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Apple Inc. Understanding Client's Business

In: Business and Management

Submitted By dzana
Words 931
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In order to evaluate the vulnerability of client’s financial statement assertions to material misstatement, auditors must understand the nature of the client’s business and the industry in which the client operates. Understanding the client’s business is helpful to auditors not only to outline the scope and the timing of the audit, identify the audit strategy, and isolate the most significant factors of materiality, but also to determine the client’s business risks and their potential translation to the financial statements.

Every industry has inherent risks and there are many factors that contribute to the increase of these risks as described in AU-C §315.A18; however, Computer and Software industry has been well known as a “leader” of high risk industries ranking No. 1 on “Restatement Activity Across Industries” study published by the Center for Audit Quality in Financial Restatement Trends in the United States: 2013 – 2012 report. High technology industry is exceptionally competitive as it demands constant innovation, change, and differentiation. Participants are pressured to “move quickly or move out”; classic example is Blackberry that was once the leader in the smartphone business, but quickly perished as its competitors took over. From a financial reporting standpoint, this industry is particularly controversial because of the profusion of its intangible assets, research and development expenditures, and revenue recognition complexity, and perhaps after Blackberry, going concern principle. The leading company in this risky industry today is Apple, Inc.

By operating in the Computer and Software industry, Apple is prone to the inherent business risks related to its industry, and some to the company itself, and is therefore, from an audit standpoint, a high business risk company. There are three business risks related to Apple in particular that contribute...

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