Climate Change Business Risks and Consequences - MyAssignmenthelp

Question: Discuss about the Climate Change Business Risks and Consequences. Answer: Introduction: Seven west Media Ltd is a listed company in the ASX and is one of the largest diversified media business in Australia. The company was formed after West Australian Newspapers acquired Seven Media Gruop. The company has dominance in the media industry, having a leading presence in radio, television broad cast, online and magazine publishing as well as newspaper publishing(Advanced audit and assurance, 2013). The company has grown to be the largest commercial television network in Australia and is still making moves to create value to its shareholders by merging and acquiring various companies to boost its bottom line. The company announced that it intends to merge with West Australian Newspaper Holding Ltd (WAN) in a bid to increase its market share(Audit and assurance services (UK), 2007). Companies face all kinds of risks, some are likely to cause serious losses or even bankruptcy. Seven media Ltd has put up departments that deal with risk management. The following are the risks that Seven West Media Ltd faces in the environment that it is operating under. In a world where changes are occurring everyday that may affect the business, it is important for a business to have proper and well laid plans that may counter technological changes, new media companies entering the market, shifts in customer demand and changes in price of raw materials. This is why Seven West Media Ltd has been merging and acquiring other companies to minimize this risk(BPP LEARNING MEDIA., 2017). Laws change all the time and there is always a risk that a company will be required to comply with additional laws and regulations in future. The company should ensure that it complies with all the necessary laws of the land because it may risk closure. Being a company that is listed in the Australian Stock Exchange, the company faces numerous laws for its shares to be traded in the bourse. Australia has put in place many laws to regulate the media industry and others laws are still being made, thus the company faces the risk of not complying with new laws of the land. The company still faces compliance risk by expanding the product line(Audit and assurance (United Kingdom), 2012). This is an internal risk that stems out of the companys day to day operations. The failures of the company, for example, server outage, machine break down, technical failure, people and processes are all forms of operational risks. For a media company, such failures can result to huge losses in terms of profits and market share. In some instances, operational risks may stem out from events that are out of control by the company such as power cut, natural disaster or even a problem with the companys website host. This is why the company needs to put in place measures that may mitigate against this type of risk(Bagshaw, n.d.). This is type of risk refers to the money flowing out and into the company and the possibility of loss of finances(Graham, 2008). For example if a substantial part of the companys profit coming from one stream and debts from the financiers. Business risk industrial level Business risks can be included within the strategic risks of an organization. Strategic risks are risks that arise from the strategic position that the organization takes in the environment in which it develops its activity, therefore they have a double source: on the one hand the own strategic decisions that the organization takes and on the other the environment in that these decisions materialize. In that sense, we can distinguish business risk fro economic risk(Mesa Graziano and Holtzman, 2005). Business Risks: Risks of strategic decisions about products and services or about the organization itself. Non-business risks: External risks arising from the organization's environment, for example from competitors, regulators, public authorities, society, Compliance risks- in the media industry, compliance with the rules and regulations of the industry is required. The relevant regulatory authority must ensure that the laws are followed for compliance purposes. Failure to comply will lead to punitive measures and actions against the media house. Financial risk- this is the risk that the company faces due to its failure to comply to its financial needs. Financial risk leads to crippling of the company in terms of its financial requirements and operational inefficiencies. Operational risk is also another risk that seven can face in the business and the industry due to inability of the company to efficiently do its business. The operations of the business will lead to risks that are either inherent or outside the scope of the company(Mesa Graziano and Holtzman, 2005). Reputational risk- can be brought by the company having a bad name and it takes time for it to recover the good name that it previously had When the auditor supports his or her work with the use of the work of an expert does not mean that when expressing an audit opinion diminishes the responsibility of the auditor, however, the auditor may conclude that the expert's work is adequate for his purposes and accept the findings or conclusions in the field of expertise of the expert as