Dell Computer Corporation (Dell) designs, develops, manufactures, markets, services, and supports a wide range of computer systems, including desktops, notebooks, workstations and network servers. \({ }^{1}\) The company also markets software, computer peripherals, and post-sale service and support programs. The company's products are sold in more than 170 countries and it has manufacturing facilities in and around Austin, Texas; Nashville, Tennessee; Eldorado do Sul, Brazil; Limerick, Ireland; Penang, Malaysia; and Xiamen, China. Net revenue for fiscal 2002 was \(\$ 31.2\) billion while net income was \(\$ 1.8\) billion.

The company's business strategy is to deliver the best customer experience through direct, comprehensive customer relationships, cooperative research and development with technology partners, custom-built computer systems and service and support programs tailored to customer needs. The direct customer approach eliminates the need to support an extensive network of wholesale and retail dealers. This direct customer focus allows the company to reduce the cost of its products by avoiding typical dealer markups and avoiding higher inventory costs associated with the wholesale/retail channel. In addition, direct customer contact allows the company to maintain, monitor, and update a database of information about customers and their current and future product and service needs, which can be used to shape future product and service programs. The company's partnerships with leading edge technology companies create efficient procurement, manufacturing, and distribution processes that allow Dell to bring relevant technology to its customers faster and more competitively priced than many of its competitors.

Dell common stock is traded on The NASDAQ national market, and Dell is required to have an annual audit pursuant with the 1934 Securities and Exchange Act. As of the close of business on April 15, 2002 Dell had 2,595,716,115 shares of common stock outstanding with a trading price of \(\$ 25.87\).

INFORMATION ABOUT THE AUDIT
Your firm, Smith and Jones, PA., is in the initial planning phase for the fiscal 2003 audit of Dell Computer Corporation. As the audit senior, you have been assigned responsibility for gathering and summarizing information necessary to evaluate Dell's business risk. Your firm's memorandum related to the client business risk evaluation has been provided to assist you with this assignment. Assume no material misstatements were discovered during the fiscal 2002 audit.

REQUIREMENTS
1. Go to the investor relations section of Dell's web site (try, "http:// www.dell.com/us/en/gen/corporate/default.htm") and review background and investor information provided about Dell. Print and read the most recent SEC Form 10-K provided for Dell.
2. Based on the information obtained from the web site and your knowledge of the industry prepare a memo discussing the following items:

a) Dell's:
- Sales - Net income - Cash flow from operating activities - Total assets - Number of employees

b) What are Dell's products?

c) Who are Dell's competitors?

d) Who are Dell's customers?

e) Who are Dell's suppliers?

f) How does Dell market and distribute its products?

g) What is Dell's basic business strategy (cost leadership or differentiation)?
h) What are critical business processes for Dell given its basic business strategy (for example, supply chain management)?
i) What accounting information is associated with the critical business processes and how does Dell measure-up on that information?
j) What accounting method is Dell using to report the accounting information associated with critical business processes and what is the risk of material misstatement?
This memo is to be used as a foundation document for the preliminary business risk assessment. In evaluating Dell's performance and assessing the risk of misstatement, please be sure to describe your reasoning. Your memo should be double-spaced and addressed to the partner for the engagement (your instructor). Your firm demands polished, concise, professional analyses and writing. Be thorough, but get to the issues without unnecessary verbiage. In describing your analyses and conclusions, please consider relatively short "punchy" or to-the-point sentences. When appropriate, consider using bullet point listings.

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Smith and Jones, PA. Memorandum: Business Risk Evaluation This memorandum provides a general framework for firm personnel when evaluating client business risk for purposes of determining the nature, timing, and extent of audit procedures. Knowledge about the nature of the client's business activities and related business risks provides a basis for the auditor's assessment of the risk of material misstatement. The auditor's assessment of the risk of material misstatement is used to determine the nature, timing, and extent of audit procedures. The intent of this memorandum is not to suggest that this framework must be followed on all audit engagements. The appropriateness of this framework must be determined on an engagement by engagement basis, using professional judgement. Client business risk is the risk that a client's business objectives will not be achieved. Business risk results from the interaction of internal and external business forces. Clients achieve business objectives by setting strategies and then designing and implementing processes to execute those strategies. Strategies represent the overall approaches used by management to achieve its business objectives. Business risk is reduced when the client effectively aligns its business strategy and processes with the external business environment. Business risk is increased when the client does not effectively align its business strategy and processes with the external business environment or when new external business conditions emerge to weaken the alignment. The dynamic nature of today's business environment requires that clients do more than develop processes to execute their current business strategy. Clients must also develop processes to monitor the changing business environment and reorient their strategies and processes as environmental business conditions change. Clients must continually scan their business environments for changes that may threaten achievement of their business objectives.