Business Risk, Controls for Inventory Management, Risk Affecting Firm at Financial Level Reporting - Case Study Example

Table of Contents Business Risk for Cheaper Eats 2 Reasons for Misstatement in the books 2 Key Control Activities in Inventory Management 3 Weakness in the Inventory Control System 4 Key Controls for inventory management in ShopPharm 5 Process to check the control 7 Business Risk for HIH Insurance Limited 8 Inherent risk affecting HIH at financial level reporting 9 References 11 Business Risk for Cheaper Eats Cheaper Eats which provides budgeted products in Australia has to deal with increased risk as Zen which is a Chinese company is looking towards supplying direct products in the market of Australia. This will lead towards the following business risk Increase in the competition level as Zen will look towards supplying the products directly which will result in the intermediary which is Cheaper Eats at the moment face an uphill task. This is primarily due to the fact that Zen will look towards selling the products directly which will transfer into increased competition and will make it difficult for Cheaper Eats so deal with the degree of competition as Cheaper Eats look towards sourcing the products from Zen (Gaffikin, 2005). This will thereby increase the level of competition as similar products will be offered at lower rates. It will result in reducing the importance of the product that Cheaper Eats looks to supply as Zen will look towards supplying the same products. This will lead towards dilution of the image of Cheaper Eats and will also increase the level of competition as similar products will lead towards people substituting it for other products. Cheaper Eats will thereby have to deal with the issue of dilution of the brand image Reasons for Misstatement in the books The different business risk could transform into material misstatement in the books of Cheaper Eats because of the following reasons Cheaper Eats will look towards ensuring that their share prices don’t get affected which will lead towards wrong projections. This will also transform into a situation where the company looks towards ensuring that the company is able to highlight profits but it might not be the situation and will result in material misstatement in the books of accounts Cheaper Eats will further look towards highlighting the fact that the products are produced by themselves or purchased from some other source so that they are able to differentiate their quality (Hanson, 2005). This will lead towards material misstatement as they will look towards providing a different source from where the materials have been procured. Cheaper Eats further will look towards highlighting that the company products are superior and of fine quality which might not be true as the company will look towards this strategy to differentiate their products or services. This will thereby result in material misstatement in the books of accounts Key Control Activities in Inventory Management The internal control system which Hawk Pty Ltd looks towards following a proper procedures and each and every document which is provided or entered is verified and checked. The documents are also signed by the concerned authority which will help to fix responsibility and if any mistakes occur the concerned person can be held responsible. The control system which looks towards managing the inventory has been developed where it passes through different departments and checks which will help to ensure that the audit function is able to gauge the authenticity and validity of the relevant information that have been inserted. This will facilitate the process of audit in the process of internal control system as the auditor will be able to evaluate the validity and authenticity of the document. This will help to bring the required transformation through which better efficiency is achieved and a process is developed which will help to ensure that all the details which have been provided is correct. In addition to it the auditor will also be able to ensure that each department enters the relevant information which can act as a process of verifying the documents and cross checking all the relevant information (Henderson & Gaffikin, 2012). This will ensure that the chances of errors get marginalized and the audit department is able to carry out its functions in the most effective manner. The process of internal control system to manage the inventory will also reduce the chances of errors and will help the audit function to be able to identify the manner in which the stock movements take place. This will help to gauge the accuracy of the inventory and will provide the required direction through which the auditor is able to verify the actual inventory and determine the best possible option through which it has been managed and effectively managed within the organization. Weakness in the Inventory Control System The inventory control system which is presently used by Hawk Pty Ltd highlights a weakness which has to be effectively dealt with so that better inventory management system can be developed. The major hurdle which Hawk Pty Ltd is witnessing is that the business looks towards enter the sales 6 months after it has been made making the revenue to be treated as deferred revenue. This is done after the inventory which hasn’t been sold is returned and the process takes around 6 months. These results in the entire transaction to be complete only after the period of 6 months and might result in presenting a wrong stature of inventory. This process will result in showing higher inventory for a period of 6 months than they actually have. It will thereby make it difficult for the auditor to match the physical stock with the inventories that has been shown in the books. This could lead towards a situation where the people manipulates inventory as it will come to the notice of the management only after a period of 6 months and within those period it will result in creating misuse of inventories. This will thereby create doubt on the entire system and requires that a process is developed through which inventory is better managed and the business is able to develop an inventory management system which is free from the above stated weakness so that better inventory system and ordering process can be developed. Key Controls for inventory management in ShopPharm The internal control system which ShopPharm looks towards following a proper procedures and each and every document which is provided or entered is verified and checked. The documents are also signed by the concerned authority which will help to fix responsibility and if any mistakes occur the concerned person can be held responsible. The control system which looks towards managing the inventory has been developed where it passes through different departments and checks which will help to ensure that the audit function is able to gauge the authenticity and validity of the relevant information that have been inserted. This helps to identify the following three key controls which will be helpful for the auditor ShopPharm looks towards an order which is automatically generated when the product which has to be ordered falls under a specific limit. This will ensure that the different pharmist are over stocked and will reduce the pressure to a large extent regarding the return of products as most products which will be ordered will be the ones which are below the specific quantity. ShopPharm looks towards an