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AC 2360 Principles of Internal Auditing

Part A Management’s Risk Assessment

Description of the business

Rogers Communications Inc. (RCI) which was incorporated on September of 1997 is the largest communications based in Canada. This company is made up of a media and communications corporation. RCI functions as the holding corporation for two major different wholly owned subsidiaries; Rogers Media Inc. and Rodgers Cable systems Limited and the 51%-owned subsidiary, the Rodgers Cantel Mobile Communications Company. The company’s business involves provision of wireless communications and cable television services, telephony, Information Technology (IT), and internet services to different businesses and customers. The segments of the company include Media, Business Solutions, Cable, and Wireless. The corporation also provides other different services to businesses and consumers, including Rogers Smart Business Monitoring and Smart Home Monitoring, a business or home monitoring, automation system and security, as well as the Rogers Fido MasterCard and Platinum MasterCard, credit cards, which enable the consumers to earn the cashback points of rewards on expenditure using the credit card.

Through the Rogers Media, the Rogers Communications Inc. is involved in the business of television and radio broadcasting, online and televised shopping, sports, digital and magazines media. The wireless segment of the company is dedicated to business operations of wireless telecommunications for the Canadian businesses and consumers. RCI is engaged in the business of providing wireless data and voice communications services to individual consumers, governments, and businesses and other telecommunications service providers. The Cable segment of the company is mandated with the operations of cable communications (including the telephony-phone), television and internet services for businesses and consumers of Canada. RCI is involved in the provision of voice communication, television, and high-speed internet to the wholesale resellers, governments, businesses, and consumers, leveraging its own hybrid fiber-coaxial and fiber network infrastructure within Ontario Newfoundland and New Brunswick, and Labrador. The Business Solutions Segment of the company is involved in network connectivity through its data center assets as well as the fiber network to offer support to several cloud-based, hosting, networking, data, and voice, services for the carrier wholesale, public sector, and enterprise, markets. The media segment of the company contains a portfolio for media properties, which includes entertainment and sports media, radio broadcasting and television, publishing, digital media, multi-platform shopping, and specialty channels.

Description of the business objectives

The business objective of Rogers Communications Inc. is to maximize the return on invested capital, operating profit, revenue, and subscribers through improving its position one of the leading diversified media and communications companies in Canada (Rogers Corporation, 2011). The company’s business objective strategy is to become the top and most preferred provider of information, entertainment, and innovative services to the people of Canada. RCI seeks to gain advantage through improved networks, marketing resources, brands, channels, and sales all through the Rogers group of corporations; through implementing the joint sales, cross-selling distribution initiatives, and the initiatives of cost reduction by way of sharing infrastructure, in order to create value for its shareholders and customers (Rogers Corporation, 2011).  Rogers Communications Inc. aims at exploiting the available opportunities in Media, Cable, and Wireless. This is aimed at creating the bundled service and product offerings at irresistible costs, besides implementing cross-promotion and cross-marketing of services and products to increase its sales and improve the subscriber loyalty. RCI also works with the aim of identifying and executing opportunity areas for their business, which will improve the operating efficiencies through sharing infrastructure, channels of sales distribution and corporate services (Rogers Corporation, 2011). RCI continues to develop its brand awareness as well as promote the “Rogers” brand to act as a sign of innovation and quality. The company’s Wireless and Cable business are merged in the company’s organization of the Communications’ Services. This highly streamlined structure of the organization is aimed at facilitating quicker time to the market, convey an improved and a more consistent experience for the customer, as well as enhance the overall efficiency and effectiveness of the Cable and Wireless businesses. This highly merged operating approach also takes into consideration the persistent convergence of particular aspects of wire-line and wireless services and networks.

Description of the risks to the business objectives

Risks to the strategic objective

The strategic objective of Rogers Communication Inc. involves providing valuable services to its customers, it is faced with some risks. However, one of the risks to the strategic objective of Rogers Communication Inc. is lack of regular supply of innovative products the company produces. Over several years, the Rogers Communication Inc. has developed so many products. A bigger percentage of the products developed are mostly a response to innovation by other players in the same industry. This has led to the customers becoming unaware of all the available innovative products for the company that are available in the market to choose from. Also, there is no regular supply of the new products and this ends in increased as well as reduced swings in the number of sales over some certain period of time

