Flash Tech
Flash Technologies, Inc.: Risk Analysis and Resolution of Client Issues
Risk Analysis
Flash Technologies, Inc., a company that designs, manufactures and markets an extensive line of PC cards, is showing a rapidly growing and currently they engaged our firm to perform the annual audit because they determined that their previous auditors could no longer provide the necessary support due to its increased international investments. Thus we are hereby to make a thorough analysis of the business risks of the company. As we will see, the company faces several risks. Some of this risks are related to its characteristics others to the external environment. We will describe those risks around categories such as: General Areas of Risk and Specific Financial Statement Risks. Within these categories we will focus on factors that will influence acceptable audit risk and inherent risk.
General Areas of Risk The company is rapidly growing, nevertheless they face several risks. These risks are influenced by factors like the size of the company, ownership, liquidity position, among others (acceptable audit risk) or by factors like the results of previous audits, transactions between related parties, and even unusual transactions (inherent risk). We list the following:
•
Public high tech company – this type of companies have more users, thus their activity is constantly being watched, depending on audit companies to indicate the reliability of their financial statements. The more users depend on such information the less is the acceptable audit risk.
•
Allegations of the lack of integrity of Mr. Schwimez – it represents a risk because it not only gives a bad image of the company, mining future negotiations, but it also represents a risk for the auditor because if allegations are true the auditors reputation may also suffer. In this cases we have to decide whether to engage or not, and if we engage we will have to reduce the acceptable audit risk.
•
Transactions
Risk Analysis
Flash Technologies, Inc., a company that designs, manufactures and markets an extensive line of PC cards, is showing a rapidly growing and currently they engaged our firm to perform the annual audit because they determined that their previous auditors could no longer provide the necessary support due to its increased international investments. Thus we are hereby to make a thorough analysis of the business risks of the company. As we will see, the company faces several risks. Some of this risks are related to its characteristics others to the external environment. We will describe those risks around categories such as: General Areas of Risk and Specific Financial Statement Risks. Within these categories we will focus on factors that will influence acceptable audit risk and inherent risk.
General Areas of Risk The company is rapidly growing, nevertheless they face several risks. These risks are influenced by factors like the size of the company, ownership, liquidity position, among others (acceptable audit risk) or by factors like the results of previous audits, transactions between related parties, and even unusual transactions (inherent risk). We list the following:
•
Public high tech company – this type of companies have more users, thus their activity is constantly being watched, depending on audit companies to indicate the reliability of their financial statements. The more users depend on such information the less is the acceptable audit risk.
•
Allegations of the lack of integrity of Mr. Schwimez – it represents a risk because it not only gives a bad image of the company, mining future negotiations, but it also represents a risk for the auditor because if allegations are true the auditors reputation may also suffer. In this cases we have to decide whether to engage or not, and if we engage we will have to reduce the acceptable audit risk.
•
Transactions