Risk Assessment For Business: Strategic, Inherent, Going Concern

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

Various prospects associated with the assessment of Strategic Business Risk , Assessment of Inherent Risk as well as Assessment of preliminary going concern will be explained in this project report. As it is to be assumed that risk assessment within an organization is considered as essential aspect by which assurance will be done on the business safety from the several factors having the capability to influence the activities of a business. For this project report, One.Tel will be taken and it was developed in year 1955 which involves in providing variety of services and products to its customers that includes internet, international and national calling facilities, etc. One.Tel is a Tele communication company that is indulged in providing services associated with the telecommunication industry to all around the world.

 Risk assessment deals with determining the risk to be encountered in the business so that they can be dealt with appropriate manner. Term, ‘Inherent risk’ is the risk associated with the misstatement in material arising due to errors, mistakes or omissions owing to lack of responsibility (Hay, 2014). The case study of One.Tel will shed light on various concerns identified contributing to the factors in the inherent risk assessment of the financial statements of the organization. Following are these identified factors:

• Decrease in operating profit – Every organization has a major goal to attain more profit and remain sustain the market. One. Tel organization is successful organization in making large consumer base but apart from that fact its major concern is decrease in operating profit. The number of debtors has increased by 203% and there is slow increase in the sale of company (Anderlini, Gerardi and Lagunoff, 2016). According to the given case study it is recognized that One.Tel Company is low down the prices of its products which results in decreasing the sales revenue or profit of an organization.
• Lack of managerial skills to maintain the organization – In the case study of One.Tel it has been observed that absence of the managerial skills has affected the company in the adverse manner as it is assumed to be difficult task to implement managerial skills into the organization. The chances of material misstatements increase due to the lack of managerial skills in the organization by which company gets inappropriate figures in its financial statements (Milandru, 2016).
• Lack of organized reporting of financial statements – It is imperative for the organizations to ensure the effective process of the reporting of financial statements. The condition of the One.Tel has disclosed that due to lack of organized reporting the liquidity has been depleting.
• Products offered at the low prices – One of the major factors affecting the profitability and sales of One.Tel is that the products are being offered at the lower prices to the customers. Because of the lower prices, the customer base has been increased but on the other hand it has also resulted in the decrease in the sales and the profit of One.Tel (Pedro Figueiredo Marques, M. Dinis Santos and Santos, 2013).
• Declining in operating cash – One. Tel has suffered cash loss of $168.9 Million in the year 2000 whereas in 1999 the cash loss suffered by the same was $28.9 Million. This exponential increase in the cash loss indicates that the company has been unable to meet the cost of the products which are being sold at lower prices to the customers (Ponte, Pesci and Camussone, 2017).
• Absence of effective credit policy for customers – During the analysis one of the important factors which has been discovered is the absence of the effective customer credit policy. An effective credit policy determines that when the company must ask their customers to pay for the goods and services consumed by them. Due to the lack of any such policy One.Tel has suffered a great deal where it has affected its sales, profits and liquidity (Milandru, 2016).

Various factors associated with the assessment of strategic risk have been evaluated and these are described as below:

• Offering products and services at low price to customers – one.tel has set the price of its services and products at such low price which had increased the customer base but while setting the low price of product company did not determined it’s profit margin which has put an adverse effect on company’s profit. As increase in number of customers has not increased the revenue for one.tel (Armstrong, Rhys-Jones and Dresne, 2013).
• Consumer credit policy – one.tel has mot adopted any policy to determine the way to collect it’s due receivables as this situation has also case lower liquidity aspects for the company; and the reason for is that absence of credit policy has led to increase in due receivables as the company is not able to manage it’s due receivables to collect them in proper manner. This has led one.tel towards lower liquidity (Ponte, Pesci and Camussone, 2017).
• Structure of company – required managerial skills to manage the whole business activities or to maintain the company’s structure is absent which arise strategic risk for one. Tel as the company is unable to maintain its business structure due to inadequate or absence of required managerial skills (Aven and Zio 1164-1172).

Business organizations business processes can be influenced by number of risk factors that are present in internal as well as external business environment. In such case, it is crucial to undertake risk assessment so that risk which could affect the business can be managed, controlled or mitigated in proper manner. Number of factors which are reason for the escalation of risk is identified by One.Tel. Those factors are also regarded as reason for decline of the company`s performance (Paswan, 2007). Decrease in revenue is assessed in the One. Tel which is due to the practice of low pricing policy; as the company has offered its products and services at low price which enhanced the customer base but resulted as decline in the profit for the company. In addition to this the credit policy for customers has also not been adopted by the company which increased the due receivables of the company. One.Tel`s main objective is to draw the attention of its customer by delivering the products to them at low price. But in this case, company has not been able to cover the products and services real cost which in turn resulted as less profit margin for the company. One of the other factor which is being assessed as reason for uprise in the risk for One.Tel is lack of managerial skills possessed by the manager of the company. Managerial skills are most crucial and required for managing and checking the performance of company. With proficient skills, manager becomes able to manage the aspects so that possibilities of the threat or risk could be assessed at certain time and then plan could be developed to mitigate those risks. One.Tel would continue face the situation of loss due to the increase in receivables. Therefore, it is important to assess the risk timely in order to manage them and to mitigate them via applying the suitable risk mitigating strategy (Johnson, 2011).