order which is automatically generated when the product which has to be ordered falls under a specific limit. While looking towards ordering the signature of the store manager has to be taken which will act as a approval and will ensure that the relevant person in charge knows about the goods which are being ordered. This will ensure that it case any thing goes against the required standard then the concerned person can be held responsible. ShopPharm looks has warehouse at different states which will ensure that each state is responsible for their particular region. The fact that the software of each pharmist can be operated and checked through the process of technology it will ensure that none of the different pharmist looks towards other suppliers apart from the specified ones. This will thereby help to facilitate the process of verifying the physical inventory with the stock inventory that the system is showing and will improve the value of the stock management process through the use of technology which will ensure no or little mistakes Process to check the control The different control system which has been identified by ShopPharmwill require development of process through which the procedure is checked and is controlled and are as ShopPharm can look towards ensuring that all the entries of sales, sales return, damage and other are entered through the concerned software. This will help to ensure that the quantity which is ordered when the product falls below the specific limit is correct and will not result in over stocking. This will require physical verification from time to time so that the process can be checked and the accuracy of the process can be gauged ShopPharm will also have to look towards conducting trails and checks to ensure that all the documents which have been signed is correct and has the required approval of the store manager. This will require that the process generates an automatic mail which is sent to the store manager and the store manager has to reply to the mail which will help to highlight that the entire process is correct and reflects the correct information. ShopPharm will have to conduct regular checks to match the physical stock with the inventory which the system highlights. This will help to gauge the efficiency of the system of inventory management and will help to find out if any wrongful activities are being undertaken. This will also help to verify the process where the store keeper looks to generate the invoices by typing the price of each product and will help to check whether the price charged is genuine or not. This process will help to improve the authenticity of the entire process and will help to find out the manner in which the inventory control system is providing the required benefit and the correctness with which t is used. Business Risk for HIH Insurance Limited HIH Insurance Limited has to encounter different risk which has made profitability and the structure within the organization to undergo changes. This had affected the manner in which the different risk were examined the manner in which it affected the overall business strategy that HIH Insurance Limited adopted. This has resulted in the following risk for HIH Insurance Limited Increase in the competition as different insurance companies look towards supplying the products with better policies and an opportunity which ensures that the customers are properly compensated while claiming the policies. This is primarily due to the fact that HIH Insurance Limited doesn’t look towards developing a mechanism which will ensure that investments which is made by the company to ensure that the people are properly compensate during the period of payment is flawed (Akdere & Ross, 2005). This will thereby increase the level of competition as similar products will be offered at lower rates. It will result in reducing the importance of the product that HIH Insurance Limited looks to supply as other insurance providers will look towards supplying the same products. This will lead towards dilution of the image of HIH Insurance Limited and will also increase the level of competition as similar products will lead towards people substituting it for other products. HIH Insurance Limited will thereby have to deal with the issue of dilution of the brand image The other business risk for HIH Insurance Limited is the manner in which different incidents which results in people claiming the insurance have increased. This will thereby make it difficult for HIH Insurance Limited as it will become difficult for HIH Insurance Limited to ensure that the insured people are properly compensated when they policies mature. This thereby results in increasing the complexities as the organization will have to increase the compensation and being able to find out the proper equivalent opportunities where the company invest will increase the level of risk for the business and will increase the level of financial burden on the company. Inherent risk affecting HIH at financial level reporting The different business risk could lead towards bringing forward issues which could have an effect on the HIH financial level reporting are as HIH Insurance Limited looked towards ensuring that their share prices don’t get affected which will lead towards wrong projections. This will also transform into a situation where the company looks towards ensuring that the company is able to highlight profits but it might not be the situation and will result in material misstatement in the books of accounts (Bonazzi & Islam, 2007). This resulted in a situation where HIH Insurance Limited would increase the inherent risk in risk assessment as it would lead towards providing wrong information which was seen in HIH Insurance Limited. HIH Insurance Limited further will look towards ensuring that they didn’t provide sufficient cover which would enable the risk to be reduced and will otherwise make the situation worse. The fact that HIH Insurance Limited didn’t provide any information related to the manner in which the company would look towards compensating the different claims which thereby resulted in creating a situation where the information were not clearly stated and the purpose through which the persons who have been insured will be compensated. This will also have an effect of the aspect of corporate governance as misleading reporting will result in creating a false image. This will go against the required standards of the company and might also result in creating a situation where the brand name gets affected. The corporate governance norms requires that the oganization acts fair and providing misleading information will be violation of it which will thereby have an impact on the long term future performance of the insurance provider. References Akdere, M. & Ross, A. 2005. Agency theory from the perspective of human resource development. International Journal of Human Resource Development & Management, 5 (3), 318-332 Bonazzi, L. & Islam, S. 2007. Agency Theory and Corporate Governance: A study of effectiveness of board in monitoring of CEO’s. Journal of Modelling in Management, 2 (1), 7-23 Gaffikin, M. 2005. Regulation as Accounting Theory. Working Papers Series, University of Wollongong Hanson, M. 2005. Lesson From Enron Scandal. Retrieved on January 23, 2013 from http://www.scu.edu/ethics/publications/ethicalperspectives/enronlessons.html Henderson, S. & Gaffikin, M. 2012. Contemporary Issues in Accounting, 1st edn, Pearson Australia Group Read More