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by: Gerda Pacocha
Gerda Pacocha
CSU Pomona
GPA 3.86


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Class Notes
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This 4 page Class Notes was uploaded by Gerda Pacocha on Saturday October 3, 2015. The Class Notes belongs to ACC 405 at California State Polytechnic University taught by Staff in Fall. Since its upload, it has received 13 views. For similar materials see /class/218400/acc-405-california-state-polytechnic-university in Accounting at California State Polytechnic University.


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Date Created: 10/03/15
Joanna So ACC 405 January 20 2010 Hurt Ch 4 5 Using Brown s taxonomy the following risk applies to each example a The sole supplier of dog food to the company goes out of business In this example I would classify the risk as a quotsystems risk A systems risk is when organizationscompanies become too dependent on computers and other IT technology for the delivery of their goods and services that it will affect their performance when IT resources such as their dog food supplier fail b The dog s kennels are not kept clean For this example the risk may be classified as an operational risk because it concerns the quotassetquot which are the dogs and the value of the organization s service or product it offers to its customers When dogs are not kept clean the value they are offering their customers are downgraded Who would want to see dirty dogs perform Another risk it may be classified as would be a regulatory risk c The dogs do not receive the proper vaccinations and immunizations This situation would be classified as a legal and regulatory risk Since the law requires that pets especially dogs and cats receive proper vaccinations and immunizations the lack of receiving it may result as a legal and regulatory risk If for any reason the dogs of Extreme Canines attacks or bites another pet or human being the company needs to ensure that they protect themselves by giving their dogs the proper vaccinations and immunizations Not doing so may result in a law suit d The company s Web site is temporarily unavailable due to a natural disaster The classification for this situation would be a systems risk Since Extreme Canine relies heavily on the Web site to advertise their service not much advertising would occur if their site is temporarily unavailable If customer s wanted to get their contact info they wouldn t be able to This may result in a loss of a potential customer e One of the dogs is injured en route to a performance If one of the dogs were to get injured en route to a performance it would be an operational risk that involved human error Since it is human s that are transporting the dogs the accident will be most likely be caused by the person f Interest rates rise on a company line of credit f interest rates were to rise on Extreme Canine s line of credit it would be a market risk A market risk is when interest rates investment values and company s stock prices change If the interest rates of their line of credit increase it may impact their financial statements which are looked at by shareholders and managers g Extreme Canine s accountants calculate the company s tax liability incorrectly If the accountants calculate the company s tax liability incorrectly this situation would be classified as a legal and regulatory risk Miscalculating the company s tax liability would result in misstated financial statements Although the accountant may be at fault the company s management team has the responsibility to review the accountant s work h Dogs fail to perform tricks correctly in a show f Extreme Canine s dogs fail to perform tricks correctly in a show it would be classified as a business strategy risk This is because the company made a poor decision by selecting dogs that might have not received the proper training or are ready to perform i Customers are unable or unwilling to pay for an Extreme Canine show f Extreme Canine s customers are unable to unwilling to pay for a dog show it is a credit risk The company should have doubled check the customer s credit before agreeing to sell them a show or take in a deposit so that they would have at least some amount collected j A new dog bites an audience member If a new dog from Extreme Canine bites an audience member it is a hazardous risk The management team should have known better to let a new dog which may not have received all its proper training to perform in a show 6 a The sold supplier of dog food to the company goes out of business Suggested internal control Background check preventive and detective control Extreme Canine should research and gather information about the companies that they work with If they know how long the company has been in business and how the company is currently performing they might not find themselves working with a dog food supplier whom may go out of business so soon b The dogs kennels are not kept clean Suggested internal control Segregation of duties preventive and detective control If the company assigns and make their staff responsible for cleaning the dogs kennels the company would not have to worry about this problem The company should segregate the duties and perhaps even have them keep a record of when the last cleaning was c The dogs do not receive the proper vaccinations and immunizations Suggested internal control Internal audit detective control Performing an internal audit would have revealed that the dogs have not received their proper vaccinations and immunization d The company s Web site is temporarily unavailable due to a natural disaster Suggested internal control Back up power supplies corrective control If Extreme Canine has a backup of power supplies it may allow them enough time to save any open files to ensure that they don t lose them in the case of a natural disaster e One of the dogs is injured en route to a performance Suggested internal control User training preventive control Extreme Canine should provide their employees with periodic training of how to take care of the dogs while delivering them to a performance They should explain at their training why employees need to know it and how to apply it f Interest rates rise on a company line of credit Suggested internal control Bank reconciliation detective and corrective control The company probably saw a rise in their interest rate on their line of credit due to making a late payment or failing to make a payment If the company reconciles their bank statements on a regular basis it may help them better plan their financial obligations g Extreme Canines accountants calculate the company s tax liability incorrectly Suggested internal control Internal audit detective control Performing an internal audit could have revealed the misstated tax liability made by the accountant h Dogs fail to perform tricks correctly in a show Suggested internal control Training preventive lf Extreme Canine properly trains their dogs they should not have to worry about a failure to perform Dogs are easy They acquire skills and abilities through training i Customers are unable or unwilling to pay for an Extreme Canine show Suggested internal control Adequate documentation preventive The company should adequately document their customer s information just in case there is a failure to pay whether due to unwillingness or unable to pay This way the company may at least try to contact the customer and work out a payment plan j A new dog bites an audience member Suggested internal control Training and physical security preventive controls and insurance corrective control The company needs to train their dogs so that the likelihood of such a situation may be less likely to occur They should also ensure that there is a barrier between the dogs and the audience Just in case such a situation was to occur the company should have insurance to correct any financial liability that may occur 11 a Richards Furniture company faces the risk of an employee attempting to defraud the company b If I was an unethical employee of Richards Furniture Company and I knew of such loopholes in their current procedures I would defraud the company by stealing cash or checks I could also alter checks for larger amounts since the company does not apply a limit on checks I could also manipulate the transactions without anyone knowing because no approvals on returns are required c The strongest internal control that Richards Furniture Co possesses is that they imply a segregation of duties Cashiers are only allowed to conduct transactions while an assistant manger reconciles the cashier s totals with cash register tapes invoices and return slips The manager is responsible for making the deposits and quot g the bank With a g g of duties the company reduces their risk of mistakes and inappropriate actions conducted by an employee d Richards Furniture Co can improve their internal control in numerous ways They can set limits on returns and requiring approval on returns over a certain dollar amount The company can also have their sales associate obtain approvals on giving customer s discounts They may also require cashiers to apply restrictive endorsements and limit checks should be required over a specific transaction amount


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