Factors Contributing to Inherent Risk
This report tells about the changes in the activities of value chain. It depicts that with the enhancement into implication of the economy of nation, many organizations are creating numerous transformations into the activities of value chain for accomplishing set objectives and goals. In this report paper, numerous factors have been discussed which are related to the numerous risks faced by an organization. It has been observed in this report that an organization contains various fixed and variable aspect and due to such variation various kind of risks could be faced by company. In this paper, telecommunication business functioning risk has been discussed. An Australian company is facing diverse events and risks in operations and activities of company in a particular period. Numerous factors have been analyzed in this report which could make a contribution to an assessment of inherent risk at the time of preparing financial reports. Further, numerous factors of inherent risk has been analyzed which could add the account balance level of inherent risk. More, this paper has been made to evaluate the concept of going concern in determined approach.
Numerous factors have been analyzed in this report which could make a contribution to an assessment of inherent risk at the time of preparing financial reports.
Inherent risk takes place due to mistakes in global market and fraudulent activities while preparing the financial statement in the amount in One Telecommunication Company. It has been found that the profit of One Telecommunication is quite huge and thus the company is obligated to pay huge amount as tax to the government of Australia. Hence, the company has conducted some unethical practices and fraudulent practices to save the tax amount. Company has recorded some inappropriate transaction to reduce the net profit of company so that the tax amount could be lower (Francis, Hasan, Park and Wu, 2015). Even company had made many changes in the cash flow statement to manipulate the government and investors. Such steps taken by companies are inherent as this could not be resolved and makes the final financial statements of the company complex. These tendencies also help the organization into increasing the total hidden profit of company. Many other aspects are also there which depict about the inherent risk of a company like various revenue expenses, huge capital expenditure, huge amount as salary to management which is quite overvalued etc. There are other several examples which reflect inherent risk of organizations such as charging capital expenses as revenue expanses or giving overvalued salaries to management department. One Tel has given huge amount as salary and incentives to top level management which depicts that company is also involving with inherent risk.
It has been found that in various cases, management department capture purposeful proceedings to enlarge company’s profit that could be unethical or illegal (Kim and Zhang, 2014). Such earning objectives are called earning objective.
International and Domestic Reporting
Through analyzing the case study, it has been investigated that the company, One Telecommunication is an international organization that operates its activities globally. The business functioning of the company is in many nations. Thus, company follows the GAAP and IFRS rules to meet the entire international obligation (Bentley, Omer, and Sharp, 2013). This helps the company to resolve many questions. It has been analyzed that the company, one telecommunication might face non-compliance risk while preparing the final reports as the rules and accounting standard could depict the different standards and applying procedure could also be different.
It has been investigated that the company, One Telecommunication has made many changes in its revenues and profits during the particular time period with a vision to decrease its total expenses of tax. For accomplishing it, the management department of company, One Telecommunication has been divided all its expenses and revenues in 2 parts (Ghosh, and Tang, 2015). This practice done by company is unethical practice and thus it results into indication of false, unethical and unfair view of final financial statement of company, One Telecommunication.Numerous factors of inherent risk have been analyzed which could add the account balance level of inherent risk. This risk is predominantly customary for financial records that involve a lot of approximation from the administration department of company. Fair value accounting measurement are quite difficult to analyze, thus fair value’s nature regarding an assets of company, One Telecommunication must be released in dogged approach.
Mainly, three inherent risk factors are there that could be contributed in account balance level to make an assessment over an inherent risk (Hopkin, 2017).
Different viewpoints of Accountant and Auditors
It is quite known by every person that each individual has different point of view. This could also be resolute through analyzing the concept of free will. It has been investigated that when an accountant record the entries and record the transactions in accounting books of company and when an auditor analyzes that transactions with different view point in company, One Telecommunication then it could force the result into inconsistency of policies such as accounting policies and auditing policies followed by Auditors while analyzing the reports of company (Knechel and Salterio, 2016). Thus, these are many major factors that could enhance the inherent risk in company while the assessment time on the account balances level. Such as in a company the accountant has recorded in books, the inventory according to the cost concept whereas at the time of investigating over final reports, the auditors has adopted different method of analyzing the inventory amount then it could offer some incongruity between the recording of data by accountant and analyzing the data by auditors.
Recording of Assets Value
Recording of asset value is also an inherent risk for company, One Telecommunication. As at the time of recording the data, accountant could face some issues to evaluate the fair value of an assets duce to many affecting internal and external factors of company. Thus these practices could make an impact over the data showing into the final financial reports of company like income statement, financial statement of company, One Telecommunication.