a valid argument in the audit for support as evidence(Carey and Stulz, 2006). When management has made use of the work of an expert for the preparation of financial statements, the auditor may, as previously stated, determine whether it requires the use of the work of an expert or not, but this does not negate that there may be some kind of influence on the procedures performed by the management expert, their scope, objectives, capabilities, competencies and so on with respect to the auditor, thus enabling the auditor to make sound decisions in accordance with the referents previously consulted. Nature, timing and scope of audit processes: When using the work of an expert, it is possible that the risk of detecting significant risks may increase, as there may be limitations of knowledge in certain particular fields other than accounting or audit that the management or the auditor cannot unravel in a simple way. Although the auditor who is not an expert in a relevant field other than accounting and / or auditing may obtain sufficient training, which may be the result of experience in other auditing entities that have required expertise in a particular field in the process of the financial statements, or in the same way the auditor can obtain it with education, courses or other moments that have allowed him to have an understanding in a particular field, so that the auditor can perform the audit without the use of an expert. Preliminary Analytical Procedures Liquidiy Ratio Specific ratio Formulae 2016(in millions) 2015(in millions) Current Ratio Current assets/ Current Liabilities 631/460=1.37 574/412=1.39 Quick Asset Current assets-inventory/ Current Liabilities 631-22/460=1.32 574-22/412=1.34 Cash flow ratio Cash flow from operations/current liabilities 202/460=0.44 283/412=0.69 Preliminary Analytical procedures Ratio Specific ratio Formula Year 2015 Year 2016 Profitability Ratio Net profit ratio Profit Margin = Net Income / Net Sales (revenue) (386)/2780 =(0.139) 197/2828 =0.07 Return on total assets ratio ROTA= EBIT/Total Net Assets Where EBIT= Net Income + Interest expense Tax (768)/5361 =0.143 208/5231 =0.039 Return on shareholders equity ratio RSE= Net profit/ Shareholders Equity (386)/2797 =(0.138) 197/2655 =0.07 Solvency Ratio Times interest earned ratio TIE= EBIT/ Interest expense ( 768)/103 =( 7.45) 208/94 = 2.212 Debt to equity ratio Debt to equity ratio= Total Liability/ Total Equity 460/1195 =0.385 412/1253 =0.329 Trend Analysis 2016(in millions) 2015(in millions) Increase/decrease %change Revenue 1721 1770 -49 49/1770=2.7% Income 184 (1881) 2065 109.8% Net cashflow from operating activities 202 283 -81 28% Expenses 561 579 -18 3.1% Cost of sales 675 694 -19 2.7% The ratios in liquidity seem to be decreasing from 2015 to 2016. The current ratio drops from 1.39 to 1.37 in 2015 and 2016 respectively. In this case the company is doing well although marginally. The company has started to be profitable in 216. In the previous year 2015 it was running at a loss where all the profitability ratios were a negative ratio. In 2016, the company is doing well. Times interest earned ratio increases in 2016 but the debt to equity ratio decreases in 2016. This means that the company earned well in 2015 but reduced its interest earning in 2016. Fraud in a company is almost prone to happen if a company has weak internal control systems to militate against fraudulent activities. A company may face the following fraud risk ; Financial fraud- this is the most common type of fraud faced by companies in the media business and industry. It is orchestrated by rogue employees or external forces that are willing to gain financially from the company. Seven has strong internal financial controls that help in safeguarding and securing their finances. Other fraud may include insurance fraud, fraudulent statements or misstatements of financial reporting and bankruptcy. In this cases of fraud, International audit standard 620 basically defines the auditor's responsibilities when he is auditing the financial statements and finds certain areas in which he does not have the capacity to dictate, due to the limitations in specific knowledge detected, for which he links the work of a person or specialist organization in a field other than accounting and auditing, ie the work of an expert who is characterized by sufficient skill, knowledge and experience in that field and that in some way this procedure seeks to assist the auditor to obtain sufficient appropriate audit evidence(Atkinson, n.d.). Going concern is the assumption that a company will continue to be operational in the foreseeable future.It is important to note that there are many risk factors for the going concern assumption and that the company may risk its operational ability(Berk and DeMarzo, 2017). The risk factors of seven in going concern include the following; financial fraud that may affect normal business operations of seven rendering it nonfunctional and almost defunct. Regulatory and compliance risk where the regulator which is usually the government in many cases comes up with strigent measures that affect the media leading to closure of business. Other risks include business risk where the environment becomes non conducive leading to the company being a gone concern(Krainer, 