| Business Risk Factors | Response | Possible Effect(s) on the Audit |
| What are the entity’s major sources of revenue and what is the nature of its products and/or services? | The major sources of revenue are sales of computers, software, mobile communication and media devices. The company nature of the product is the sale of consumer electronics (Kane & Raice 2011). | The possible Audit risk is that various products of the company in different branches will create confusion and audit transaction will pose threat to the Auditor’s report since there would be transaction risk (Arthur 2011). |
| Who are the entity’s key customers? | Apple’s market to the average and upper income earners who believe in the importance of quality and experience. The market targets musicians, media professional and designers. | It is difficult to forecast the financial market trend because their compatibility strength decreases with increase in age. |
| Who are the entity’s key suppliers? | Apple’s key suppliers includes: Samsung Electronics Co., Ltd, SanDisk Corporation, SDI Corporation, Seagate Technology LLC, Sharp Coporation, 3M Company, AAC Technologies Holdings Inc. to mention a few (Vascellaro 2012). | The suppliers of the company are in different countries and thus, there will be risk of translation of currency. |
| What is the nature of the entity’s organizational structure? | Apple operates a collaborative organizational structure. The disruptive and sustainable nature of its organizational structure strengthens the company. | It is a rigorous exercise because the entire system reports to the head of the organization. The CEO manages the entire operation and this is a risky venture. |
| Where are its major locations? | Apple Inc. has major business locations in Cupertino in California, Arizona, San Antonio, Australia, Malaysia, France, Ireland, Brazil to mention a few. (Apple Retail Store 2013). | Internal and external auditing are very complex. Audit verification takes longer time. The duration of each verification exercise affects audit decisions and analysis (Aquinas 2009). |
| What are the entity’s major assets? | Cash, cash equivalents, goodwill, intangible assets, inventory, short term investments, property plant equipment, long term assets to mention a few. | Error in valuation may be deliberate. The exercise will require time. Complexity of audit processes. |
| What are the entity’s major liabilities? | Accounts payable and other current liabilities. Long-term debt and deferred tax | Geometric increase in the company’s liabilities. An auditor will perform an in-depth audit investigation since this will affect the auditors’ report. |
| What are the entity’s sources of financing, and current and prospective financial condition? (Note that your ratio analysis may help answer this question.) | Common stocks, retained earnings, and long-term debt. The current financial condition of the company is favorable due to the ability of the company to finance its debt and the financial balance with the working capital. | The financing option for the company is deemed relevant and thus the effect on the audit is that sampling approach is relevant to evaluate the value of its financial holdings (Aquinas 2009). Hence an auditor can gather the information relevant to forming an opinion on the company’s books of account. |
| Are there any potential related parties? | The related parties are Cue, Passif semiconductor and Mebark Sanford. C. Bernstein & company, Microwarehouse Inc., and TSMC. These companies were purchased by Apple Inc. | An auditor will encounter audit risk of transactions because it is hard to ascertain the real value of business deal with subsidiaries. The complexity of the auditing process is a risk to the entire process. |
| Are there any significant events and transactions (e.g., acquisitions or disposals of subsidiaries, businesses, or product lines) during the year? | PrimeSense, Cue, AlgoTrim, Embark, Passif Semiconductor, HopStop.com, Lactionary, WifiSlam, particle, Authen Tec, Redmatica, Chomp, Anobit, C3 Technologies, Imsense, Polar Rose, Poly9, Siri, Intrinsity, Quattro Wireless, Lala.com (Lorraine 2011). New production lines include, Ipad mini with display, OX Marvericks to mention a few. | There is a risk of materiality. Audit risk and materiality are recognized individually or in groups which correlate a fair representation of the company’s financial transaction. Risk of materiality affects the timing and auditing processes. The risk of misstatement and misinformation is called the risk of materiality (Daft & Marcic 2013). |
| Does the entity have any major uncertainties or contingencies (e.g., lawsuits)? | The company is having a lawsuit with Boston university corporation, Nokia vs Apple, Department of Justice vs Apple, Kodak vs Apple (AAPL 2010) | The possible effect on the audit, will be the risk of Material Misstatement because an auditor will not be in a clear position to perform an audit trail and to clearly substantiate the contingent liability of phone 5. An external audit must be enforced to ascertain possible contingencies in liabilities |
References
AAPL 2010, Legal and other contingencies for Apple. AAPL 10-K, Web.
Apple Retail Store 2013, Web.
Aquinas, P G 2009, Organization structure & design: applications and challenge, Excel Books, India.
Arthur, C 2011, Fortune article reveals anger management and ‘top 100’ club: life inside Apple. Web.
Daft, R & Marcic, D 2013, Understanding management. Cengage Learning, London.
Kane, Y I & Raice, S 2011, ‘Apple’s new iPad in production’, The Wall Street Journal, Web.
Lorraine, L 2011, ‘Apple finds it difficult to divorce Samsung’, Wall Street Journal, Web.
Vascellaro, J 2012, ‘Apple reveals its suppliers for the first time’, Wall Street Journal, Web.