Auditing and Assurance Securities Exchange

Question: Discuss about the Auditing and Assurance for Securities Exchange. Answer: Introduction Risk can be defined as the possibility of witnessing negative outcomes or attaining unexpected results that might affect the accuracy and efficiency of the decisions taken. Risks are often treated as threats to the accuracy of forecasts made by the management to speculate strategic changes to ensure organisational benefits (Sadgrove, 1997). The case study reveals about certain risks that are associated with Beauty Limited In the following discussion, the risks likely to be faced by the company will be discussed accordingly. Business Risk Identified As the case reveals, the decision to float shares on the Australian Securities exchange has been adopted by Beauty Limited, which is subjected to the risks associated with the fluctuations in the share market trends. It will lead to changes in the value of shares of the company, which might in turn restrict the expected capital inflow. The companys share market performances will also be depended on market perceptions, wherein any unfavourable information about Beauty will reduce the investments made by the public in its freely traded shares. The value of shares will also face issues due to the poor performance of the industry context (ASX, 2016; Dhanorkar, 2014). Beauty may also face problems when planning to buyback class A shares from the public. Decisions taken by the company in future to buyback the shares can create doubts amid the public regarding its governance practices and hence, discourage future investments to the companys shares. In the similar context, at present the company is resorting to extensive use of online selling via its website. As the customers might lack adequate awareness about the quality of products that are available on the website of the company, it might in turn make the customers reluctant to buy the makeup and gift items online. Payment issues and fraudulent activities conducted online are other problems associated with the marketing techniques that in turn pose a certain degree of risk for Beauty. Any sort of delay in the delivery of the products will create negative perceptions among the customers (He Bach, 2014; Bubnjevic, 2011). It also makes the company prone to cyber risks due to use of its websites that include risks of theft of its intellectual property (Director Publications Ltd., 2012). Moreover, the company is presently highly dependent on its suppliers. This in turn also raises risks for its future stability in the supply process, as the suppliers at times, can fail to adhere to the commitment, resulting in poor efficiency of the company to satisfy its customers demands. There can be defects in the quality of the materials supplied or there can be delays, which will cause financial losses and competitive stress for Beauty (Director Publications Ltd., 2012). It might also make the customers dissatisfied and hence, reluctant to buy the products from the company. Impact of the Risks on Financial Statements The business risk associated with Beautys strategic direction is quite likely to create a negative impact on its financial statements. For instance, reduction in the amount of investment on behalf of the public will reduce the amount of share capital in the company balance sheet. This will also cause a reduction in the liability of the company to pay a part of its profits to the shareholders. Negative impacts can also be observed with the rising chances of scarcity of funds to run the business efficiently, as with the listing in the exchange, its capital investments becomes subjected to the performance of the industry as well as the share markets. The company will also becomes more prone to stakeholders perceptions towards its governance practices and credibility, wherein any gap in the communication process will lead to its deteriorating brand image. Fluctuations witnessed in the investments drawn from the public may further drive the company towards accumulating large sums of external borrowings as debts, to meet its obligations. It will further increase the burden of debt on Beauty, as high interest rates have to be paid, disregard of the amount of profits (Piper Weinhold, 2016). The case further reveals that the company has bought back shares of Class A from the public. This will create a fall in the price earning (P/E) ratio. The effect of shares buyback can also be identified with the reduction in the number of outstanding shares. Although it will increase the earnings per share (EPS) of the company, it might also lead to a fall in the P/E ratio (Dobbs Rehm, 2016). Similarly, when concentrating on its use of the e-commerce channels, it can be observed that excessive competition prevails in the market, as many companies have began to sell their products through online websites to add to customers conveniences. It might certainly create a competitive pressure on the company, as it has reduced use of personal selling techniques, which can in turn affect its customer base with the presence of strong substitution effects and higher bargaining power of the customers. This loss will create a fall in the profit and revenue earned by the company in the near future. However, use of company website will save the company from incurring high expenditures on physical advertisements and preserving financial stability in its brick and mortar stores. The uncertainty about product quality in online selling also hints towards a possible challenge for the company that can reduce sales of products and affect its profitability at large. The risk assessment conducted also reveals that the company is prone to supplier risks, which can affect its strategic performances, as suppliers failures to deliver products with quality and on time may lead to hindrances in its performances to balance the supply and demand in the market. It may therefore cause customer dissatisfaction and lead to market risks for the company (Wildgoose, 2014). Conclusions Beauty Ltd. offers a wide range of beauty products and gift items to its customers. Although its overall performances depict its competencies in the present context, its strategic decisions involve certain risk factors, which range from strategic to financial aspects. In order to mitigate these challenges, the company should take required measures to assess and interpret its current financial and strategic positioning. It also needs to speculate future market changes and build stronger association with its stakeholders. The company should also pay greater attentions when selecting its suppliers to ensure than the partners are efficient to meet its requirements. References ASX. (2016). Benefits and risks. Retrieved September 6, 2016, from, https://www.asx.com.au/products/managed-funds/benefits-risks.htm Bubnjevi, D. (2011). Position and role of personal selling in contemporary marketing management. International Symposium Engineering Management and Competitiveness, 371-376 Dhanorkar, S. (2014, Dec 8). Should you invest in low free-float stocks? Retrieved September 6, 2016, from, https://articles.economictimes.indiatimes.com/2014-12-08/news/56839487_1_public-float-free-float-stocks Director Publications Ltd. (2012). Business risks a practical guide for board members. A Directors Guide, 2-80 Dobbs, R. Rehm, W. (2005, Aug 5). The value of share buybacks. Retrieved September 6, 2016, from, https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/the-value-of-share-buybacks He, B. Bach, C. (2014). Influence Factors of Online Shopping, International Journal of Innovation and Scientific Research, 2, 313-320. Piper, T., R., Weinhold, W., A. (2016). How much debt is right for your company? Retrieved September 6, 2016, from, https://hbr.org/1982/07/how-much-debt-is-right-for-your-company Sadgrove, K. (2005). The complete guide to business risk management. England: Gower Publishing, Ltd Wildgoose, N. (2014). Protecting your profits and reputation against supplier failure. Novo, 94-95.