One.Tel became a massive company with a large base of customers. To achieve and establish its position in the market, the company applied several strategies within a short span of time. But in the longer run, the company was not able to maintain its position and ultimately it collapsed. After a detailed assessment of the company and its financial report, it was identified that there were multiple factors that contributed to an enhanced inherent assessment risk.
With the due passage of time, there has been severe competition in the activities of business. This has lead to immense risk in the business. Inherent risk can be described as a risk that projects the major downfall or losses that are witnessed in the internal control mechanism. It dwells in the business and the safeguard mechanism cannot eliminate them. It needs to be noted that it evaluates the efficiency of the auditor in terms of spotting the material misstatements that might happen due to fraud or error (Goodstein, 2011). When it comes to inherent risk, there is no scope from where the inherent risk can be suppressed. On going forward to enhance the activities of the business there is a strong chance of getting exposed to the inherent risk. The evaluation needs to be done through different internal, as well as external factors that comprise of transactions of inappropriate nature, fraud, and misguidance in the financial statements (Brown et. al, 2006)
Firstly, it was observed that the Board of Directors declared to pay dividend and bonus to its shareholders even though the company is suffering from huge losses of approximately $291millions.This gives rise to the fact that the Board of Directors lacks vision and were not working in the best interest of the company. In the financial report, too many misleading information was provided to the shareholders of the company. Since the Board of Directors was not effectively engaged with the management there appeared a serious lacuna and proper communication was missing that led to the current situation. Earlier in 1999 approx. 48 flaws were observed in the financial report (Monem, 2005). This indicates that the company has not performed in the best possible manner and needs an urgent and a major attention by the management and its Board of Directors. Secondly, that the company was reeling under severe cash crunch and long aging debtors that was noticed from the financial report of the company, which proved that it was not operating efficiently and properly. Such responsibility totally lies with the Chartered Accountant and Auditors of the company to point out about the financial health of the company in their report and suggest corrective measures (Douglas et. al, 2012). As the Charted Accountant of the company, it is their duties to point out such things and give proper suggestions and guidance to take corrective measure to be addressed urgently. Thirdly, the Management of One-Tel did not take any corrective measures urgently henceforth adding to the increase intrinsic risk to the company along with inefficient internal controls. This gives rise to the fact that the Board of Directors and top management of One-Tel were not performing their duties in the best interest of the company and are inefficient in managing at the helm of affairs. Going through the financial statement it was observed that the Management of the company made sure that the company had sufficient funds to run the company to the shareholders hiding the actual conditions.
The decision of individual forms the platform for the inherent risks. These types of risks are commonly joined with the procedures of risk measurement. There are ways by which control and detection risks can be avoided but also after every preventive measure the inherent risk always sustains. Judgments about the requirements for the upcoming period are an important factor for the management to prevent the above risks. There are a number of ways that are responsible for the occurrence of the inherent risks:
The inherent risk always sustains so it does not depend on the type of the business. So the nature of the business can be regarded as an irrelevant factor. One of the risks among many such vulnerable risks is the inherent risk, as no business in cured of uncertainty. The possibilities of increased inherent risks are caused due to vast company network and are one of the most vulnerable factors. Connections between companies in terms of associates, holdings, partnerships, proprietorships, joint etc are some of the points due to which the inherent risk increases. It can be understood as like more number of connections with different companies and in turn more likely to encounter inherent risks. Thus, it is clear that the increase in complexity in the connections of a single company with other companies decreases the ability of the management to sustain or prevent inherent risks.
Absurd transactions, abnormal circumstances, and non-routine operations are some of the crucial factors which increase the percentage of inherent risks. Transactions which are done with a lack of idea and assurance from the management are threats to the company in the form of inherent risks. Abnormal activities that require adjustments and repeated corrections from the managements are also sources of inherent risks. This can be due to some personal opinions or due to the affect of feelings rather than considering the present conditions of the market. There are some activities and transactions which are out of the bound exceptions, not following the ideologies and requirements of the management and these may often prove to be dangerous for the company. Summoning up all, it can be said that some risk always sustains.
