'Ibm Risk Analysis\r'

'Relative surface in the Industry IBM is part of the engine room sectors in the qualify computer systems application (IBM: Summary for external blood Machines- hayseed! Finance). The marketplace cap is 254 one thousand thousand with IBM making up 218. 6 billion. IBM is the magnanimousst partnership telling to the diversified computer systems industry. In a less(prenominal) specific industry of computers IBM only trails Microsoft federation by 12 billion dollars (â€Å" internationalistic transaction Machines Corp. â€Å").Because of IBM’s vainglorious size congeneric to its industry the relative size does not pose a grownup assembly line stake to IBM because they tramp leverage their humongous market sh atomic number 18, capabilities, and achieve economies of scales. Accept commensurate scrutinize adventure is touch by the relative size of IBM in the industry it operates. IBM is a large world(prenominal) mountain and thus there be a rattling large number of fiscal statement users. The large number of financial statement users causes the take stockors to set satisfying audit happen at a cut number and thus clayey planned sensing risk and increasing the amount of curtilage that moldiness be accumulated. major(ip) Competitors IBM’s major competitions in the diversified computer systems industry ar Hewlett Packard Company Common, Tera data raft, Cray Inc. , and silicon Graphics multinational (IBM: Summary for internationalistic personal quotation line Machines- Yahoo! Finance). These competitors do not pose a large risk to IBM because they have much little market- portions than IBM Hewlett Packard Company Common IBM’s c bearst competitor only has a market capitalization of 24. 4 billion and the next closes which is Teradata passel only has a market cap of 10. billion (IBM: Summary for International credit line Machines- Yahoo! Finance). In the computer industry IBM’s major competitors ar Microsoft, Apple, Oracle, Cisco Systems, and Intel kitty (â€Å"International subscriber line Machines Corp. â€Å") IBM due to operating in everyplace one hundred seventy unalike countries in sextuple different industry subdivisions and competitors vary by department from large international enterprises to sm solelyer narrowly pore entities and thus IBM recognizes 100s of competitors (International fear Machines Corporation 2011).Intense competition heedless of IBM being a leader in close to in all segments however does increase risks for IBM much(prenominal) as bell competition which lowers gross margin ratios, losing market sh be, and obsolescence of current returns. IBM’s major competitors by credit line segment atomic number 18 discussed in the next section. Major Products & Competition by Product IBM’s major rail line segments are Global engineering science work, Global line of products serve, bundle, Systems and engineering, and Glo bal Financing.Global Technology run includes strategic In smorgasbordation Technology bysourcing function to transfigure clients exist infrastructures, global care for return which includes process platforms and business process outsourcing, integrated technology run which are a project based portfolio of services to optimize IT which is built around key assets and procure package program to drive efficiency, flexibility, productivity, and reduce costs, and the GTS services spoken language which is responsibly or delivery of IBM technology worldwide. International line Machines Corporation 2011) Global Business Services delivers consulting and system integration which bring esteem to the client by improving strategy and transformation, application concept services, enterprise application, and business analytics and optimization. Global Business Services in any case includes application management services which furnish assistance in application victimisation, man agement, of importtenance and raise for software and custom and legacy applications. International Business Machines Corporation 2011) IBM faces major competition in the global services segments global technology services and global business services from the broad based competitors Accenture, figurer Sciences Corporation, Fujitsu and Hewlett-Packard Company. IBM also competes with India-based service givers, public nebing firms providing consulting services, and companies that nidus on local anaesthetic market and niche service areas. International Business Machines Corporation 2011) IBMs software segment includes the sale of middleware software which enables clients to integrate systems, processes, and applications across a standard software platform. Operating systems are the software engines that run computers. Two trios of the revenue from software is from annuity based recurring license charges and ongoing subscription and support.One third of the revenue comes from one time charge arrangements where customers collapse up front for a license which is typically from one year of subscription and support only they foundation purchase subscriptions and support after the first year. Software offerings include information management software, trivoli software, haulageus software, gifted software, security systems software and operating systems. This segment is in a highly agonistic market and the companies main competitors are CA. Inc. , Microsoft Corporation and Oracle Corporation. International Business Machines Corporation 2011) The IBM systems System Z, Power Systems, and System X range from general purpose and integrated systems designed and optimized for specific business, public, and scientific computing take and form the foundation for IBM’s integrated offerings. Storage includes data reposition products and solutions to help clients retain and manage labyrinthian volumes or speedyly growing digital information. They phone vita lly important issues such as security, compliance, storage optimization, and retention and archiving, availability, etc.Retail store solutions include Point-of Sales and self-service systems and include hardware, software and services. Lastly microelectronics include semiconducting tangible design and manufacturing primarily for use in IBM systems. In systems and technology IBM’s major competitors are Cisco, Dell, HP, Oracle, and EMC Corporation. (International Business Machines Corporation 2011) Global Financing facilitates customers acquisition of IBM systems, software and services and includes client funding, commercial financial support, and