Area of going concern is requisite to be assessed on basis of high priority; and the reason for this high priority assessment is that, there are number of factors which are associated whit the upsurge of risk within the organizational premises.  The factors on the basis of which, it is being decided that the area of going concern must be assessed at high priority are discussed below-

• Unpredictable liquidity position of Company– Situation of inconstant liquidity position has been arisen as due to the increase in due amount receivables. As the company has not adopted the credit policy through which One. Tel could receive its due amount from the debtors. Therefore, One. Tel shall consider this factor and plan to manage its liquidity and that shall be done on high priority basis as this situation can disclose the financial condition of the company (Perrott, 2007).
• Enormous loss – Company has set the price of its products very low in order to draw the customers attention but the lowered price of the products were set in such way that the company did not get able to cover up the cost disburse for the product and service. This situation led to draw the customer’s attention but company become unable to cover the cost of product and this resulted as loss for the company (Shariff and Leong, 2009).
• Increase in due receivable – sales of the company become double due to the strategy that was adopted by the company i.e. offering low price products. This situation led to the increase in sales but absence of credit policy also led toward increase in receivables. As company became unable due to absence of credit policy to receive the due amounts from the debtors (jarjo, 2015).

Conclusion

Risk assessment is important to be carried out by business organizations so that the possible threats could not affect the company`s business and other business activities. It is concluded from the assignment that there are number of factors which led to the escalation of risk for the business. Therefore is recommended to the business organizations to assess the factors which can cause risk so that plans can be developed by the management to control those factors which can cause risk and also to mitigate the risk. There are several factors which caused risk to One.Tel, such as-inadequate skills of manager, absence of policy for receiving due amount, products offered at low price etc. These factors led for the huge risk for the company by resulting as declining liquidity.

References

Johnson, B., 2011. Risk Assessment, Risk Management, and a Historic Political Deal. Human and Ecological Risk Assessment: An International Journal, 17(6), pp.1171-1172.

Armstrong, Jonathan, Mark Rhys-Jones, and Daniel Dresner. Managing Risk. Hoboken: Taylor and Francis, 2013. Print. 

Aven, Terje, and Enrico Zio. “Foundational Issues In Risk Assessment And Risk Management”. Risk Analysis 34.7 (2013): 1164-1172. Web.

Paswan, Audhesh. “Profit Brand: How To Increase The Profitability, Accountability And Sustainability Of Brands. London And Sterling, VA: Kogan Page 2005. 208 Pp. US$29.95 Edited By Geoffrey P. Lantos”. Journal of Product & Brand Management 16.4 (2007): 293-294. Web.

Anderlini, L., Gerardi, D. and Lagunoff, R., 2016. Auditing, disclosure, and verification in decentralized decision problems. Journal of Economic Behavior & Organization, 131, pp.393-408.

Hay, D., 2014. Auditing, International Auditing and the International Journal of Auditing: Editorial. International Journal of Auditing, 18(1), pp.1-1.

Milandru, M., 2016. Considerations Regarding the Auditing of Information Systems. International conference KNOWLEDGE-BASED ORGANIZATION, 22(2).

Pedro Figueiredo Marques, R., M. Dinis Santos, H. and Santos, C., 2013. Organizational transactions with real time monitoring and auditing. The Learning Organization, 20(6), pp.390-405.

Ponte, D., Pesci, C. and Camussone, P., 2017. Between mission and revenue: measuring performance in a hybrid organization. Managerial Auditing Journal, 32(2), pp.196-214.

Perrott, B., 2007. A strategic risk approach to knowledge management. Business Horizons, 50(6), pp.523-533.

Shariff, A. and Leong, C., 2009. Inherent risk assessment—A new concept to evaluate risk in preliminary design stage. Process Safety and Environmental Protection, 87(6), pp.371-376.

jarjo, H., 2015. Strategic Real Estate Development (RED): Risk Assessment, Capability, Strategy Flexibility, Competitive Strategy, and RED Performance Empirical Study of RED Firms. Professionals Center for Business Research, 2(02), pp.17-34.

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