Case Analysis One Tel

Question: Discuss about theCase Analysisfor One Tel. Answer: Introduction: The important job of an auditor is to assess the risk for his clients when working with them, one of the major types of risk is inherent risk; the risk of material misstatement in the financial record or statements occurs if there is no control. The risk management if anyone can see logically then he will understand that this job of board members. In many organisations the risk committee is formed to evaluate the risk and assessment under the supervision of Board Members. It is considered very high where the transaction of entity is complex and the due to that the judgement and estimation. This risk primarily evaluates or assess by the auditor. Flawless financial records are very rare thats why the auditors are there to find out the errors as well as the risks, especially when internal control is not in place the inherent risk probability of existence becomes very high in those kinds of situations(Quora, 2013). To understand the strategic risk knowledge of ERM or enterprise risk management is important. It is basically performed by the board and management. It is a process of setting the strategy to identify and design potential risk may affect the company or companys financial records. The strategic risk is those internal and external factors which prevent to achieve the companys strategic goals. In recent year there are economic turbulence in world economy, the company has the inherit risk of having the payment of interest. There are compliance threats also, Compliance threats are mostly related to legislation and legal threats to existence, changes in the regulations may be threats. Operational threats are a related to the investors or operators. Apart from that there are some financial threats these may cause from market fluctuations, hike in interest rate, inflation etc. One Tel was expecting a major boom in the market as the handset users increasing with respect of land phone users, b ut market has become saturated as the big players are already there in the market. One Tel has to face the hard competition from other big players. Main challenge in this market is keeping the quality in international standard products have to delivered at low cost(Nocco Stulz, 2006). Discussion: The process of assessing the inherent is very subjective than other sections of audit. Inherent risk is mainly an event, happens in the financial statements for the absence or maintenance of internal control. The One Tel company had make a loss of $282.1 million and again when company is planning to move to a new market, it would require further investment and the return on investment will be lower in the first 3 years, which carries an inherent risk. Initially the One Tel has to lease the other companys network which incurs a recurring cost. High inherent risk means in the financial records or statements are correct or fraud has happened by the way of omission or negligence of material fact. There are Some Key Factors Which can Lead to High Inherent Risk: Environment external factors: there is a list of external and environmental factor that can increase the Inherent risk. Expiring Patents: pharmaceutical companies often face the patent expire risk. Drug patents expire. That means company will face the sales and marketing problem of making the same generic medicine. Rapid change: if inventory of a company becomes obsolete fast then the company may experience high inherent risk. State of economy: economic growth in general level also carries high inherent risk. Availability of financing: It is another external factor, if the client has the problem of meeting cash payment, loans availability in low rate of interest may mean the gap between staying in business or shut down. Fraud: this is one of the major or common factors for high inherent risk. The maintenance of the records and statements are done by the human, there may be a chance that theft can happen. As an example, if any company deals with cash there is a chance of balance sheet cash balance is under inherent risk. It is a most simple example of lack of control in internal operations. There should be regular check- ups of the financial statements can reduce the risk. Another factor for high inherent risk is if prior period misstatements lie in the financial records. This may happen if periodic audits and check- ups of the financial records not done meticulously(Investopedia, 2015). Factors are Mostly Responsible for Strategic Risks: External Factors: The market change can be a major external factor for strategic risk. Management may decide one strategy but due to some market change again the new strategy has to launch by the management. Competition may be another risk, if competitor change the strategy that may led to a high strategy risk. Vendor performance is an external factor that is also responsible for strategic risk. Some financial factors like unknown expenditure, cash flow, and cost pressure are there for increasing the risk. Human resource factors: Fraud Employee or theft can be a factor of strategy risk, also the knowledge, know- how and the staffing can be a factor for strategic risk(Ranong Phuenngam, 2009). Conclusion: As we have found that the inherent risk always is a threats to the company as it is mostly happens due to certain factors, external as well as internal. This kind of risk exists in the financial record and a statement due the misstatements happens due to the lack of control in place. And when it is identified then the common practice is to manipulate the financial record or statements. So for this reason external auditors roles comes. It can only be minimised by the regular audit and taking the needful steps on the basis of audit reports. The strategic risk and the inherent risk both are threats to the company and those can be overcome through regular audit. To some extent strategic risk can be overcome through proper planning and back up plans. Because there are certain things which are beyond control like competitor strategy, market change then govt. policy or legislation changes etc. as One Tel entering a new market that will create a chain of operation with new customers and new operators. There will be many new challenges have to face like competition, the rate new taste and requirements of the customers, buying new equipment and infrastructures and new technology. Proper deployment of the resources is a real challenge. Task 2: Inherent Risk Factors: Inherent risk is the presence of misstatements due to the fraud, ignorance, or lack of internal control in place. This is the job of an auditor to find out the probable risk from the