Introduction
The Newham Company focuses on manufacturing personal care products, which it sells to stores including Walmart and Target. The organization’s top beauty and personal care industry competitors comprise Avon and Revlon. These companies distribute grooming products, body deodorants, perfumes and colognes, cleaning pads, lotions, and body cleaners, among others. The increase in demand for a company’s products is associated mainly with rapid population growth, more employment in the sector, and sufficient and increased disposable income. The company’s critical market issues include increasing manufacturing and marketing costs, the safety of the products sold, increased counterfeit products, and competition among sellers. According to Market Watch (2019), the industry has a market size of $430000 in 2019 and is projected to be $800000 in 2025. Thus, the market is readily available and continues to expand, putting Newham in a good position in the industry.
Based on the definitive history, the company’s income has grown. The company’s top managers and executives are reported to have received bonus payments because of the firm’s good performance over the past few years. However, the paid bonuses were associated with different opinions, which led to the replacement of the organization’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO). Moreover, other claims, such as those associated with advertising the company’s new products, were grave. The customers indicated that Newham presented new products in ways that misled them into using products they were not supposed to buy. Many of the firm’s clients reported allergic reactions due to the products they bought following the campaigns of such items. The harm caused to the customers resulted in the company being sued for producing products that caused such harm to the public. Consequently, the organization must find new ways of alleviating such risks and prevent future negative press and social media negativity.
Risk assessment of the company’s day-to-day operations is crucial as it can help the firm to explore and identify the potential areas and factors that are likely to result in risks. According to Starr and Whipple (2019), risks can be considered based on two factors that include consequences and probability. The executive management team and all the employees in every department of the organization should always be aware that there is a potential for an event to go wrong. This benefits the company because by knowing such issues can occur, the teams can employ measures to alleviate the problems (Starr & Whipple, 2019). However, each worker should be trained to know that it is not always accessible to identify a given problem, which reveals that an issue can happen despite the vigilance of the teams. The PCAOB AS 1101: “Audit Risk” compels auditors to audit financial statements so that their operations should reduce the identified risks to the lowest possible levels (PCAOB, n.d.). The guideline indicates that it is crucial to plan and conduct audits to give excellent and desirable assurance on the grave misstatements and errors resulting from the fraud conducted by concerned parties.
Sample Audit Program
The table below gives a sample of the audit program for Newham.
Report of Recommendations
This section proposes changes that can help reduce Newham’s potential risks based on the review conducted on the company’s internal process. The company must avoid any possible lawsuits based on the side effects of the company’s products. This can be done by gathering all product side effects and giving full information to the customers, so they are informed about the product before purchasing them. The audit revealed 83 deviations from the 213 sales transactions reviewed as follows:
- There were no credit approvals for 42 sample items. Implementing an additional process in the accounts receivables and sales is crucial to account for credit approvals transactions. The supervisor of every department must only sign off credit approvals for a borrower who has been reviewed, and their details confirmed as accurate.
- The wrong quantity billed was identified on five items. While there is a step used to verify an order before it is shipped, it is also crucial to add a checklist that will help thoroughly verify the information a client provides before the order is packaged. A second individual should be tasked with packaging the order, thus individually reviewing, verifying, and signing off the items by clearly indicating the packed items, their prices, and the quantities ordered for each product. The verified information from the two handling officers should be the same when they reach the accounts receivable department.
- There was a mathematical error on 10 sample items. Mathematical errors are likely to have originated from manual manipulations of the data during input. However, the errors can be reduced by using electronic forms with formulas that automatically perform the computations.
- No shipping document could be located for 25 sample items. It is crucial to scan and store all the copies of shipping-related documents. The physical copies of these documents can be held for a few months and then destroyed.
Fraud is another grave issue that affects almost every company globally. This called for the implementation of SOX due to the frequent cases of accounting and organizational scandals within the U.S. The Act is crucial because it gives the regulations and rules guiding auditors’ conduct, internal control assessments, improvement of financial disclosures, and corporate governance (Gorshunov et al., 2020). The company should provide its employees with ways to report potential fraud and report anonymously.
References
Gorshunov, M. A., Armenakis, A. A., Feild, H. S., & Vansant, B. (2020). The Sarbanes-Oxley Act of 2002: Relationship to magnitude of financial corruption and corrupt organizational cultures. Journal of Management, 21(2), 73. Web.
Lee, G. (2019). Internal control strategies for compliance with the Sarbanes-Oxley act of 2002 (Doctoral dissertation, Walden University).
Market Watch. (2019). Beauty and personal care market size report 2019 | Profound evaluation of key players, drivers initial opportunities and provincial trends by 2025. Web.
PCAOB. (n.d.). AS 1101: Audit risk. Retrieved from Public Company Accounting Oversight Board: Web.
Starr, C., & Whipple, C. (2019). Risks of risk decisions. In Risk in the Technological Society (pp. 217-239). Routledge.