Assume you are an auditor at an accounting firm. Your team is getting ready to start a financial audit of Robbins Network Solutions (RNS). You will start with the initial review and audit preparation. 

 

You know the following information about RNS.

 

Objectives of the Engagement Audit of the financial statements for the year ended December 31, 2017. 

 

Business and Industry Conditions RNS sells and installs computers and networking hardware and software, and provides information technology consulting to businesses. It is currently developing its own computer networking software to sell to customers. 

 

RNS's success depends on attracting and retaining personnel with a high level of technical expertise who are able to provide a broad range of services. The market for staff is highly competitive. 

 

The market for computers and networking products is extremely competitive. RNS's main competitors are companies like Dell, Hewlett Packard, and Apple. RNS also competes with local and regional resellers that provide similar products and consulting services directly to customers. To be competitive, RNS has relied on its ability to provide its customers with state-of-the-art products in a timely manner. Because the company does not have the buying power of some of its competitors, it generally must charge a higher price for its products, but it is also able to provide a higher level of service and expertise to its customers to compensate for the higher price.

 

The market for computer products and technology services is sensitive to economic conditions. Economic indicators predict the U.S. economy will be relatively stagnant for the next few years, with the annual growth in spending for information technology products and services expected to be 1 percent per year for the next three years. In the past year, RNS has decided to increase sales by relaxing credit rules to provide credit to customers with slightly higher credit risk.

 

Ownership and Management RNS is a closely held company owned by six stockholders. Two stockholders are active members of the company's board of directors. None of the other owners take an active part in the management of the business.

 

Objectives, Strategies, and Business Risks RNS's primary business objectives are to increase sales, services, and consulting revenues by five percent and increase net income by seven percent each year for the next three years. Strategies to achieve those objectives include:  ? New software development ? Aggressive marketing of products and services through increased advertising ? Sales to customers with a higher credit risk profile

 

The primary business risks associated with the company's strategies include the following:

 

 

? The U.S. economy may suffer a significant downturn. ? Competitors may engage in predatory pricing to gain market share. ? Increased advertising expenditures may not produce desired results. ? Credit losses may exceed the benefits of increased sales. ? Software development activities may not generate viable products.

 

The company has developed the following responses to these risks:

 

? Frequent monitoring of economy and industry conditions ? Monitoring of competitor actions ? Hiring of a marketing consulting firm to evaluate the performance of advertising methods ? Daily review of aging of accounts receivable ? Adherence to a controlled software development budget

 

Measurement and Review of Financial Performance Management uses the following measures to monitor the company's performance:

 

? Inventory and receivables turnover ? Aging of accounts receivable ? Sales and gross margins by type of revenue ? Net income ? Total inventory balance 

A. Describe the major financial business transactions of the company. Include appropriate research to support your answer. 

B. Evaluate the highest business risks associated with this company. What makes you believe these specifically are the highest risks? Provide appropriate research or data to support your reasoning.

C. What would you suggest are the appropriate types of internal controls for this industry? Why?

D. Describe ethical issues involved with this company and industry that would have a direct effect on the outcome of a financial audit. How could these issues be addressed? 

E. Analyze current events for their impact on this company's risk and internal control in the future. Include documentation of these current events