Operational risks

One of the operational risks that Rogers Communication Inc. faces regards the company’s financial position. Looking at the 2007, sales growth of the company was at a percentage of 14.54 and the costs of the sold goods was 961 million dollars. In 2008, there was a reduction of the sales growth to a percentage of 11.9 but the cost of sold goods increased to 1303 million dollars. Further, looking at the 2009 sales growth of 3.49% and the cost of sold goods of 1380 million dollars, this may then be concluded that, there has been reduction of the sales growth each year yet there has been no decrease in the cost of sold goods proportionate to the growth of sales. Suffice to say, there has been a decrease in the profit margin. Therefore, the operations of the company are not in a position of increasing growth of sales while minimizing the cost of goods sold. Moreover, if the debt to the equity ratio is observed, it is rising year-in-year-out. This concludes that the company, Rogers Communication Inc. is utilizing much of its debt to finance its operations. Conversely, Rogers, realized a good income on the assets of 8.67% during 2009 in contrast of a percentage of 6.18 during 2008, which however implies that Rogers Communication Inc. was earning increased money on less investment in 2010.

Risks to the reporting objectives

Rogers Communication Inc. aims at offering a report, which is written clearly and one that is well organized to achieve the requirements of its diverse stakeholders. As such, the company may be faced with some risks linked to this reporting objective.  The risks include failure to report all the essential information which stakeholders require. In return, this could result in the company stakeholders not getting access to sufficient information regarding the company including its new products, and services it offers. Also, the report given may not be to the level standard of the stakeholders hence making the stakeholders to shy away because of the failure of the company to disclose all of its information regarding its operations and the products and services that it offers.

Risks to the compliance objectives

The compliance objective of Rogers Communication Inc. involve overseeing the maintenance and establishment of processes- which make sure that the corporation is in compliance with both the regulations and laws, which apply to it as well as its own set policies. However, this compliance objective is faced with certain risks. As such, one of the compliance risks associated with the compliance objective of Rogers Communication Inc. is the failure to meet the set policies and standards for example its television goals as set out by CRTC. This may be caused by new environment rules under the 2016 Paris agreement, and the liability regulations in different nations, which may be different hence leading Roger Communication Inc. being exposed to several liability claims with the change in set policies within those foreign markets (Rogers Corporation, 2017). Further, this may be due to the several different set laws in different markets as well as the persistent fluctuations about the standards of the product within those markets.

Explanation of the controls to manage the risks

In order to manage the above risks, the company would employ some of the controls. For the risks associated with the operational objectives of Rogers Communication Inc. to be managed, Rogers ought to use the overall reduced cost provider strategy. The company ought to implement this strategy to solve its financial and business issues and risks. This strategy contains some advantages, which include customer satisfaction, moving on to its competitors, prevail in market conditions and strengthening of position of its market. Further, Rogers may also include services and features in packages, which are essential to its consumers. RCI may look for ways of achieving competitive benefit, which would be difficult for the recent competitors to match with the new entrants.  Even though the industry experience the lowest growth between the years 2000 to 2009, the performed analysis portrays that there exists much room for the company to grow. If the company would employ the reduced pricing for the services and products it offers, there would then be less competition as well as high accessibility to the local market, which in return would result in increased sales as well as the revenues to the company. Through following this direction, Rogers would be finishing its mission strategy that involves adding substantial value into the lives of its customers through offering reachable and new services and products. Further, the risks associated with the reporting objectives of Rogers Communication Inc. would also be controlled by the company ensuring that it provides a report that sufficiently reports all the necessary information that the company stakeholders would like to know. Also, it should provide a report that is in line with the set standards of the stakeholders, this way, the company will be able to gain full concentration of the stakeholders, and this is beneficial to the company.

As provided for in Rogers Communications Inc. (2013), the company can also control the risks through taking new approaches in reporting to better achieve the information requirements of the stakeholders through offering details regarding their activities of CSR in three different segments. First, the CSR report of the company involves a year-in-review, which describes the company CSR progress and work to address its leading material issues that were identified through the feedback of the stakeholders. Secondly, the CRI index of the company also enables the company stakeholders to locate the information easily regarding how the company is addressing the topics as well as the necessities that are contained within the G3 Global Reporting Initiative (GRI) Sustainability reporting Guidelines. Thirdly, the company Website for CSR communicates the company’s ongoing policies, practices, and programs associated with the material issues. The company stakeholders may get extra details about different topics, access the company’s Glossary of Terms and any other relevant information.

