Case Strategic Business Risk Assessment, Inherent Risk Assessment and Preliminary Going Concern...

Question

Case Strategic Business Risk Assessment, Inherent Risk Assessment and Preliminary Going Concern Assessment This Case is based on Week 5 to 8 Nature of the Entity’s Business One.Tel was launched in Sydney, Australia in May 1995. They were described as a global telecommunications company offering a fully integrated product list including low-cost international and national calls, Internet services, prepaid and post paid calling cards plus GSM mobile phone services. Their strategies as customer-focused and dedicated to providing innovative, quality telecommunication services at reduced prices. Details of total revenue by geographic segment for the year ended 30 June 20001 are as follows: Country $M % Australia XXXXXXXXXXUK XXXXXXXXXXFrance XXXXXXXXXXNetherlands XXXXXXXXXXHong Kong XXXXXXXXXXOther XXXXXXXXXXTotal 678.2 The Industry Australia’s telecommunications infrastructure with a fully digitised network is as sophisticated and as modern as any in the world. Land based phone lines penetrate about 96 per cent of all households, with 2 million Internet subscribers and over 7 million Internet users. Mobile phone services are well established in Australia with more than 8 million users or 42 per cent of the population, one of the highest user rates in the world. Telstra, Optus and Vodafone each operate separate GSM mobile networks. Telstra’s market share is around 57 per cent, Optus 31 per cent and Vodafone 11 per cent. (Source: US Department of State FY2001 Country Commercial Guide) Prior to the deregulation of Australia’s telecommunications industry on 1 July 1997, there were two carriers. There are now 35 carriers who are often former service providers and are generally reliant upon leasing network capacity from Telstra, although some are developing their own switching and network capability. The influx of smaller carriers into the telephony market has acted as one of the major developments in producing important competitive results in the deregulated market. These carriers typically provide international and long-distance calls and, more recently, complete telephony services. The 1 Note 22 of Financial Statements for year ended 30 June 2000 for One.Tel Limited, ACN XXXXXXXXXX, and Controlled Entities, One.Tel web site. 3 growth in revenue does not correspond directly with growth in the number of telecommunication service providers due to greater market competition, reduced prices, and lower revenue per company. Telstra, the former monopoly carrier, is the dominant provider of Australia’s land-based telephony service. This network has nearly 10 million connections and an annual growth rate of five per cent. Telstra still dominates the telecommunications environment although its market share has dropped significantly in recent years. Mobile phone services are well established in Australia with more than 8 million users or 42 per cent of the population, one of the highest user rates in the world. Telstra, Optus and Vodafone each operate separate GSM mobile networks. Telstra’s market share is around 57 per cent, Optus 31 per cent, and Vodafone 11 per cent. Management The Board of One.Tel comprised nine members, including five non-executive directors and four executive directors. Due to the rapid growth of the industry described in the previous section significant managerial experience in the industry was limited. The functions of the board included: i. approval of corporate strategy, and financial plans; ii. identifying and addressing areas of significant risk facing the company; iii. reviewing and monitoring management processes and reporting mechanisms; iv. monitoring financial performance; v. appointment of the senior management team.2

Robert · Accepted Answer

1
Assignment Title 
Student Name 
Course Name 
Instructor Name 
Date
 2 
Question 1 
Inherent risks are those risks associated with the material misstatement and with the 
control risk factors. Inherent risks focus on capturing risks at both financial statement level and 
individual account level. It is essential to concentrate on the factors that are mainly causing 
inherent risks. Inherent risks are related to the material misstatement, fraud in preparing the 
financial statement and considers the effectiveness of the control system. Inherent risks deal with 
the risk associated with the evidence to support every transaction with the company and 
misappropriation of accounts (AASB, 2015). The financial report provides crucial information 
about the company’s performance, position, and cash flow generating capacity.  
From the observation of the financial statement presented by the company, it is clear that 
inherent risks associated with the financial report are higher for One.Tel. The primary factor that 
is resulting in higher level of inherent risks is the fraudulent financial reporting. The financial 
reporting of the company should be prepared as per the AASB specifications. In the case of 
One.Tel, the financial report of the company, does not meet the AASB requirements. The income 
statement of the company should begin with the revenue of the company.  
But in the case of One.Tel there is no revenue or cost of goods sold presented in the 
income statement. It indicates about the fraudulent procedures followed by the company in 
preparing the financial report resulting in inherent risk. In this case, the management of the 
company and board of directors are not taking any initiatives to check whether the financial 
statements are prepared as per the AASB or not (AASB, 2015). It indicates that the management 
of the company is supporting such fraudulent statement preparation. In such cases, there are 
higher chances of material misrepresentation and manipulation present at the time of preparing 
the financial report.  
 3 
The financial report is not providing any valuable or useful information to the users as 
there is higher level of misappropriation in various accounts of the company. Not disclosing the 
accounts appropriately in the financial statement indicates about poor internal control system of 
One.Tel. The income statement of the company indicates that there are earnings management 
and profit smoothing followed by the company (Messier and Austen, 2000). The cash flow 
statement of the company indicates that the company is falsely projecting their cash by 
manipulating the statement. There is a makeup of the population in the cash flow statement that 
is resulting in inherent risk for One.Tel.  
Whether relevant or irrelevant the cash flow statement is prepared with various variables 
that will result in the company to project a better operating cash flow and overall net cash flow 
for the company. There is a higher level of manipulation and misappropriation present in the 
cash flow statement indicating the inherent risk associated with the cash flow statement. The 
balance sheet is another important financial report that indicates the position of assets and 
liabilities for the company. The is plant and equipment on the balance sheet without any 
adjustment for depreciation, and there is no specification about what are the intangible assets for 
the company (Godsey and Cousineau, 2015).  
Both current and long-term liabilities of the company are same with convertible notes in 
the shareholders’ equity section. Such presentation of information indicates about 
misappropriation of assets and misappropriation of all other accounts in the balance sheet and a 
deliberate action of fraudulent financial reporting by the company. Nature of business is another 
important factor that is resulting in inherent risk for the company (Messier and Austen, 2000). In 
this industry, there is a requirement for more changes in the network and technology that will 
provide greater opportunity for misstatement of the financial statement. Thus, the overall 
 4 
financial report carries more inherent risks and requires an in-depth analysis to know the 
authenticity of the report.

Case Strategic Business Risk Assessment, Inherent Risk Assessment and Preliminary Going Concern Assessment This Case is based on Week 5 to 8 Nature of the Entity’s Business One.Tel was launched in...

Solution

Answer To This Question Is Available To Download

Related Questions & Answers

Submit New Assignment