Question

Assume you were just assigned as lead auditor for a new e-commerce client. This is your client’s first year in business. Identify general business strategies that might explain your client’s decision to enter the e-commerce space with the likes of giants such as Amazon. Considering these strategies, identify potential business risks that can lead to material misstatements in your client’s financial statements. Be sure to include new start-up and e-commerce risks. What are some other things your team will need to consider during the planning phase for this audit? Prepare a PowerPoint presentation to explain the results of your initial planning purely based on your firm’s expertise regarding new start-up and e-commerce business risks. Your presentation should meet the following criteria: Be 6-8 slides in length, not including the title and references slides.

Answer 1

Business strategy is sometimes defined simply as a firm's high-level plan for reaching specific business objectives. Strategic plans succeed when they lead to business growth, a strong competitive position, and strong financial performance. When the high-level strategy fails, however, the firm must either change its approach or prepare to go out of business.

Meeting Objectives (Goals)

In business, the strategy begins with a focus on the highest level objective in private industry: Increasing owner value. For most companies that is the firm's reason for being. In practical terms, however, firms achieve this objective only by earning profits. For most firms, therefore, the highest goal can be stated by referring to "profits." The generic business strategy, therefore, aims first to earn, sustain, and grow profits.

Risk of materials misstatement

Risks of material misstatement can arise from a variety of sources, including external factors, such as conditions in the company's industry and environment, and company-specific factors, such as the nature of the company, its activities, and internal control over financial reporting. For example, external or company-specific factors can affect the judgments involved in determining accounting estimates or create pressures to manipulate the financial statements to achieve certain financial targets. Also, risks of material misstatement may relate to, e.g., personnel who lack the necessary financial reporting competencies, information systems that fail to accurately capture business transactions, or financial reporting processes that are not adequately aligned with the requirements in the applicable financial reporting framework. Thus, the audit procedures that are necessary to identify and appropriately assess the risks of material misstatement include consideration of both external factors and company-specific factors. This standard discusses the following risk assessment procedures:

1. Obtaining an understanding of the company and its environment
2. Obtaining an understanding of internal control over financial reporting
3. Considering information from the client acceptance and retention evaluation, audit planning activities, past audits, and other engagements performed for the company
4. Performing analytical procedures
5. Conducting a discussion among engagement team members regarding the risks of material misstatement ; and
6. Inquiring of the audit committee, management, and others within the company about the risks of material misstatement

Things need to be considered during audit

The objective of the auditor is to identify and appropriately assess the risks of material misstatement, thereby providing a basis for designing and implementing responses to the risks of material misstatement.

Performing Risk Assessment Procedures

The auditor should perform risk assessment procedures that are sufficient to provide a reasonable basis for identifying and assessing the risks of material misstatement, whether due to error or fraud, and designing further audit procedures.