Background Information

SHR Corporation (SHR) is a midsize, publicly-traded direct marketer and retailer of outdoor sporting goods based in the United States. Its common stock is listed on the New York Stock Exchange under the symbol SHR.

The company prides itself on selling high-quality outdoor sporting goods at competitive prices and providing outstanding customer service. SHR directly markets its merchandise through two major channelsits catalogs and its websiteto customers in the United States and nearly 100 other countries. It currently has retail stores and distribution centers in the United States, Canada, and Europe.

SHR Corporation recently purchased MVF Company, a manufacturer of high-quality outdoor sportswear. SHR also purchases merchandise from highly reputable vendors in the United States and several other countries.

SHR Corporation has enjoyed several consecutive years of sustained growth as reflected in the selected financial information, expressed in millions of dollars (US), presented below:

Senior management is continuing its efforts to grow the company, increase its market share, and enhance shareholder value by:

Further expanding its direct sales globally. Systematically increasing the number of retail stores. Selectively acquiring other businesses that are aligned with its core competencies.

Increasing competition over the past several years has motivated management to continuously pursue new and innovative ways to differentiate SHRs products, streamline the companys business processes, and take full advantage of advances in IT. Operating efficiency is a critical component of SHRs competitive pricing strategy.

The risks that concern senior management the most heading into fiscal 2018 include:

- The continuing economic uncertainty further decreases discretionary consumer spending, which in turn will adversely affect the companys sales and profitability.

- Mounting competition in the industry may make it increasingly dif cult to differentiate the companys high-quality merchandise at prices consumers are willing to pay.

- Deterioration of the companys brand or its positive image in the marketplace may adversely affect sales and profitability.

- Failure to successfully integrate newly acquired businesses may adversely affect the companys performance.

- The inability to generate operating efficiencies and leverage IT may adversely affect the companys prof- its.

- Placing too much emphasis on operating efficiencies may adversely affect product quality and customer service.

During the first six months of 2018, SHR has experienced slower sales growth and higher operating expenses than anticipated. There is growing concern that forecasted performance targets for the year will not be achieved.

Scenario: Using IT to Gain a Competitive Edge

Judiciously leveraging advances in IT is a fundamental enabler of SHRs business strategy. In fact, SHR is recognized within the industry as a leader in the use of IT to gain operational efficiencies. For example, SHR implemented electronic data interchange (EDI) with its primary vendors several years ago to streamline its purchasing process and to maintain an uninterrupted ow of incoming inventory to its distribution centers and retail stores. The company places special emphasis on IT controls.

Illustrative business objectives and associated risks pertinent to SHRs heavy reliance on IT are expressed as follows:

Business Objective 1: Align the companys IT strategies with its business strategies. Judiciously leverage advances in IT to streamline the companys business processes and information systems, gain operational efficiencies, and increase shareholder value.

Business Risk 1a: Insufficient, irrelevant, unreliable, inaccurate, and/or untimely information may cause management to make poor IT investment decisions.

Business Risk 1b: Failure to effectively and efficiently integrate acquired IT resources into business processes may adversely affect operational performance and cause unacceptable returns on IT investments. Business

Objective 2: Safeguard the companys resources against misuse and loss.

Business Risk 2: Unauthorized company personnel and/or outside parties may access the companys information systems and misuse or misappropriate proprietary information and other assets.

Business Objective 3: Accurately record all valid, and only valid, purchase transactions on a timely basis.

Business Risk 3a: Failure to record a valid purchase transaction may cause inventory and accounts payable to be understated.

Business Risk 3b: Recording an invalid purchase transaction may cause inventory and accounts payable to be overstated.

Business Risk 3c: Recording a valid purchase transaction in the wrong accounting period may cause inventory and accounts payable to be understated or overstated. Auditing Entity-Level Controls

Business Objective 4: Process purchase transactions efficiently, that is, with a minimum of time, effort, expense, and waste.

Business Risk 4: Disruption or corruption of electronic transmissions between the company and its EDI vendors may cause delays in processing purchase transactions, which in turn will cause inventory shortages at the distribution centers and retail stores.

Use the business objectives and risks stated above as the basis for answering the following questions. As he or she deems necessary, your instructor will facilitate the formulation of collective answers to certain questions that will serve as uniform starting points for answering subsequent questions. Students may want to refer to chapter 7, Information Technology Risks and Controls, as they complete the Scenario 2 Activities.

Scenario Activities

1. SHRs senior management team understands the importance of aligning the companys IT strategies with its business strategies. Identify two types of IT strategic decisions senior management already has made or is likely to make in the foreseeable future. Clearly explain the linkage between these IT strategic decisions and SHRs business strategies.

2. Sound decision-making requires high-quality information.

a. What information does senior management need to make informed IT strategic decisions?

b. Identify the entity-level controls you would expect to be in place to ensure that senior management has high-quality information upon which to base its IT strategic decisions.

3. Explain what role, if any, internal audit should have in the IT strategic decision-making process.

4. One of SHRs business strategies is to selectively acquire companies that complement its core competencies.

a. Explain the effects a business acquisition could have on the inherent risk of failure to effectively and efficiently integrate acquired IT resources into its business processes.

b. Describe the entity-level controls SHR should have in place to mitigate these effects.

2015 $491.3 Total Assets Sales Revenue Operating Income Net Income 2017 $700.5 763.5 57.5 34.3 2016 $546.5 665.7 45.0 29.0 589.8 38.9 26.0 2015 $491.3 Total Assets Sales Revenue Operating Income Net Income 2017 $700.5 763.5 57.5 34.3 2016 $546.5 665.7 45.0 29.0 589.8 38.9 26.0