is that the insurance industry accumulates cash first and pay claims costs in the future. In fact, the insurance company does not even know if a claim will occur, when a claim will occur, and how much the claim will cost. II. Insurance Industry Structure Basic Classifications There are three main types of insurance companies: life, property and liability, and title insurance companies. Companies are further divided into primary policy writing and reinsurance. Primary writing is when insurance companies issue new insurance policies and maintain those policies throughout the policy......

Words: 3248 - Pages: 13

Premium Essay

Business Company

...[pic] EB 2006 Business Report 1. Introduction Coraline Cosmetics, one of the world’s largest direct sellers in global cosmetics, fragrances and toiletries industry, has enjoyed this reputation since mid-1980s. However, with the rapid development in this industry, the way of consumer behavior and the consumer’s preference have changed dramatically, which leads to the fact that fewer women bought products sold door-to door and few teenagers and young women wanted to buy our products. What naturally comes is that only modest revenue and earnings growth have been achieved in a ten year’s time with annual sales growth of less that 1.5%. Now the company is in a very crucial point to make some big strategic changes. 2. Discussion 2.1 Branding Strategy A basic decision in marketing products is branding, in which an organization uses a name, phrase, design, symbol, or combination of these to identify its products and distinguish them from those of other companies. In order to maintain the brand loyalty and win more consumers, a new brand strategy has to be carried out. We have to develop positive brand awareness and an association of the brand in consumer’s mind with a product class. Besides, we must inject new brand meaning in the minds of consumers, a functional dimension as well as a imagery-related dimension. As to the brand Coraline Cosmetics established over the past years, generally, it’s a brand with so many years and it won the......

Words: 1321 - Pages: 6