C A S E 2.

Apple Inc.
Evaluation of Client Business Risk

1. Based on investor.apple.com-the “SEC Filings” link. Obtain the most recent SEC
Form 10-K provided for Apple. Based on the information obtained from the
website and your knowledge of the industry, prepare a memo discussing the
following items:
a. Apple’s
1) Sales
Total Net sales for the last three years as follows:
September 25, 2021 $365.817
September 24, 2022 $394.328
September 30, 2023 $383.285
2) Net Income
Total Net Income for the last three years as follows:
September 25, 2021 $94.680
September 24, 2022 $99.803
September 30, 2023 $96.995
3) Cash flow from operating activities
Cash generated by operating activities the last three years as follows:
September 25, 2021 $104.038
September 24, 2022 $122.151
September 30, 2023 $110.543
4) Total assets
Total assets of Aplle Inc September 30, 2023 $352.583, include of
$143.566 current assets and $209.017 non current assets.
While total assets of Apple Inc per September 24, 2022 was $352.755
consists of $135.405 current assets and $217.350 non current assets.
5) Number of employees
 As of September 30, 2023, the Company had approximately 161,000 full-
time equivalent employees.
b. What are Apple’s products?
Apple’s products include:
1) iPhone®
iPhone® is the Company’s line of smartphones based on its iOS operating
system.
2) Mac®
Mac® is the Company’s line of personal computers based on its macOS®
operating system.
3) iPad®
iPad® is the Company’s line of multipurpose tablets based on its
iPadOS® operating system.
4) Wearables, Home and Accessories
- Wearables includes smartwatches and wireless headphones. The
smartwatches includes Apple Watch Ultra™ 2, Apple Watch® Series 9
and Apple Watch SE®. The wireless headphones includes AirPods®,
AirPods Pro®, AirPods Max™, and Beats® products.
- Home includes Apple TV®
- Accessories includes Apple-branded and third-party accessories.
Apple’s also provide Services include:
1) Advertising
Include third-party licensing arrangements and the Company’s own
advertising platforms.
2) AppleCare
The company offers a portfolio of fee-based service and support products
under the AppleCare® brand.
3) Cloud Services
The Company’s cloud services store and keep customers’ content up-to-
date and available across multiple Apple devices and Windows personal
computers.
4) Digital Content
 The Company operates various platforms, including the App Store®,
Apple Arcade®, Apple Fitness+SM, Apple Music®, Apple News+®, Apple
TV+®
5) Payment Services
Including Apple Card® and Apple Pay®.
c. Who are Apple’s competitors?
Apple's main competitors include Samsung, amazon, google, Microsoft, dell,
hewlett packard, IBM, and lenovo.
d. Who are Apple’s customers?
Apple sells its products and services to ;
1) consumers;
2) small and mid-sized business;
3) education;
4) enterprise and government markets.
e. Who are Apple’s suppliers?
Apple uses contract manufacturers for the hardware components used in its
products. Hardware components are generally available from various
sources. Some hardware components are customized for Apple and may only
be available from one manufacturer source.
Final assembly of the product is carried out in whole or in part by several
outsourcing partners located mainly in Asia.
f. How does Apple market and distribute its products?
1) Apple sells its products and resells third-party products in its primary
markets directly to consumers and small and medium-sized businesses
through its retail and online stores and its direct sales force.
2) The company also employs various indirect distribution channels, such as
third-party mobile network operators, wholesalers, retailers and value-
added retailers.
g. What is Apple’s basic business strategy (cost leadership or differentiation)?
Apple’s basic strategies is differentiation. The Company relies primarily on the
innovative skills by give innovation and design excelence, premium pricing,
technical competence and meet the supply chain management.
h. What are critical business processes for Apple given its basic business
strategy (for example, supply chain management)?
1) The Global Supply Chain is large and complex
The Company’s operations and performance depend significantly on
global and regional economic conditions and adverse economic
conditions, because the Company’s supplier facilities, including
manufacturing and assembly sites, are located outside the U.S
2) Global markets for the Company’s products and services are highly
competitive and subject to rapid technological change
3) The Company relies on access to third-party intellectual property, which
may not be available to the Company on commercially reasonable terms
or at all.