Whenever a company increases prices of its services and products, they fail to discover that they distance themselves from their consumers while new entrants into the industry are positioning themselves in the shoes of their customers. That is to say, they tend to think in the same manner as the customers think. As such, the strategy of Rogers Communications Inc. should be like this, to think in the same way the customers do and ensure they add value into the customers’ lives. Thinking like its customers would be beneficial to Rogers since there would be loyalty of the brand and reduced threat of losing its share of the market as well as its presence in the market. If the customers’ discover that Rogers has gained enough knowledge regarding their needs, then they in return, would finally enter into an agreement with the company. As a result, this would result in Rogers executing the financial strategy of the company that involve maximizing the profits as well as the return on investments.

With regards to lowering the prices of goods sold for Rogers, Communications Inc. Rogers ought to invest more money on new and latest technologies in order to improve the operations of the company. This would in return, lower the prices of its goods sold as well as increase the efficiency of its business. Besides, Rogers may also decide to outsource part of the company operations as it has normally been outsourcing the company’s physical Information Technology infrastructure from the IBM with the aim of making efficiencies of the capital expenditure. Rogers may also do a similar thing with part of the company operations although one of the things to take into consideration involves that Rogers ought to have severe and quality standards of the services and products that it offers to outsourcing. Moreover, there are increased prices of goods sold whenever the services and designs are high and are neither valued nor seen by the customers. However, Rogers may decide to simplify the company services and products and ensure it lowers the expenses of the goods sold.

Assessments on risk management status

Just like any other communication company, Rogers Communication Inc. is facing many risks. One of the main and current risk that RCI faces and has undermined its position by the mobile newcomers like the Wind Mobile newcomer as well as the refocused BCE during the present years, appears to be the risk of regulatory authorities, which show a substantial zeal to  get involved within the marketplace (Sturgeon, 2012). Part of the risk is evident from Canadian’s current rejection by the CRTC (Radio-television and Telecommunications Commission) of the BCE’s 3.38bn dollars Astral’s bid. This is regardless of the regulators aiming at keeping the nation’s big “vertically merged’ service providers from too much flexing of the market power. This was due to allegations that Rogers failed the customers by misleading them into compensating steep charges for text-messaging. According to analysts, there seems to be a more customer bent from the entire regulators for RCI, in particular, the CRTC. The background of such an interventionism wave involves the broadcast industry’s extensive consolidation under the four top telecom giants - Quebecor Inc., Shaw Communications Inc., Rogers, and BCE – merged with Ottawa’s potentially failed effort to introduce a sustained competition within the wireless market. This is a sector, which remains to be dominated by Telus, BCE, and Rogers regardless of the entrance of Videotron, Public Mobile, Mobilicity, and Wind in Quebec. The consequence of this risk is evident from the findings of Yang (2014), that several investors are now avoiding the company due to the uncertainty of regulations after the national government’s announcement of its intention to come up with a viable rival to the large three telecoms (Telus, Rogers, and bell). As per the analysts, the regulatory authorities sent a message detailing that if the current competition levels do not deliver clear benefits to the consumers, the government will definitely step in, more evidently within the wireless services. Looking at the recent developments, one analyst in telecom stock concluded that if the new and current wireless entrants finally disappear, the incumbents will have nowhere near the similar chance to increase the prices from the previous prices (Yang, 2014). Significantly, the measure that the company is putting in place is that it is completely onside with the efforts of CRTC of establishing a countrywide contracts’ code. As a result, it is believed that this standardized state framework will be advantageous to both the wireless carriers as well as the consumers versus what’s shaping up currently, which involves the multitude of provincially managed legislation that will differ by province leading to confusion.

The other risk that the company is facing is its high debt to the equity ratio. This generally implies that Rogers Communication Inc. has been insistent in using its debts to finance its growth, which according to Simply Wall St. (2018), may lead to volatile earnings due to the extra interest expenses. Taking into account Rogers Communications Inc., the total debt seems outweigh its equity, and the company is said to be highly levered. Normally, this is the case among the several large-cap corporations since debt may often be less costly alternative that replaces equity because of the interest payments’ tax deductibility. Accordingly, the bid corporations are advantageous over the minute-caps through reduced expenses of capital because of the cheaper financing (Simply Wall St., 2018). It is not possible to test the sustainability of the debt levels of RCI.B through measuring the payments of interest against the company’s earnings. A corporation that generates earnings ahead of the tax and interest (EBIT) not less than three times ht net interest payments can be said to be financially sound. However, in the case of RCI.B, ht e4.3x ratio suggests that the interest is covered appropriately. It is said to be a reassuring and responsible practice of maintaining high interest coverage that the RCI.B as well as the other big-cap investments being believed to be safe. However, there is room for improvement as indicated by the high level of debts for RCI.B. Furthermore, the other thing to take into consideration to deal with this risk is the coverage of the cash flow of no more than a quarter of the total debt. This will ensure efficiency of the operations. 

