IDS 390W: COMPANY REPORT ASSIGNMENT

ASSESSING BUSINESS RISK

Notes from Auditing Organizations Through a Strategic-Systems Lens Bell, Marrs, Solomon, and Thomas, KPMG Peat Marwick 1997.

A client organization is not a free-standing entity—look at broader economic web. (p. ix)

"The auditor should obtain a knowledge of matters that relate to the nature of the entity’s business, its organization, and its operating characteristics…. The auditor should also consider matters affecting the industry in which the entity operates, such as economic conditions, government regulations, and changes in technology, as they relate to the audit. Other matters, such as accounting practices common to the industry, competitive conditions, and, if available, financial trends and ratios should also be considered by the auditor. (p. 6, from AU 311.08, 1997)

View the Client as a Complex Web of Interrelationships (p. 19, Exhibit 2):

capital markets; regulators; strategic partners; competitors; complements; customers; and suppliers of facilities, inventory, labor, and capital

Client Business Risk: A Global Systems Perspective (p. 27, Exhibit 3; pp. 28-30)

• Global Environment: natural resources, cultural advantages, global competition, law regulatory environments
• Local Environment: local labor markets, customer/supplier relationships, competitor innovation, direct competition
• Internal Environment: improper organizational configuration, dysfunctional internal culture, inferior competencies, absence of process advantage, ineffective internal communication

Risks relevant to financial reporting ( pp. 76-77, from AU Section 319.29,1997)

• Changes in operating environment
• New personnel
• New or revamped information systems
• Rapid growth
• New technology
• New lines, products, or activities
• Corporate restructurings
• Foreign operations
• Accounting pronouncements

Compiled by G.N. Vik, 9-97