Apple Inc.

Company Background

Established back in the year 1977, Apple Inc. remains one of the leading multinational technology companies headquartered in the United States; alongside Amazon, Google and Facebook (Rawlinson). Basically, the company specializes in designing and manufacturing of personal computers, mobile phones, media devices, software, services, accessories and third party digital content and accessories. Other products and services that the company offers to its customers include- but not limited to; iPhone, Mac, iPad, Home Pod, Apple Watch, Air Pods, Apple Tv, software applications, ICloud and Apple Pay (Rawlinson). Through partnership with the third party the company is also able to provide digital contents through the App Store, iTunes store, Mac App store, Tv App store, Apple Music and Book store. Customers throughout the world are able to access the products from online, retail stores as well as from wholesalers, retailers, resellers and third party cellular network who sells the products (Rawlinson). Ernst & Young audit firm acts both as an external auditor and tax advisor to the company where every year they must submit an annual audited report on the company’s public financial statements to ensure transparency to the shareholders. The Company’s fiscal annual audit period is 53 weeks which ends on the last Saturday of September.

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Business Model/Strategy

In order to fully satisfy its customers, the company develops unique, innovative, and efficient products and services, thus enabling them to compete effectively with the competitors while at the same time ensuring that customer engagement remains high. Due to the seamless integration and superior use of its products, everybody can easily use the company’s amazing products (Heracleous). Apple, being a multibillion-dollar company, generates its revenue through selling personal computers, mobile phones, media devices, hardware, software to its customers throughout the world. The company also acquire digital contents from third parties which can be easily downloaded and streamed by anyone in the world.

An underlying strategy applied by the company pertains to its products and services. The company strives to provide high-end convenient and luxury goods, targeting consumers ranging from organizations, individuals, and students. The company has also developed a variety of learning products for students and educators where they conveniently share and easily access educational materials on iTunes platform. In the modern digital age, the integration of technology and technological systems into the learning environment has prompted to tremendous improvement of student’s performance. The hardware and software products are also very convenient to enterprise and government customers in the reportable segments. These products remain highly marketable within the United States and across the world, taking into consideration the Apple brand, as well as other factors such as their high performance, productivity, seamless integration ease-of-use into the information technology environments.

As another business strategy, Apple is also involved in the production of third-party products. The company ensures that these products remain effective and compatible with the services and business applications of these third parties (Heracleous). The mobile phones, personal computers, applications produced by the company are clear examples of convenient goods while music, games that targets teenagers and young adults are luxury goods. The auditable entity is less than the entire entity. Apple majority revenue comes from internal operational operations and in order to evade tax, thy only conduct audit of some companies and eliminates intercompany accounts and transactions from some subsidiaries.

Business Risks

Global and Regional Conditions

Basically, the company’s entire performance and operations depend majorly on the global and economic conditions since majority of the company’s manufacturing, assembly activities and supply chain are located outside US. High rate of inflation, increased tariffs, stagnant growth, regular fiscal and monetary changes, higher rate of interest, high unemployment and currency fluctuations are the macroeconomic challenges the company faces (Lockamy). Also volatility in financial markets, decline in the valuation of assets, high healthcare costs and instability in the real estate and mortgage markets leads to consumer confidence in the products and services thus less spending.

Stiff Competition

Another challenge of operating in the international market is the aggressive price competition which adversely results in lower gross margin however. the company must adhere to in order to retain and attract more customers. Also the company must be aware of the changes in the industry, technological advancement, price sensitivity, product’s short life cycles and the new products introduced in the market by the competitors (Lockamy). To compete successfully, the company must be able to introduce new products, services and technologies

The company is prone to supply and pricing risks especially when obtaining its raw materials which comes from single or limited sources. In the process experiences risks such as fluctuations in prices, shortages and delay and this directly affects the financial and operating activities of the entire company (Lockamy). The company also encounters licensing and distribution challenge when acquiring contracts from third parties.

Auditing Risks

According to International Standard of Accounting 315, during risk assessment and before an auditor conducts an audit, they should have sufficient understanding of the client’s business, operations and environment so as to easily assess the risk of material misstatement of the financial statements.

In this case, the auditing risk that the company is likely to encounter is when the actual amount of a subsidiary selloff is not realized through any sale transaction done by the Finance Director with the approval of the Board. Thus, the financial results have to be manipulated to increase the shares market value prior to the sale transaction. Overstatement of underperforming subsidiaries to convey a higher financial performance thus portraying a high market value of shares whereby in real sense the current market price of the subsidiary shares is very low (Yoon, Hoogduin, & Zhang). Major cash outflow is another risk that may occur during a sales agreement due to adjustment of final price which most of the time is much lower than the actual price charged to the customer and this will result Sales revenue being recorded in an estimate basis which is always biased and not based on realistic assumptions on the sales price.

Another auditing risk pertains to the company’s employees. For instance, the accountants in the company recording the financial transactions may fail to fully capture the provisional and revision pricing in goods and this adversely affects the final audited statements since my audit is based on the information provided by the company (Yoon, Hoogduin, & Zhang). Also, there’s a high chance of overstating the asset value in the financial position statement if the cost incurred during the processing activities is not recovered thus the final audit report will not be correct and hence violating of professional ethics and code of conduct.

 

Works Cited

Heracleous, Loizos. “Quantum strategy at apple inc.” Organizational Dynamics 42.2 (2013): 92-99.

Lockamy III, Archie. “An examination of external risk factors in Apple Inc.’s supply chain.” Supply Chain Forum: An International Journal. Vol. 18. No. 3. Taylor & Francis, 2017.

Rawlinson, Nik. “Apple Was 41 Years Old In April, Here’s Some History.” Macworld UK. N.p., 2017. Web. 1 Nov. 2019.

Yoon, Kyunghee, Lucas Hoogduin, and Li Zhang. “Big Data as complementary audit evidence.” Accounting Horizons 29.2 (2015): 431-438.