remanufacturing and remarketing.Client financing includes take aim and loan financing to end users and internal clients with name between 1 and 7 years. Internal financing supports long term client service contracts in the Global Services department and Global financing also factors a portion of the company’s written rep orts receivable. Commercial financing includes short term stock certificate and accounts receivable financing to dealers and remarketers of IT products. Remanufacturing and Remarketing includes equipment which is returned at the conclusion of a lease contract which is they sold or hired to another client internally or externally.The company competes with Cisco HP and non-captive financing entities of companies like public Electric and banks and financial institutions and in remarketing the company competes with local and regional brokers and original manufacturers. (International Business Machines Corporation 2011) The record of IBM’s products and the intense competition in all its business segments causes some risks on the audit as a consentaneous and the audit of specific accounts.The boilers suit audit risks because there are many implicit in(p) risks associated with intensely competitive environments which can cause products to go bad obsolete, loss in market sha re and lowering gross margin, and the inherent risks associated with financing. One particular account that is affected by this is inventory which should be analyze for accomplishable nourish and possible obsolescence. The software and services that are provided to customers are highly complicated and are bundled together and thus gross sales and accounts receivable should be checked for proper classification and measure.Global financing poses many risks to IBM because of its expo genuine to the risk of economic downturns and the tightening of credit spreads and also there is a risk that the clients they provide financing for leave alone not be able to meet contractual obligations and or default on payments. With global financing the tenders moldiness wanton away positive(predicate) that leasing arrangements are by proper(a)s accounted for and that the set aside presentation and disclosures are include in the notes to the financial statements.For leases the audit objecti ves of classification, the true, and realizable value are of particular importance. Major Customers No clients represent more than 10% of the company’s revenue so lack of major customers reduces risk. (International Business Machines Corporation 2011). Having major customers could be risky because losing the major customer could have a large relate on sales; also having major customers could forfeit those customers to have bargaining power over IBM.IBM epoch it does not have any major customers it is as well dependent on the geographic region of the Americas for revenue. In 2011 the Americas were the source of 43. 1% of the total geographic revenue. (â€Å"International Business Machines Corporation- Financial and strategical Analysis Review. â€Å") This over dependence on the Americas could cause substantial business risk due to the economic downturn in the Americas and if conditions were to become adverse and or demand were to freeze off this could hurt the busine ss. â€Å"International Business Machines Corporation- Financial and Strategic Analysis Review. â€Å") Locations IBM operates in over 170 different countries and one of its major strategies is to expand into emerging markets. IBM’s major markets are Canada, France, Germany, Italy, Japan, the United States, the UK, the Bahamas, Belgium, the Caribbean, Cyprus, Denmark, Finland, Greece, Iceland, Ireland, Israel, Malta, the Netherlands, Norway, Portugal, Spain, Sweden and Switzerland (International Business Machines Corporation 2011).The emerging markets that IBM is focusing on which have higher(prenominal) market growth rates than the global comely are countries in Southeast Asia, Eastern Europe, the lay East and Latin America (International Business Machines Corporation 2011). This causes substantial risk for the company because each earth is going to have different laws to which IBM essential abide by with or face possible law suits.The fluctuations in different curren cies can cause a lot of risk to IBM because the value of revenue in certain(a) countries could decrease substantially and they also must value the different currencies in US dollars for the financial statements. early(a) risks for companies that operate internationally include acquiring exportation licenses, laws and business practices that favor local businesses, trade restrictions, duties and tariffs, and the risk of not be for taxes correctly in the ternary jurisdictions that the company operates in.IBM operating in over 170 companies and is looking to expand into other emerging markets causes a substantial amount of risk for the company and should be considered when conducting the audit. First it affects the audit as a whole because the inherent risk and therefore risk of material misstatement is increased because of IBM’s international operations. Specific accounts and or assertions that are affected by this risk would be sales. Sales should be checked to make sure that the values are holy and that the appropriate specie conversion rates were applied when changing opposed currency to US dollars.Another dimension link audit objective would be accuracy and classification related to taxes payable and tax expense because tax laws are highly complex and the company would owe taxes to binary local, state, and federal jurisdictions due to global operations. Another audit objective that should be checked would be that all requisite disclosures regarding law suits and other contingencies related to contradictory operations are present in the notes to the financial statements and thus satisfy the completeness audit objective and the accuracy and valuation objectives in the presentation and disclosure-related udit objectives. Impact of Technology on Business Operations IBM is part of the technology sector and thus the impact of technology on the business operations of IBM is huge. In IBM’s business of being a computer and software manufact urer and service provider the pace of proficient change is extremely rapid. IBM in order to be competitive with other major companies in the industry must be a leader in first appearance and constantly be developing refreshful products and capabilities to be competitive with other companies also trying to provide similar services in the same sector.Due to the rapid change in technology IBM must direct heavily in research and development which it does with yearbook expenses of approximately 6. 