2003). Competition is a risk factor that emanates from related parties. This is because seven will face a lot of competition from the industry peers and therefore being a risk factor.? Inherent Risk Assessment Inherent Risk Accounts and Assertions Affected Reason Audit risk Cash and bank account- and the assertions are that a lot of financial resources will be put into the audit risk to see the risk involved. The reason why the account is affected is because these risks involves financial resources consumption of the company where the accounts are usually bank and cash accounts operated. Operational risk Profit and loss account- and the assertions are that a lot of financial resources will be put into the audit risk to see the risk involved The reason why the account is affected is because these risks involves financial resources consumption of the company where the accounts are usually bank and cash accounts operated. Financial risk Cash and bank account- and the assertions are that a lot of financial resources will be put into the audit risk to see the risk involved The reason why the account is affected is because these risks involves financial resources consumption of the company where the accounts are usually bank and cash accounts operated. Business risk Cash and bank account- and the assertions are that a lot of financial resources will be put into the business risk to see the risk involved The reason why the account is affected is because these risks involves financial resources consumption of the company where the accounts are usually bank and cash accounts operated. Compliance risk Cash and bank account- and the assertions are that a lot of financial resources will be put into the audit risk to see the risk involved The reason why the account is affected is because these risks involves financial resources consumption of the company where the accounts are usually bank and cash accounts operated by Seven company. Reputational risk Good will account of the company- and the assertions are that a lot of financial resources will be put into the rectifying the good image of seven involved. The reason why the account is affected is because these risks involves financial resources consumption of the company where the accounts are usually bank and cash accounts operated. Inherent risk level of Seven Inherent risk in the Audit of Seven West Media Ltd financial statements is high because the company operates in a sector that is highly regulated and also because the company has a network of other related entities such as its subsidiaries which could be misrepresented in their financial statements in the absence of relevant financial controls. Inherent risks for the audit of Seven West Media ltd is also high because the audit firm that is conducting the audit has a relatively less understanding of the company(Brealey, Myers and Allen, 2017). Ownership structure: the ownership structure of seven as a listed company is reasonable corporate governance mechanism that ensures that there is effective functioning of the internal controls systems. There is centralized and decentralized ownership, where majority of of equity is held by individual shareholders and there is no balance between interest of the shareholders and the largest shareholders who at times abuse their control which is a serious impediment to internal control(Van Frederikslust, Ang and Sudarsanam, 2008). Validity of interior control: The companys board of directors is an important part of corporate governance of the organization. Their characteristics have a significant effect and impact on the internal control of the company(Stoner and Wankel, 2012). Conclusion The control risk level of Seven West Media ltd is low. This is because as a listed company, the company must have proper controls to achieve required standards of financial reporting and disclosure objectives. There is a corporate code of conduct, procedures and policies , fraud prevention efforts and other activities put in place to reduce any chance of fraud in the company. References Advanced audit and assurance. (2013). Wokingham, Berkshire: Kaplan Pub. Atkinson, S. (n.d.).The business book. Audit and assurance (United Kingdom). (2012). London: BPP. Audit and assurance services (UK). (2007). London: BPP. Bagshaw, K. (n.d.).Audit and assurance. Berk, J. and DeMarzo, P. (2017).Corporate finance. Harlow: Pearson Education Limited. BPP LEARNING MEDIA. (2017).ACCA F8 AUDIT AND ASSURANCE. [Place of publication not identified]: BPP LEARNING MEDIA. Brealey, R., Myers, S. and Allen, F. (2017).Principles of corporate finance. New York, NY: McGraw-Hill Education. Carey, M. and Stulz, R. (2006).The risks of financial institutions. Chicago: University of Chicago Press. Eckbo, B. (2008).Handbook of corporate finance. Amsterdam: North Holland. Graham, L. (2008).Internal controls. Hoboken, N.J.: John Wiley Sons. Krainer, R. (2003).Corporate finance, governance and business cycles. Amsterdam: Elsevier. Mesa Graziano, C. and Holtzman, M. (2005).Management's reports on internal controls. Florham Park, N.J.: FERF. Stoner, J. and Wankel, C. (2012).Managing climate change business risks and consequences. Palgrave Macmillan. Van Frederikslust, R., Ang, J. and Sudarsanam, P. (2008).Corporate governance and corporate finance. London: Routledge.