Accounting Information System Risk

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Accounting Information System Risk

The main aim of this article is to highlight the risks and security threats faced by a Hong Kong based online supermarket. It typically examines the status of current e-commerce businesses across Hong Kong, particularly the ones specializing in fresh produce. The careful analysis of facts and figures based on this information shows that there are several risks and security threats associated with online supermarkets. The risks can be broadly categorized into primary and secondary, and can be further sub-categorized. For the safe running of an extremely vulnerable (yet profitable) online business, it is quite important to chalk out the strategies and measures beforehand. The report concludes by enlisting the various risk management measures that can be applied efficiently to protect the business in times of a crisis.

Background

Online shopping has become a part and parcel of everyone’s life. It is a fact beyond denial that e-commerce has slowly but gradually posed itself as a market takeover business, ready to outpace U.S. brick-and-mortar in the upcoming decade. Numbers suggest that it will reach a total of around $370 billion by the year 2017. The extensive growth of e-commerce is irrespective of the geographical location in contrary to the popular belief that western countries are much more advanced in this business. E-commerce industries are budding in countries like China, Japan and India, and these companies are equally competing in the global market. For instance, Chinese e-commerce Company – Alibaba group has been giving a tough time to giants like Amazon and Walmart. Recent statistics has shown that the numbers are rising in countries like China and India, and they are even successful. On the other hand, over the past few years the numbers have steadily declined in the West due to the stringent government policies. The tax laws have become stricter, the revenues have gone down and there are numerous other reasons for this decline.

Hong Kong has seen a tremendous growth in the online business sector over the last decade. Here are a few facts about Hong Kong:

  • The overall penetration rate of mobile subscribers: 240.2%
  • The penetration rate of broadband connection: 83.3%
  • Penetration rate of PCs for various business sizes (ranging from small to big): 75.2%
  • Percentage of internet usage by business organizations (all inclusive): 74.8%
  • Total number of hotspots established by private sector and the Government: 31,879
  • Total ICT spending: 6,273 million

These stats clearly reveal that why Hong Kong has become an ideal place for a new online based business. There are other benefits as well. The initial capital and fund requirement is low. The friendly government policies like 0% corporate tax for outward-bound transactions, no sales tax make it even easier for the new companies. So Hong Kong is an ideal place for setting up an online business.

Despite several policies and benefits, there are potential risks even in Hong Kong. Every business has its unique set of risks. A physical warehouse situated in an earthquake-prone area, for instance, can go down at any point of time. An online store’s payment getaway can be brought down by an anonymous hacker. Likewise, online companies in Hong Kong also face a wide variety of risks.

On the other hand, security threats have become a major issue for online companies over the past few years. Cyber-attacks have led to the loss of revenues. Many people have had a psychological effect on their mind questioning the safety during a purchase. So starting a business may seem very exciting and well-decided initially but as the problems slowly develop, they begin to diminish all the excitement that once used to exist.

An online supermarket based in Hong Kong is prone to all kinds of risks. The involvement of perishable items, dependency on online consumers and several other essential factors play a huge role in determining the success of the business. There will be risks, but there is no denying the fact that effective strategies can be devised to minimize them to a certain extent (if not completely).

The next section presents an elaborate discussion on the various risks posed on an online supermarket specializing in fresh produce. The countermeasures have also been highlighted elaborately.

Discussion

This section talks about the potential threats faced by a typical online supermarket in Hong Kong and the measures to mitigate those threats.

As the risks are exclusive to a typical online supermarket, it is very important to focus on the particular dimensions that define the risks, value and financial forecast for it. The following are a few issues that require investigations, analysis and interpretation prior to their acceptance.

Social Risks

Social risks are an important constraint for every online-based business. One of the issues that will eventually crop up is Unsustainable Site Traffic. In the parallel online universe, site traffic and success are two sides of the same coin. Online Companies depend heavily on organic search capabilities in order to achieve sustained site traffic. It is a fact that online companies generally advertise through Google AdWords and other such mediums. Still, sustaining site traffic remains a sturdy and hard to deal with the challenge for any online company.