Related party transactions can be one of the reasons of inherent risks due to their dominance in the business. Attention should also be paid that going against the significant debts covenants increases inherent risks. It is transparent in the case of One.Tel Ltd that it borrowed heavy loans which were all followed by covenants. It should be noted that overriding of this corporate debt can lead the company to serious and vulnerable problems. It is a duty to pay off all the loans with the interests charged on those loans and is not an abnormal activity. The management overlooked the risks every time which led the company to huge losses. If the managements keep following these activities then it is almost impossible in tracking the risks. It is also seen that the inherent risks occur due to the mistakes caused on the part of the audit personnel. But if the audit team is powerful then risks can be prevented. It is the duty of the auditor to track the risk and eliminate it, but the failure of the auditors causes losses to the company. It is important and necessary for the company to have able auditors for the elimination of the risks and prevention of losses. Thus, an incapable audit team invites inherent risks on a large scale. Thus, it is vital for a company to have auditors having intellect, qualifications, and expertise so as to easily eliminate the threats in the form of inherent risks.
The going concern concept is the principle that projects and states that the company will operate in for an indefinite period and there is no reason for the company to end its activities. Going by the evaluation of the balance sheet, it can be commented that the current assets, liabilities and other non-current assets have changed in a drastic manner. However, it is a strong question that despite a fall in the profits of the company, there is an increment in the share capital (Matthew, 2015). Further, it can be said that the decline in the company’s profit does not project a good sign because it leads to a slow movement towards development, as well as loss of the confidence of the stakeholder (Geoffrey et. al, 2016). The accumulated losses figure touched more than 200% as compared to the previous year. As per the EBIT that is showcased in the income statement, it can be sent that the company is in a negative state that projects the losses increased by leaps and bounds. The EBITDA that is showcased in the income statement is negative in numbers and this is by dint of huge expenses occurring in the profit and loss account. This even project that company can reduce the debt capacity or enhance the revenues so that the losses can be tamed. However, going by the overall situation it is difficult for the company to compensate for the loss in two or three years.
In case of One-Tel, it has been detected that the company has published an unqualified Auditor’s report to its shareholders, so it became uncertain whether the company can continue its operations in future or not, that is due to the fact that the company’s financial statement represents that the share capital has been increased enormously by providing numerous benefits altogether, hence it cannot be considered as authentic practice in the corporate world. As regard to the intangible assets and tangible assets of One-Tel, around 6% to 30% is generated as tangible assets whereas 40% assets are intangible in nature. It is very significant from the financial point with regard to intangible assets, as because they are generated and acquired through many innovations and that create an organizational Human Resource culture thereby enhancing company’s value still those are non-material by nature (Cook, 2001). But in the case of One-Tel, the structure of the company has been kept in accordance to the wishes of the board of Directors and top management so as to facilitate them to utilize in accordance to their requirement to maintain its capabilities and competence.
It has also been observed from the financial report of One-Tel that the company’s revenues are in a very pathetic conditions and it will be impossible to service its debt obligations in future as because the company has large and aging list of Debtors (Vause, 2009). In case of corporate governance, an effective financial structure and proper planning is needed to continue, but in case of One-Tel, the Management has provided misleading information’s to company’s shareholders as far as its financials are concerned. In addition, the share capital and its reserve capital funds have also been utilized by the company thereby leading to a situation that are in negative figures in the current scenario. Taking into account all these factors into account one can conclude that in future the company has to encounter big complications to continue its operations. In such a situation the management has to take long and sustainable measures instead of concentrating on short-term planning (Gilbert & Perry, 2015). Otherwise, the future of One- Tel is in dark.
One-Tel Company started its operations effectively by offering very innovative and enhanced facilities to its subscribers through implementing various measures like the fast internet at a very low cost to its customers (Fazal, 2013). The company aim was to achieve the best outcome by providing such facilities to its subscribers. It was effective on part of the company because it strived to operate on a large scale in the market to compete with the major rivals like Telstra and Optus. However, the company was unable to maintain and witness a severe decline as far its reputations is concerned and its financial conditions (Cook, 2001). Based on its inappropriate financial statements, the company put a question mark to everyone to its internal control measures by the management. Based on the financial statement and auditor’s report of the company, the company is no longer in a position to carry on its operations in future, because of its share capital, reserves, and profits all in negative figure (Vause, 2009). Therefore to conclude, due to company’s management’s unethical standard, faulty planning, improper due diligence, and bad governance, the company may soon be degraded and will be delisted as the company has not yet taken any corrective measures.
References
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Fazal, H 2013, What is Intimidation threat in auditing?, viewed 24 March 2017, https://pakaccountants.com/what-is-intimidation-threat-in-auditing/.
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