Question one. A). Business Risk – it refers to unfavorable conditions that suppress the business performances. Cheaper Eats is faced with the external risk of marketing; Marketing RiskCheaper Eats Company will suffer due to competition from Zen business which will be selling the same product in the market. Zen the Japanese firm is known to supply the Asian produce at a cheaper price, thus as the Zen company opens its branch in Australia there will be great marketing risk in their market place as Zen will have strategic advantage over Cheaper limited due to supply partnership.
Due to the risk of competition Cheaper Eats Ltd returns is expected to drop. The diversity from the budgeted trend of the business is expected to subject the management to cover deviating trends. Management will cover this by manipulating business records to inline them with the budget. The risk of competition in the market will then suppress the prices of Cheaper Eats Ltd thus prompting lower rate of marginal income therefore this will force the management to design a way to adopt in order to meet the targeted results.
Due to the occurrence of this risk the Cheaper Eats management will manipulate accounting entries to satisfy the share holders from the low business returnsBusiness process outsourcing risksDespite the important benefits of outsourcing business organization is subjected greater risk. This process of outsourcing important business activities has great dangers and threats to the company that might lead to liquidation. Cheaper Eats Ltd is known to outsource 60 % of its major products from Zen suppliers. Cheaper Eats Ltd is not in compliance with the Zen’s terms of payment where during previous period Cheaper Eats Ltd delayed the payment however discouraging the Zen’s credit terms.
This has led to decrease in the credit payment period which might have an impact on supplies. This will lead to operating risk where the business will depend on the 40% internal produce that will be insufficient to finance the company operation. Management outsourcing team should strategically consider outsourcing contracts as an important challenge and should place more emphasize to control outsource process. Due to the difference in the two companies, Zen Ltd is considered to have the competitive advantage over the Cheaper Eats Ltd.
The dependency ratio of the Cheaper Eats Company is of fundamental that if Zen’s Ltd declines the contract of 60% supplies to would lead to wounding up of Cheaper Eats Ltd. Question one. b) i. Marketing RiskThe marketing risk will have an adverse effect on the sales effect on the sales revenue, Managers we be forced to manipulate the books of account so as the books should portray a true and fair view to shareholders. Management will cover this by window dressing and kitting where it will lead to material misstatement by the Auditor. b) ii.
Business process outsourcing risksThe 60% supplies by the Zen Ltd portrays going concern in the Cheaper Eats books of accounts, . The disagreement on terms of payment will affect the auditor’s conclusion on the books of accounts which if utmost due care is not exercised by the auditor the Cheaper Eats books of accounts will be materially misstated.