Nowadays, Corporate Social Responsibility (CSR) is an important aspect for every company. There are regulatory organizations constantly monitoring a company on social and environmental grounds. Any violation can lead to huge amounts of fine. And, there is always a risk for companies (specializing in fresh produce) because the main source of raw materials is very closely linked to environment and other related factors.

Financial Risks

One of the most important and dreadful financial threats a business may pose is the risk of losing the main income source. Such horrifying moments may appear in any business where the business model may crumble in an instant without any warning, leading to bankruptcy. Once the online business starts to roll smoothly, nobody cares about the worst. There is a certain possibility of becoming complacent thinking that good times will continue till eternity. But the scenario may change entirely within moments and without any prior notice.

For an online supermarket, the business is fragile during the initial stages. There is a lot of competition all around and there is not a consumer base yet. The stakes are high and a lot of money is involved. There is no fixed “return on investment”. In the case of other online companies, the market gradually becomes stable. But the scenario is not the same here. Even if the market becomes stable, the customers will always root for the cheapest and best products. There is always some company ready to shell out quality products at a lower rate to get a hold of the market. Again at times, the quality can degrade due to some unknown reasons. All this affects the revenue of the company.

Accounting Information System Risk
Accounting Information System Risk

It is a matter of fact that most online businesses do not audit their financial records. As a result, in order to verify financial disclosures, the sellers have no other choice but to rely on secondary checks by using combined site metrics and industry benchmarks. If one such aspect of the website’s financial information does not fit with the site metrics, it could indicate that the particular financial information is fraudulent or flawed. In that case, the business may run the risk of being labeled as fraud and non-genuine.

Marketing or Business Risks

Staying unaware of the present market demands and trends can prove hazardous for any online business. Innovation is the key to success in these kinds of companies. The current trends of the market keep changing every now and then without any prior notice. On closer examination, it has been seen that sometimes a business can lead astray and not serve the demands of the market properly. It, therefore, runs the risk of becoming vague and unpopular among the audiences or customers. Every time it’s not about innovating a new product, sometimes a different approach is needed. And not everybody can do that. And that’s why a majority of the online ventures fail today.

For instance, a majority of the online supermarket store sells discounted products to get a stronghold in the online market. This is a common approach used by almost all the sellers. After a certain point of time customers are not interested anymore. Why? Because they are bored to see the same adverts and the same type of deals every day. Some of the online companies take a major hit from this decline and are forced to shut down. And, this can happen to anyone.

Physical Risks

Starting a business is one thing, and managing it is totally different. The owner not only has to manage the funds and invest a lot, but a lot of physical exertion is required in order to ensure smooth flow of the business. Reliable survey reveals that 60% of the average businessman’s time is spent in working hard in order to make the company successful, and the rest of the time is spent on worrying about what is still left to be done. Although more often than not, the rewards of entrepreneurship outweigh the personal risks undertaken by businessmen, but it has also been observed that these risks prove to be lethal in more than a few cases.

Security Threats

Security threats are a major concern among the online retailers these days. The number of hackers has grown over the past few years, and the consequences are worse than ever. From sites getting affected by malware to the breaching of firewalls and what not – the safety of online companies are in jeopardy. Nobody knows when a DOS (Denial of Service) attack will cripple the entire system or when the entire database is wiped out. Things can go haywire in spite of stringent measures. And, this kind of online attacks is even carried out just for fun. A simple example will highlight the present condition of cyber security throughout the world.

A customer has a particular set of products in his cart waiting to checkout, scrutinizing the last minute changes. Once the payment is successful, the seller confirms that the products will be delivered within the next 24 hours. The hacker has already played his part in between. When the products are delivered the next day, the customer is shocked to find the irrelevant products. The hacker had changed the products in the cart. So the customer ordered something, and the online seller received something totally different. So, this customer will never visit the particular website again. And, the company gradually loses its customer base.