4) The Company’s future performance depends in part on support from
third-party software developers and the performance of carriers,
wholesalers, retailers and other resellers.
i. What accounting information is associated with the critical business
processes and how does Apple measure up on that information?
1) The Company is exposed to the risk of write-downs on the value of its
inventory and other assets, in addition to purchase commitment
cancellation risk.
Because the Company’s markets are volatile, competitive and subject to
rapid technology and price changes, there is a risk the Company will
forecast incorrectly and order or produce excess or insufficient amounts
of components or products, or not fully utilize firm purchase
commitments.
2) The Company is subject to complex and changing laws and regulations
worldwide, which exposes the Company to potential liabilities, increased
costs and other adverse effects on the Company’s business
Compliance with these can adversely affect the Company’s business by
increasing the costs, limiting the Company’s ability to offer a product,
service or feature to customers.
3) The Company expects its quarterly net sales and results of operations to
fluctuate.
 4) The Company’s financial performance is subject to risks associated with
changes in the value of the U.S. dollar relative to local currencies
j. What accounting methods does Apple use to report the accounting
information associated with critical business processes and what is the risk of
material misstatement?
1) The Company records a write-down for product and component
inventories that have become obsolete or exceed anticipated demand, or
for which cost exceeds net realizable value.
2) The Company also accrues necessary cancellation fee reserves for orders
of excess products and components.
3) The Company reviews long-lived assets, including capital assets held at its
suppliers’ facilities and inventory prepayments, for impairment whenever
events or circumstances indicate the assets may not be recoverable
4) If the Company determines that an impairment has occurred, it records a
write-down equal to the amount by which the carrying value of the asset
exceeds its fair value.
5) The Company orders components for its products and builds inventory in
advance of product announcements and shipments based on
manufacturing purchase obligations.
6) The Company generates a significant portion of its net sales from a single
product and a decline in demand for that product could significantly
impact quarterly net sales.
7) The Company uses derivative instruments, such as foreign currency
forward and option contracts, to hedge certain exposures to fluctuations
in foreign exchange rates
2. Professional auditing standards provide guidance on the auditor’s consideration
of an entity’s business risks. What is the auditor’s objective for understanding an
entity’s business risks? Why does an auditor not have responsibility to identify or
assess all business risks? Provide some examples of business risks associated
with an entity that an auditor should consider when performing an audit.
➢ What is the auditor's objective in understanding the entity's business
risks? The auditor must obtain an understanding of the entity and its
environment to assess the risks of material misstatement and to design
 the nature, timing, and extent of further audit procedures to be
performed.
➢ Why don't auditors have a responsibility to identify or assess all business
risks? Not all business risks pose a risk of material misstatement. Auditors
are necessary consider business risks that could result in material
misstatement at both the financial statement level and the assertion level
for classes of transactions, account balances and disclosures.
➢ Provide some examples of business risks associated with an entity that an
auditor should consider when conducting an audit.
SA 312 provides examples of business risks that can give rise to material
misstatements. Some examples given are:
a. Operations in economically unstable regions, for example,
countries
with significant currency devaluation or economies with high
inflation.
b. High level of complex regulation.
c. Marginally achieves explicitly stated strategic objectives
d. Constraints on the availability of capital and credit.
e. Changes in the industry in which the entity operates.
f. Changes in the supply chain.
g. Develop or offer new products or services, or move into new lines
of business.
h. Expansion to new location.
Likewise, SA 315 provides examples of business risks that can give rise to
misstatements:
a. The company did not have the personnel or expertise to deal with
industry changes.
b. New products or services won't work.
c. Demand for the company's products or services has not been
estimated accurately.
d. Incompatible IT systems and processes
e. Financing losses due to the company's inability to meet financing
needs.
f. Incomplete or inappropriate implementation of business strategies.
g. Increased legal exposure