Factors Contributing To Increased Inherent Risk Assessment At One.Tel

Strategic business risk assessment

One. Tel was being established in the year 1995 and indulged in providing several telecommunication services to people or to its customers at global level. In this report, emphasis is done on the discussion of factors which upsurge risk for the business of One.Tel. The topic which are covered in the report are- strategic business risk assessment, preliminary going concern`s assessmentin addition to assessment of inherent risk ( Young & Coleman, 2010). As it is important for the each and every business organization to assess the risk which might affect the business or processes of business. Because risks can affect the activities of business as well as overall business. Therefore, assessment of the risks which can affect the business activities enormously or at high level are important to be done. This assessment facilitate the business organizations to make further plan or policies which could help in mitigating the risk or dealing with the risk in proper manner so that business activities shall not be affected and the businesses may run in smooth manner without any difficult or challenges.

List and discuss several factors that would have contributed to an increased inherent risk assessment at the financial report level. Also, identify which of these factors may be identified during the strategic business risk assessment.

Assessment of risk is considered to be important for the business, as there are a number of possibilities or threats which can affect the business processes and through the risk assessment these threats can be assessed and then plans can be developed to overcome form the threats and to mitigate the identified risk. Inherent risk can be explicated as risk associated with misstatement of material which arise in financial statements and reasons for possibilities of this type of risk are- mistakes in recording of transactions, omission’s or errors in recording system and lack of control as well ( Deutsch, 2016). In the firm, One. Tel a number of issues has been recognized that act on behalf of aspects contribute towards the upswing in the assessment of inherent risk in the financial statements.  These factors are covered in the points stated below-

• Decline in operating profits: One of the most important concern for One. Tel is drop in the operating profits. It is assessed that increment in the number of debtor is 203%. However, increment in the company`s sales is slow.
• Inadequate managerial skills to maintain the company`s structure: through the analysis of One. Tel case study it can be concluded that managerial skills were not adequate because of this the company`s structure is influenced in contrary manner. Lack of managerial skills is another reason that led to misstatement of material(Singleton & Singleton, 2011).
• Improper process for recording financial statements: Recording of financial transactions or statements is crucial for the business. But in the case of One. Tel, liquidity is diminishing and this is a major concern point for the business and it is also revealed that the financial statements recording is not done in proper manner.
• Offering of products at lower price: One of the other reason that affected One. Tel`s profitability is due to offering of products at lower price. Products offered as low price supported in enhancement of customers but the margin of profit became low( Popov, Lyon, & Hollcroft, 2016).
• Falling operating funds: In the year 1998 cash loss was recorded in One.Tel financial statements and the loss increased in year 2000, from $28.9 Million to $168.9 Million. This information unveiled suffering of cash loss by the company from its operating activities. It also disclosed the company`s incapability to meet the product`s cost.
• Nonexistence of customer credit policy: One. Tel did not adopt any customer credit policy which resulted in increase in the receivables and this affected the liquidity, profit and sales of the company.

One.Tel`s key performance indicators:

In the course of strategic risk assessment`s process, a number of factors have been recognized that led for the upsurge in risk. As the strategy adopted by One. Tel i.e. offering products at low price facilitated in enhancement of the customers ( Young & Coleman, 2010). But this strategy did not help the company to gain profit as the price of the products were set very low that affected the margin for profit. In addition to this, the company did not adopt the policy of credit for the customers and debtors. This can be regarded as big mistake of the company as there was no proper manner to collect due amount from the customers and the debtors, this could generate loss for the company (Zopounidis, 2012). Proficient managerial skills are requisite for carrying out organization`s business processes but there was absence of managerial skills which affected structure of the business of One.Tel. As manager who possess adequate skills can carry out the activities of business in effective way. In addition to this, managerial skills can also facilitate the business as the manager with proficient skills can assess the risks which can harm business and can help the top level management to formulate strategies for handling the risk. Another factor which assessed through the strategic business risk assessment was that recording of financial transactions was not done properly. As there was several mistakes which were assessed in the financial statements.

Preliminary going concern assessment

List and discuss several inherent risk factors that would have contributed to an increased inherent risk assessment at the account balance level.

The main causes which led to raising the risk in business are the aspects of inherent risk. Assessment of these factors are necessary to be consider in order to identify the risk. Analysis associated with inherent risk could be assessed at account balance level. There are number of factors, which are linked with inherent risk and those factors comprehends nonexistence of policies for customers regarding receivable of credit amount, short operational duration, products at low prices, inadequate managerial skills, increase in cash losses due to operational activities and company`s structural inadequacy (Großmann, Felderer, & Seehu, 2017). Enhancement of the customers was achieved by One. Tel by offering low price products as well as services, but it did not led to increase the revenue for the company and hence the profit decreased. Existence of credit policies was not there in One. Tel and the company faced challenges in receiving the due credit amounts from the customers and the debtors. This situation adversely affected liquidity position of One.Tel.The adversely affecting factory for structure of the company was due to under development of managerial skills. The active barrier in developing managerial skills was the short span of operations (Miles, 2010). The inability of company in context to collection of cash on time from the debtors has led to increase in the cash losses besidesthis, losses were escalated because of the increase in debtors.

