From the given case study, it can be inferred that the organization One Tel have faced similar kind of inherent risks. It has been observed that the organization have executed their business plans in a negative manner. However, such negative implementation did not affect the financial status of the business. The balance sheet of the firm reflect that the capital structure of the firm have improved in comparison with previous years. From this, it can be inferred that due to some inherent risks, the firm has suffered from discrepancies in their financial statements.
In addition to this, it can be inferred that multiple amount of transactions have been omitted by the accountant or management of the firm One Tel that had led to higher amount of discrepancies. One of the most important factor that led to the discrepancy is due to ineffective planning of marketing and sales activities. From the different financial statement of the firm One Tel, it can be observed that the business organization have failed the desired level of profit band sales revenue. This may be due to the fact the management of the firm has failed to judge the requirements of the customers and adjust to the current market situation. It can be inferred that the firm has also failed to analyze their respective micro and macro economic factors (Ye and Simunic 2013). These factors can be in the form of political, economical, social factors. Since, the management of the organization One Tel has failed to judge all these factors, therefore, different types of inherent risks occurred in the financial steps of the firm. If the marketing and distribution plan of any modern business organization is effective, then, it will automatically reflect in the sale figures of the firm and will thus minimize the inherent risk (Bell and Griffin 2012).
The employees of the firm have also contributed to the growth of inherent risks with the organization One Tel. It may be inferred that the number of in-experienced employees are higher in One Tel. This factor has contributed to the growth of inherent risks by a large extent. Christensen, Glover and Wood (2012) points out that the success of the firms depends on its employees. If the employees are not efficient enough, then, they are bound to make mistakes like error of omission, which further reflects mis-leading financial statements. Apart from this, the changing patterns of customers of telecom industry have contributed to the growth of inherent risks. It has been often seen that different customers change their service providers and opt for those service providers that promote themselves and implement attractive strategies. It can be inferred that the firm One Tel has failed to do so and this led to the increase of intrinsic risk within their system.
The auditors must analyze the risk while dealing with the client. One of the most important types of risk is the inherent risk. In such risk, the auditors might fail to understand the internal controls in the place. The job of the auditors in such case further includes assessing the susceptibility of the financial statements. The key factor that may increase inherent risk includes the following:
Environment and external factors – one of the factors might be the issue of rapid change where the inventory of a company might be non- present. This would lead to high inherent risk. The other factor may be expiring patents where a pharmaceutical company can face the issue of expiry. There is competition in the market where other companies might sell the same drug. Another issue might be that the client is short of capital or money that might lead to the closure of the business (Knapp 2012).
Prior-period misstatements- in case of minor misstatements in the company there are no changes that might be brought effectively. Hence, the company has the misstatements in the current years, which might be faulty. In order to have a perfect statement all the misstatements must be removed from the history of the auditing process (Hay, Knechel and Willeken 2014).
Susceptibility of fraud- in case of customers who pay in cash the inherent risk is high. This is largely because of the fact that the cash can be easily diverted with respect to credit cards or payment through checks. Small concerns might have further issues with the inventory management that would increase inherent risks (Hay, Knechel and Willekens 2014).
These factors contribute to the increased inherent risk assessment by the auditors, in case of modern business organizations like One Tel.
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