Question

SIGNIFICANT RISKS In the overall audit strategy for the audit of Keystone Computers & Networks, Inc., Several significant risks were noted as a result of obtaining information about KCN and its environment, including: 1) KCN has engaged in a strategy to sell to customers with higher credit risk. 2) The officers of the company receive significant bonuses based on quarterly results.

For each of the risks, identify the implications and potential responses.

Answer 1

Giving credit risk to customers is the risk of loss if, any customer failed or inability to repay the outstanding amount, however for better business opportunity it is a part of business to give credit to customer. By giving credit to customer there are chances to increase the edge of business, increase in sales and better customer loyalty.But while giving credit to customer following implements can be done in a business:-

1. Define the Credit Limit & Payment terms:

First of all define the credit limit & payment terms of each customer, so after crossing the limit company can stop giving sale to cusomer automaticaly.

2. Collecton of customers Credit debts:

There should be dynamite team for collection of credit debts from customers on time. The team will send the reminders to customer by time to time to remind that the payment due date is apporaching. Now days there are softwares which send automatic reminders time to time to customer. So need to make a solid chase cycle for outstanding amount in market. Offering incentive to team on collection of default payment should be a best idea.

3. Check the customer's background and credit score:

While giving credit to customer, it is need to check the background to customer and the credit score which can be easily receive nowdays at websites.

4. Avoid the excuses:

Some defaults customer always giving excuses about delaying the payment. Company needs to give pressure on them to giving excuses and unfulfiled the terms. So after crossing the credit limit, immediatly needs to stop the sale and give pressure to customer to pay the outstanding amount.

5. Insurance for outstanding amount:

Purchasing insurance for outstanding in market is a good idea to avoid the losses due to payment defaults. Insurance not be viable for small business, but it's worth if there are large numbers of credit customers.

It is the right of seller to collect interest on late payments and should be clearly mentioned on invoice about the interest.