Control Measures

Continuous and critical analysis and examination of business have led to the discovery of one fact: Risks in business cannot be nullified, they can only be minimized. While describing the various ways by which one could minimize risks and protect one’s business from threats, proper identification of the threats and its consequences must be clearly illustrated. After that, a company might resolve to a simple good risk management practice that includes contingency and vigilance arrangements or it might adhere to protective security measures in order to reduce the risk to a greater extent.

The following are some of the tried and tested risk management strategies to ensure the smooth running of a business:

Risk Assessment

Assessing the risk is the foremost job that must be undertaken because that would determine the necessary control procedures or security measures required to be implemented. A thorough examination of the available options must be performed in order to avoid investment in ineffective, expensive and unnecessary equipment. Careful planning can prove to be really instrumental in keeping the costs down. For example, introducing new changes at the time of building or refurbishment work may turn out to be profitable.

Planning

Planning is a two-step process. The first one is forecasting because planning foresees the future. Forecasting is all about estimation techniques based on some predefined methods and proper analysis. Estimating the demand, revenues and the risks priorly can cut down the potential threats. Predicting the amount of particular item that a customer will buy the next month requires some amount of skill and a lot of analyses. A lot of wastage can be saved, which in turn reflects in the base revenue. Planning is the best way to devise some strategies (and the backup plans) so that a structured way can be followed while managing a risk.

Adept Cyber Security

In the case of an online shopping website, the importance of cyber security increases manifold. Information security controls are the process, technical, policy and physical safeguards that are designed for the protection of sensitive data by mitigating the identified risks to its integrity, confidentiality and availability. Obtaining an excellent data security program that ensures control and management of identified data security risks is a must regardless of the type of online business. It will limit the organization’s vulnerability to data compromise and hence significantly influences operational, reputational, legal and strategic risks.

Prevention of Employee Theft

Preventing embezzlement or employee theft can be difficult at times. The first and foremost thing is to recognize the signs of warning and, therefore, implement an efficient internal system of controls. The term ‘embezzlement’ is a fancy way of describing that the employees are stealing from the company, and it is a common scenario, especially in online-based grocery stores. A few signs have been interpreted below as warning signs of embezzlement.

  1. A fraudulent scheme is often covered up by atypical bad-debt write-offs. A decrement or little increase in credit or cash sale could indicate that a number of transactions have not been traced.
  2. Concealments of accounts receivable payments can be done by increasing the overall sales returns.
  3. Too many bounced company checks can be a result of funds that are siphoned out of the bank account.
  4. Often embezzlement is masked aptly by slow collections.

Risk Insurance

In managing risk, insurance could act as a principle safeguard. And it must be noted that most risks are insurable. For any business occupying physical space, the first necessity is fire insurance. Product liability insurance comes next in the list. Some specialized insurance companies underwrite cash bond in order to provide monetary coverage in case of embezzlement, fraud and theft. The golden rule is to consider the worst case scenario while insuring against the potential risks.

As the business develops and evolves, the risks and threats associated with it emerges side by side. But sure enough there are ways to prevent them, insure them, and minimize the damage if not nullify them.

Conclusion

A business cannot exist without a particular set of risks. There’s nothing called a risk free business. It is never easy to run an online supermarket because there are lots of factors that are constantly changing, and so are the risks. Scheduled evaluation and efficient planning are the only way to keep a check on the dangling factors. No matter whatever the strategies are, they should be revised and updated from time to time ensuring an almost perfect way to mitigate the risks, and assure the consistent functioning of the business.

References

Dozier, W. John (2008, July 30). Legal: The Top Ten Risks For Online Businesses.

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Steve Jones

My name is Steve Jones and I’m the creator and administrator of the dissertation topics blog. I’m a senior writer at study-aids.co.uk and hold a BA (hons) Business degree and MBA, I live in Birmingham (just moved here from London), I’m a keen writer, always glued to a book and have an interest in economics theory.

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