financial records or statements. It also happens if the transaction is complex so to mitigate this company has to take some steps which can simplify the transactions. Inherent risks increase the probability of error misstatements. The main factors are due to errors and omission, it is an audit risk. The financial sector is highly under the inherent risk because the lots of cash transaction done. Sometimes the strategic decision is also responsible for inherent risk. Apart from that rapid change in markets and the completions increase the inherent risks. State of the economy, economic growth or de growth can be a factor for inherent risk. Inflation is also to some extent increase the inherent risk. Availability of loans in low rate of interest may disturb the financial records as a result the risk may increase. For the pharmacy companies if the patents expires the companies may go through some marketing and competition problem. This will enhance the inherent risk in the balance level. The case of One Tel, we have seen it is already under cash crunch from the loss in the year 2000. This financial crisis will not allow entering a new market where there are lots of big player fighting. Entering a new market means lots of investment, new expense in licensing etc. As One Tel is penetrating a new market that means lots of infrastructural cost is involved new network has to be established, new office, hiring a new people as well as big promotional cost is involved(Auasb, 2009). There is a huge fund needed to fulfil the basic necessity as well as the up gradation of technology, new loans will create an impact on the profitability as the interest payment has to done from cash inflow. The regulations and the legislation are major hick ups for the MA. Significant inherent risk is to build the network and coverage. These are the prime challenges every telecom company has to face specially when entering a new market. The long term target of the company sometimes increases the competition which led to the inherent risk(Gary S. Monroe, 2008). The One Tel floated fresh public shares to collect fund from the market that would become an extra burden on the repay and pay the revenue and dividends from the margins. Task 3: Going concern is the assumption on factors that that a company will retain in the business in the coming future. Auditors evaluate the going concerns on the basis of entitys ability for every company the analyses of risk factors are essential, the evaluation and the strategy making are also a challenging job for the board and the management of every entity. What we have found from the cash flow, balance sheet as well as other financial records that the risk of One Tel is medium. One Tel is a big telecom company in Australia, founded in 1995 by Jodi Rich and Brad Keeling. The motto was to sell the mobile phones to the youth through one.net. And gradually it has come in Australias top five telephone company. The going concern based on multiple parameters(Monem, 2011). When a new company penetrating a new area or market for business, the research and planning starts from very early days. Lot of efforts as well as lots of funds are required to get the confidence of the market. Quality as well as the quantity is required and for that lots of cash flow is also needed so the risk of paying the interest is there. The investors should have the confidence not only the company also the management, expertise, previous financial records etc. There are few external factors are also responsible like global economy, in a very fluctuating economic condition the expansion would not be a very good idea. If it is done then the management or the board will carry a huge risk. Even the internal or nations economic conditions have to be taken under consideration. In a volatile condition this will harm the profitability of the company. In such conditions govt. may change the legislations, laws or the taxation policy. Planning is important the investors will check the feasibility of long term, mid - term and the short term planning. At least the short term and the mid- term planning should be more concrete. Planning means forecasting its makes a bridge between where we are and where we want to be. The budget and this forecasting are very important. The One Tel when planning to enter a new market where the trend of using the landline is going down and the mobile handset selling and consumption is going high. The budget should be based on lower revenue at least for first few years as the market competition is also very high(Colvin, 2007). Loan defaults, if, of the company has to bring under consideration. It is difficult to get the loans of investment if the company is a defaulter. Though the going concern concept is not coming under the accounting principles but the GAAS has instructed the auditors to take this under their considerations. References: Auasb. (2009, October). Auditing Standard ASA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with AustralianAuditing Standards . Retrieved September 22, 2016, from auasb: https://www.auasb.gov.au/admin/file/content102/c3/asa_200_27-10-09.pdf Colvin, M. (2007, April 03). Packer investment analyst questioned over One.Tel. Retrieved September 22, 2016, from Abc: https://www.abc.net.au/pm/content/2007/s1889031.htm Gary S. Monroe. (2008, December 31). The Importance Of Inherent Risk Factors: Auditors Perceptions. Retrieved September 22, 2016, from wiley: https://onlinelibrary.wiley.com/doi/10.1111/j.1835-2561.1993.tb00370.x/abstract;jsessionid=EA77CC8850D589C84CE3CDEAC568D650.f02t02?userIsAuthenticated=falsedeniedAccessCustomisedMessage= Investopedia. (2015, April 16). What are some examples of inherent risk? Retrieved September 22, 2016, from investopedia: https://www.investopedia.com/ask/answers/041615/what-are-some-examples-inherent-risk.asp Monem, R. (2011). The One-Tel Collapse: Lessons for Corporate Governance . Retrieved September 22, 2016, from griffith: https://www98.griffith.edu.au/dspace/bitstream/handle/10072/42673/74746_1.pdf?sequence=1 Nocco, B. W., Stulz, R. M. (2006). Enterprise Risk Management: Theory and Practice. Retrieved September 22, 2016, from https://fisher.osu.edu/supplements/10/10402/enterprise-risk-mgt.pdf Quora. (2013, May 10). Financial Risk. Retrieved September 22, 2016, from quora: https://www.quora.com/Is-risk-relative-or-absolute-Does-inherent-risk-exist-Does-risk-always-depend-on-the-specific-situation Ranong, P. N., Phuenngam, W. (2009, May 11). Critical Success Factors for effective risk management procedures in financial industries . Retrieved September 22, 2016, from diva-portal: https://www.diva-portal.org/smash/get/diva2:233985/fulltext01