Do you believe that the area of going concern should be assessed as high, medium or low? Identify the factors that are the basis for your decision.

The analysis of number of factors suggests that the area of going concern shall be explored at high level. The decision is being taken after determining the various aspects. A number of factors have been considered for the assessment decision in context to One.Tel as the case study of the company has helped in determining or exploring the factors which states the going concern`s area shall be assessed. Assessment decision is determined through considering the One. Tel`s liquidity condition as the liquidity of One. Tel is facing downfall. The nonexistence of the company`s credit policy has also led for determine the decision as the receivables from the debtors are increasing and the company has become incapable of receiving the due amounts. Policy accepted by the company regarding the products and the services was also not supportive as the low priced products and services attracted the large number of customers but the increase in profit was not recorded as the price of the product were low in comparison to the cost of the product. This means, price were set as low as it did not covered the actual cost of the product (Bird, 2012). This situation led to increase the sales of the company but the profits did not increased. In addition to this, company`s incompetency in context to receiving its due amounts from the debtors also led it towards downfall in profits ( Iverson, 2013). Cash losses were also being experienced by the company due to its operating activities. This situation resulted as putting effect on the liquidity of the company. Another factor which led to making decision regarding the assessment was rise in intangibles of One. Tel. The company also procured the equipment and plants worth of $87.5 Million in the current financial year. These situations has disclosed the actual financial condition of One. Tel and helped in making decision that going concern should be assessed with high priority.

Assessment of inherent risk

Conclusion

The conclusion which can be concluded from the assignment is that assessment of risk is very important for the business organization to carry out the business processes smoothly without any hurdle. There are various factors which led to the inherent risk such as- products offered at lower price, absence of effective credit policy for customers, improper recoding of financial transactions or unmanaged books of accounts as well as practicing of operating activities which are improper. It is recommended to the business organizations that area of going concern must be assessed with high priority as it there are number of aspects which facilitates in making decision making. In addition to this, it is also concluded from the report that there is need for adequate managerial skills in order to perform the business processes in effective manner and to manage the risk which could affect the business of organization.  Analysis of inherent risk factors is important to be done at right time as these factors can escalate the risk in business. For that reason, it is must to analyze the risk and then steps could be taken to manage those risk. Assessment of the risk will be beneficial for the business organizations, as after assessment of the risk, business organization could develop some plan or strategy to handle the challenges arise due to the risk factors.

References

Deutsch, G. M. (2016). Risk Assessments for Financial Institutions. LexisNexis.

Iverson, D. (2013). Strategic Risk Management: A Practical Guide to Portfolio Risk Management. Wiley.

Popov, G., Lyon, B. K., & Hollcroft, B. (2016). Risk Assessment: A Practical Guide to Assessing Operational Risks. John Wiley & Sons. .

Rees, M. (2015). Business Risk and Simulation Modelling in Practice. John Willey & Sons.

Reuvid, J. (2014). Managing Business Risk: A Practical Guide to Protecting Your Business. Kogan Page Publishers.

Young, B., & Coleman, R. (2010). Operational Risk Assessment. John Wiley & Sons.

Bird, M. (2012). Upside Downside: How to Take the Sting Out of Business Risk. Random House.

Gordon, C. (2014). Managing Financial Risks , From Global to Local: Business, Finance. Cram101 Textbook Reviews.

Großmann, J., Felderer, M., & Seehu, ‎. (2017). Risk Assessment and Risk-Driven Quality Assurance. Springer.

Jorion, P. (2010). Financial Risk Manager Handbook. willey.

Kissing, P. (2010). Corporate Disclosures and Financial Risk Assessment. Springer.

Miles, D. (2010). Assessing Business Risk: Development of the Entrepreneurial Risk Assessment Scale. University of the Incarnate Word, San Antonio.

Sadgrove, K. (2016). The Complete Guide to Business Risk Management. Routledge.

Singleton, T. W., & Singleton, ‎. J. (2011). Fraud Risk Assessment. John Wiley and Sons.

Zopounidis, C. (2012). Operational Tools in the Management of Financial Risks. Springer Science & Business Media.

Order an Essay Now & Get These Features For Free:

Turnitin Report

Formatting

Title Page

Citation

Outline

Place an Order