Case One Tel Auditing Harvard Case Solution & Analysis

Case  One Tel Auditing  Case Solution

Discussion Questions

List and discuss several factors that would have contributed to an increased inherent risk assessment at the financial report level. Also identify which of these factors may be identified during the strategic business risk assessment.

                        Inherent risk is the risk posed by an error and omission in a financial statement due to the factors other than control. In financial audit, the inherent risk is most likely to occur when transactions are complex and when the need of professional judgment on financial is measured. This shows the worst case scenario as all controls have failed. One Tel has many inherent risks which have created a problem for the assurance of the auditor and for the company as it has become a business risk. Before the start of the financial audit, the auditors understood the environment of the clients and identified potential risks,such as business risk and control risk etc. Some inherent risks are given below which are affecting the One Tel Company.

  1. Complex operation: As One Tel provides the telecommunication services worldwide and operates a range of different products such as national and international calls etc. Therefore, the company’s operation will become complex and difficult to interpret thus, the chances of error by the staff would increase at OneTel.
  2. Collusion Between Employee: This inherent risk always exists at almost every audit client, as a result, the employees collude for the breakdown of the control which may impose huge loss for the company and the material misstatement on the financial statement might take place through the collusion of employee and staff.
  3. Management Overriding the Controls:The top management can use its authority and override the controls that are in place in the company. This would be done because of the conflict of interest between the shareholder and the management, as the management takes decision in their best interest and not in the best interest of the shareholders, which is why these issue arise.
  4. Lack of Board Committee: One Tel’s board comprises of 4 executives and 5 non-executive directors and all directors take decisions for the company. Lack of remuneration committee, which comprises of only non-executive director, created problems at One Tel as currently the executive directors have set their salary package according to their own desire.
  5. Non Routine Transactions: Controls at One Tel are placed for the routine transactions which occur on a regular basis. As the non-routine transaction will occur, then the probability of misstatement will increase, which will result in a loss of assurance on the audit report.
  6. High Technological Advancement:The telecommunication market of Australia is very competitive and the competitors spend more in the advance technological systems. There is a risk as the advanced services might make the service provided by the One Tel obsolete.
  7. Weak Financial Position: Companies suffering from financial difficulties are more likely to misstate the financial statement to meet certain covenants. In the case of One Tel the draft income statements shows a huge loss, therefore has led leads to an increase in assessment.
  8. Repetition of Mistakes: One Tel’s reporting department mistakenly accounted for the provision, which was restated by the auditor as the management estimated this issue wrong as it might arise again.
  9. New Entrant in Internet Services: One Tel is providing Internet services and generates reasonable percentage of revenue from internet services. There is news in the market that Telstra, which one the biggest company in telecommunication, is considering offering internet services to its customers who have emerged the inherent risk to the company.
  10. Reduction in Prices: Competitors have consistently reduced their pricing over the usage of mobile phone service, which has made the market competitive, therefore better pricing strategy should be considered by One Tel.....................                                                                                                             This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.
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