1. Case 1: Case of Ready ltd.

1.1 Change in the Audit Scope

The changes made by Ready limited are likely to affect the audit plan of the corporation. Thus, the auditor of the firm has to incorporate the changes in the audit plan to effectively accommodate the changes in the financial scenarios of the firm. Thus, the auditor will have to formulate a strategic audit plan to ensure transparency and effective risk management in the system.

With the increases in the provision for warranty, the organization has evaluated its risk and increased its risk tolerance. The increase in the provision is a clear indication of the effective accounting of the risk tolerance for the organization. Thus the auditor should be able effectively evaluate the risk tolerance of the organization and ensure that the organizational goals and objectives are effectively achieved. The corporation is experiencing operating losses and a subsequent increase in the liabilities of the firm. The record of certain financial statements is also missing the audit team would also have to take that in consideration. Thus, the auditor would have to make changes in the financial statements reporting. Rigorous quantitative techniques would have to be applied to ensure that there are no transaction errors an effective tracking system has to be in place to account for the missing transactions. With the increase in the employee’s bill payables the audit should evaluate employee performance and the contribution of the employee to the system to be able to effectively manage the risk of high bills payables to the employees of the corporation.  With the introduction of the new product line under consideration a project viability plan and the effective risks associated with the project would have to be evaluated by the auditor.

(PWC – 2008, accessed on 24/5/2012)

1.2 Risk Assessment

1.2.1 Financial Risk

the proposed launch of the of the new product line poses a high degree of financial risk for the corporation as firstly that it is a completely new venture for the organization and secondly that the organization is already facing the strain of the operational losses. An investment into a new project poses high financial risk and could strain the cash flows of the firm further. Thus before undertaking the project a risk tolerance assessment and evaluation of the financial feasibility of the project is highly important. Thus the auditor should be able effectively evaluate the risk tolerance of the organization and ensure that the organizational goals and objectives are effectively achieved The market risks associated with the product launch should also be effectively evaluated , considering interest rate risk, exchange rate risk as well as the competitors in the market. The results obtained through the risk assessment process should be effectively employed by the corporation to achieve profitability and ensure the attainment of the long run goals of the organization. (PWC 2008 and www.ican-ngr.org – accessed on 24/5/2012)

1.2.1 Control Risk

The blackout and the missing transactions report the presence of a control risk element therefore the auditor would have to develop a tracking system to track the transactions and ensure appropriate financial reporting. Also slow processing of payments has also been reported to speed up the proceedings and effective new system should be evaluated to ensure efficiency, the efficiency introduced would also help in employee motivation. The auditor should be able to ensure the appropriate financial reporting and the adoption of the required accounting standards to ensure transparency, and thus avoid financial misreporting.

2. Case 2: Case of High Spirits ltd.

2.1 Risk Assessment

2.1.1 Changes in the Rent

The changes in the structure of the rent may pose a high degree of financial risk to the corporation. The changes in cost of land usage account for a 50% increase in the rent being paid for the land. This increases the costs of the organization already facing stiff competition in the industry. The changes in the rental structure also account for the changes in the financial statement reporting thus, the appropriate accounting standards would have to be adopted to ensure complete financial reporting.

2.2.1 Competition

HS faces a stiff competition in the industry, for this purpose it has introduced a new product line in the market. Thus the market risks associated with the product launch should also be effectively evaluated, considering interest rate risk, exchange rate risk as well as the competitors in the market. The results obtained through the risk assessment process should be effectively employed by the corporation to achieve profitability and ensure the attainment of the long run goals of the organization. (PWC 2008 and www.ican-ngr.org – accessed on 24/5/2012)

2.1.3Credit Risk Assessment

The changes in the terms of credit and the reduction of the credit period from 30 to 14 days pose a threat to the operations of the firm. The firm is posed to a high degree of operational risk as it may not be able to effectively meet the requirements of the suppliers on time. Moreover it also strains the operational cash flows of the organization a reduction in the payable period implies that the firm would also have to ensure a greater efficiency in the receivable days to balance the effect. The management of the cash plays an important role in the firm and is also critical to the success of the firm. It is the key to effective liquidity management of the firm (Uyar, 2009).

2.1.4 Legal Risk Assessment

The legal case imposed by the corporation on the supermarket chain poses a long term threat to the business relations with the supermarket giants. Thus, the legitimacy of the claim just also be justified. The organization would also have to incur costs in fighting the legal cases against the supermarket giants this may cost the firm time as well as financial resources.

2.1.5 Changes in the Supply Chain

To overcome the competition and to increase the profitability of the firm the corporation has made effective changes in the supply chain. The firm offers free home delivery as well as 13 dozen packages to counter the competition. These activities have resulted in the changes in the supply chain management of the business. The business would now have to ensure timely delivery of products to the customers as well establish a new system which takes into account the home deliveries, The organization would have to consider the adoption of techniques like the JIT to maximise efficiency.  The inputs and the logistics associated with the business have to be effectively evaluated. The effective management of the supply chain risk would enable the organization to achieve its long term goals and objectives.

(PWC- 2008, www.accounting4management.com – accessed on 24/5/2012)

2.2 Financial Misstatement

The financial risks analysed above may be misreported in the financial statements, thereby not ensuring compliance with the accounting standards leading to further legal trouble for the corporation. Firstly the appropriate standard for the change of land use may not be considered thus leading to misreporting of the financial statements. The changes in the credit cycle and the payable days has to accounted effectively in the financial statements of the corporation as otherwise it may not produce correct balance sheet picture to the investors and the stakeholders of the business. The correct inventory evaluation of the 20% idle stock is essential, the firm needs to account it as inventory or adopt an appropriate accounting standard to record the dead stock.

(www.ican-ngr.org – accessed on 24/5/2012)

3. References

• Just-in-Time (JIT) Manufacturing-Inventory Control System-Definition|Benefits/Advantages|Articles|Example|Disadvantages|Concept.” Managerial Accounting – Free Cost and Management Accounting Articles. N.p., n.d. Web. 24 May 2012. <http://www.accounting4management.com/just_in_time.htm>.
• Price Waterhouse, Coopers. “A practical guide to risk assessment*.” PWC 1.1 (2008): 1-40. Print.
• “the risks associated with identifying the inputs and logistics needed to support the.” www.ican-ngr.org. N.p., n.d. Web. 24 May 2012. http://www.ican-ngr.org/documents/aaa.pdf
• Uyar, Ali . “The Relationship of Cash Conversion Cycle with Firm Size and Profitability: An Empirical Investigation in Turkey.” EuroJournals publishing 2887.4 (2009): 1-8. Print.

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