Complex Accounting Issues
It has been evaluated that company, One Telecommunication has operates many activities in various fields. It might result into composite policies of accounting and into reporting issues. This happens due to dissimilar concepts of accounting pursued by diverse countries (Hribar, Kravet and Wilson, 2014). The company, One telecommunication might face few risks at the time of recording the transactions and entries in accounting books because of complex issues of accounting despite the fact that business of synchronization global and international level.
More, it has been recorded into the financial statement of company about comprehensive income. As a result, it is potential to see the transformations in the total revenue recorded in the financial statement and in the consolidated financial statement of company. Thus these are few factors of inherent risk which is quite obvious to occur but the company, one telecommunication might diminish these kinds of troubles by following the policies of international financial reporting in proper dogged approach (Blankespoor, Linsmeier, Petroni and Shakespeare, 2013). Furthermore, discovery of particulars and treatment principles in the elucidation to the financial statement reports might result into justifying such kinds of tribulations in company’s accounting balance.It has been observed that company, one telecommunication is administrating its activities on international level. For that reason such inherent risk might offer harmful force on the going concern concept of organization. This concept reflects that companionship is going to run the activities and its business for a long period and will not wind up the business functioning soon. According the assumption of going concern, it has been reflected that companionship is going to function its business for quite long period. Entire commitments and obligations would be contented by the company in dogged approach and easily. As per activities of business of One telecommunication, the concept of going concern is extremely significant and associated risk of going concern ought to be taken on huge level.
Thus it is recommended to company that of going concern concept must be evaluated on high level.
Factors Affecting going Concern Concept
One telecommunication company has adopted all the global standards of accounting and prepared a proper level of discovery in financial final statements. It has been evaluated that if corporation has made absolute level of revelation of business functioning then it would be believed that company has followed the concept of going concern. In addition, the risk associated with the concept of going concern of company would be high if less income would be have by company and high losses are faced by company. Company is highly industry leaning organization and enjoying several stakeholders. Thus, its business going concern concept would affect the stakeholders in extremely manner.
There are additional numerous factors which imitates that going concern concept of One telecommunication must be assessed of business operation nature of company, its yearly revenues, making charges on company’s assets, policies of accounting and financial and penalties charged over business functioning. These factors depict that on what extent company would be pretentious by its external factors and internal factors. Moreover, development and employee turnover and Economic changes, technology also offers the going concern concept risk of company. This going concern concept risk of corporation has been measured as high due to the huge stakeholders, its high brand image and tough competition. If company wind ups its commerce then it will directly affect to the brand image and determined approach of stakeholders.
Thus it could be concluded that the inherent risk of business activities of company might collision its going concern concept capacity. These risks are understandable to occur but business could alleviate these risks by applying effective reporting frameworks and accounting frameworks. However, there are some ways that could be used by administration department of One telecommunication to decrease its inherent risk in effectual manner. So at the end, it would be incidental that Australian gold mining company could enclose these given risks above for making effective business functions in the value chain activities either on international level or domestic level.
Bentley, K.A., Omer, T.C. and Sharp, N.Y., 2013. Business strategy, financial reporting irregularities, and audit effort. Contemporary Accounting Research, 30(2), pp.780-817.
Blankespoor, E., Linsmeier, T.J., Petroni, K.R. and Shakespeare, C., 2013. Fair value accounting for financial instruments: Does it improve the association between bank leverage and credit risk?. The Accounting Review, 88(4), pp.1143-1177.
Francis, B., Hasan, I., Park, J.C. and Wu, Q., 2015. Gender differences in financial reporting decision making: Evidence from accounting conservatism. Contemporary Accounting Research, 32(3), pp.1285-1318.
Ghosh, A.A. and Tang, C.Y., 2015. Assessing financial reporting quality of family firms: The auditors? perspective. Journal of Accounting and Economics, 60(1), pp.95-116.
Hopkin, P., 2017. Fundamentals of risk management: understanding, evaluating and implementing effective risk management. Kogan Page Publishers.
Hribar, P., Kravet, T. and Wilson, R., 2014. A new measure of accounting quality. Review of Accounting Studies, 19(1), pp.506-538.
Kim, J.B. and Zhang, L., 2014. Financial reporting opacity and expected crash risk: Evidence from implied volatility smirks. Contemporary Accounting Research, 31(3), pp.851-875.
Knechel, W.R. and Salterio, S.E., 2016. Auditing: assurance and risk. Routledge.
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