Case Study : The Newham Company Essay

Case Study : The Newham Company Essay

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The Newham Company is a publicly traded company that recently has had a change in executive management due to an inappropriate bonus structure based on company performance. As this type of bonus structure often leads to material misstatement of facts resulting in falsified financial reports, the new management at Newham has commissioned SNHU INC. to conduct an audit which assesses their risk of misstatement. The audit to follow will be broken down into three parts: Overall business risk, sample audit plan and a report of recommendations based audit results.
Business Risks
As per PCAOB standard 12 it is our responsibility to identify internal and external risks to the business and risks that could result in material misstatement. The Newham Company operates within the personal products industry. Their products include cosmetics and body-care products which are distributed through chain stores. The main competition for The Newham Company includes Revlon and Avon.
External business risks to Newham
• Price increases from third party suppliers of raw goods.
• Newham’s sole form of business is wholesale to chain stores (primarily Walmart and Target). If a competitor is able to establish exclusive right to sell at either of these stores, our viable market would be cut in half.
• Economic inflation can have a negative impact on receivables, price of common stock and cost of money.
• Economic recession and Terrorist attacks can cause disruptions to the business environment.
• Information technology systems can be susceptible to cyber-attack.
• Natural disasters. Something as small as a lightning strike could adversely impact our information systems/ability to produce goods.

Internal Risks to Newham
• Product and quality safety. In li...


... middle of paper ...


...hematical errors were found on 10 sample items.(accuracy)
o No shipping document could be located on 25 sample items (completeness, existence).
• Items that are in deviation are for quantity errors and mathematical errors can and should be corrected by retraining and quality control. Credit approval should be required and a person should be assigned to the task of ensuring credit approvals exist on all applicable transactions. The person who generates the invoice should also generate the shipping order; shipping and receiving should ensure these documents exist prior to shipping.



References
Messier, W., & Glover, S. (2014). Chapter 3 Audit planning, types of Audit Tests and Materiality. In Auditing & assurance services: A systematic approach (Ninth ed.). New York a, New York: McGraw Hill.
PCAOB AU §330
PCAOB Auditing Standard No. 5
PCAOB Auditing Standard No. 9

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