258 billion dollars, 5. 99 billion was for scientific research and application of scientific advances for new and improve products, their uses, and also services and their applications and the other 267 million was for product engineering (International Business Machines Corporation 2011).This investment in research and development is necessary besides lock away has inherent risks because if competitors are able to come out with similar products to IBM’s products before IBM when ce they could lose a substantial amount of market share also the research and development process itself is a long and risky process because it may or may not result in a marketable product with sufficient consumer demand. Rapid technological change also has the inherent risks of causing IBM’s inventory to become out- dated and thus obsolete.Rapid technological change also affects the business operations of IBM because IBM will have a lot of intellectual space as a part of their assets on the balance sheet. In 2011 alone IBM was awarded 6,180 patents and in the last 19 years IBM has been awarded 47,000 patents and been the leader in receiving patents (â€Å"International Business Machines Corporation- Financial and Strategic Analysis Review. â€Å") There is a risk that IBM won’t value these impalpable asset items properly and thus cause misstatements in the financial statements.Rapid technological change has the overall return on the audit of increasing the amo unt of inherent risk in such accounts as intangible assets, and also research and development expenses. Specifically the audit of intangible assets will be affected because the auditor must pay specific attention to the valuation and apportioning assertion and make sure that the intangible assets are valued at the correct amounts and that any necessary adjustments to the value of the intangible assets is made. Another balance related objective they should make sure the client satisfies is remedys and obligations.The auditor should make sure that the client has the right to this intellectual property which can be satisfied by checking the related patents. The other account that must find special attention is research and development. The auditor needs to make sure that all research and development is being expensed and is not capitalized and thus the classification of proceeding related to research and development are properly classified as expenses and that related product expens es are only capitalized once the product has hit the market. modified accounting PracticesIBM is affected by special accounting principles for revenue recognition. Revenue recognition for software vendors can be extremely complex and one of the complexities for software vendors is for multiple-deliverable revenue arrangements. Software vendors are able to account for individual products and services that are bundled together as a package separately if they can make a best estimate of each items beauteous value selling price. Companies must come up with vendor specific objective evidence (VSOE) of the delightful value in order to account for them separately.If VSOE exists for undelivered items but not for delivered items the company uses the residual method but if VSOE of fair value doesn’t exist for the undelivered items then revenue cannot be recognized until VSOE of fair value does exist or all items have been delivered. early(a) issues that complicate revenue recognit ion for software companies such as IBM are whether or not new products are more than minimally different from existing products or whether it is just an upgrade.If an arrangement does include the right to an upgrade it must be determined whether the right is specified and whether VSOE of fair value can be determined or if it is unspecified and just included in PCS. Lastly if the company makes price concessions those must be analyzed to see whether they are stand-alone concessions or whether they expect to make similar price concessions to other customers because this could have a large effect on the realizable value of accounts receivable and the appropriate numbers to report in sales. (Triplett & Miller)The complexness of multiple deliverable revenue arrangements has a large impact on the audit. First and foremost the complexness of these accounting rules causes a large increase in the inherent risk. Specific audit objectives which are affected by these risks would be the reali zable value of accounts receivable, the accuracy of sales, and the timing of revenue recognition in the sales cycle. If the company commonly makes price concessions then the realizable value of accounts receivable could be over-valued unless the company makes presumable estimates of this and recognizes it with the original sales.Sales could be over or on a lower floor valued if the VSOE of fair value is not accurate and the auditors must check that there is substantial evidence to support the prices the vendors come up with. Lastly the timing of sales could be greatly affected by these accounting principles because if VSOE of fair value cannot be conventional then revenue recognition must be delayed until all items in the arrangement are delivered. Works Cited â€Å"Diversified Computer Systems Overview: Industry centralize †Yahoo!Finance. ” Diversified Computer Systems Overview: Industry common snapping turtle †Yahoo! Finance. Yahoo, 2012. Web. 30 Nov. 2012. <http://biz. yahoo. com/ic/810. html>. â€Å"FASB Accounting Standards update Number 2011-02. ” FASB. org. Financial Accounting Standards climb on of the Financial Accounting Foundation, Apr. 2011. Web. 30 Nov. 2012. <FASB Accounting Standards Update Number 2011-02>. â€Å"IBM: Summary for International Business Machines- Yahoo! Finance. ” Yahoo! Finance. Yahoo, 2012. Web. 0 Nov. 2012. http://finance. yahoo. com/q? s=IBM â€Å"International Business Machines Corp. ” International Business Machines Corp. : NYSE:IBM Quotes & password †Google Finance. Google, 2012. Web. 30 Nov. 2012. <http://www. google. com/finance? q=IBM>. International Business Machines Corporation (2011). 10-K Annual Report 2011. Retrieved from SEC EDGAR website http://www. sec. gov/edgar. shtml â€Å"International Business Machines Corporation- Financial and Strategic Analysis Review. ” Global\r\n'