Part B Internal Audit Assurance

Review of each risk and control

The insufficient supply of innovative products can have a negative impact to an organization in the long run, especially to the customers, who are the primary players in a company’s success. For Rogers Communication Inc. to be sustainable, it has to employ creativity and innovation in its business operations, although as noted by Chick (2013), innovation may be accompanied by the risk of making unsustainable products and services. In the case of Rogers Communications Inc. there are technology risks like the risk of information technology due to the suppliers and Rogers’ use of network infrastructures and systems, which may be prone to cyber-attacks. The failure of a network also leads to lack of service to the customers. However, for Rogers Communications Inc. to deal with such risks, they need to be innovative by making creative innovations that can help deal with such risks.    However, this risk can be dealt with by Rogers by ensuring that they deliver compelling content and solutions, which its customers will be contented with. RCI can also strive to offer compelling products as well as innovative solutions to its customers, which makes ease their lives.

Reduction of sales growth in Rogers is another risk that may lead to negative impacts to the company in general. That is, it may result in the company losing its share of the market and as a result, may lead to the company losing its customers. Customers, in such a situation may conclude that reduction of sale growth may be due to low quality of the company products, also hiked prices of products. However, for Rogers to deal with such a risk, it should review its pricing of the products and the quality of the products. Reducing the prices of the products to meet the customer’s needs and ensure that the products are of high quality, translates to customers increasing hence increasing the sales of its products.

There is also the risk of failure to report all essential information. This is very crucial more so to the stakeholders. The Rogers Communication Inc. have several main stakeholders ranging from employees, customers, community members, all government levels, non-profit organizations, trade and industry associations, and the suppliers.  Such investors are the company’s primary stakeholders since they are indirectly or directly impacted by the company’s business activities, whereas other contains an interest in what the company does and the specific views of the company. However, in any given report of the company, the company should ensure that it reports all essential information for the stakeholders to find it easy to work with the company. For example, it should report how it offers good service and support to the customers, its reliability and service coverage, pricing information, transparent products, safe and quality products and etc. the company should engage and consult with its stakeholders to identify as well as better understand their expectations and issues. It can do this by reporting all essential information. Complete information assists the company determine the areas to concentrate on.

Failure to meet the set standards and policies by a company can lead to negative outcomes. For instance, failing to meet the federal and state compliance guidelines may lead to serious consequences to the company’s business. Besides, the consequence of altering Roger’s legal status that may leave the company susceptible to lawsuits, the agencies of the government can also carry out audits, dissolve the entire business, or even enact fines. This in return will lead to total failure to Rogers. The workplace set standards and policies for Rogers Communications Inc. establish the boundaries, best practices and boundaries for legal behavior at the business of Rogers. The reason for a company like RCI for this case is setting standards and policies as such to enable them to effectively communicate with its personnel in a way they could expect them to conduct themselves while at the job.

Audit summary and conclusions of risk management work done

In conclusion, it is evident that if Rogers Communications Inc. effectively manage the above mentioned risks, then it will remain sustainable in terms of the quality of the services and products that it offers. So as to manage the risks associated with the operational objectives of Rogers Communication Inc., Rogers ought to use the overall reduced cost provider strategy. This strategy contains some advantages, which include the satisfaction of the customer, moving on the way to its competitors, prevail conditions of the market and strengthening of position of its market. By reducing the prices for the services and products that it offers, there would then be less competition as well as high accessibility to the local market, which in return would result in increased sales as well as the revenues to the company.

Further, the risks associated with the reporting objectives of Rogers Communication Inc. would also be controlled by the company ensuring that it provides a report that sufficiently reports all the necessary information that the company stakeholders would like to know. RCI should also provide a report which is in line with the set standards of the stakeholders, this way, the company will be able to gain full concentration of the stakeholders, and this is beneficial to the company. The company can also control the risks through taking new approaches in reporting to better achieve the information requirements of the stakeholders through offering details regarding their activities of CSR in three different segments. First, the CSR report of the company involves a year-in-review, which describes the company CSR progress and work to address its leading material issues that were identified through the feedback of the stakeholders. Secondly, the CRI index of the company also enables the company stakeholders to locate the information easily regarding how the company is addressing the topics as well as the necessities that are contained within the G3 Global Reporting Initiative (GRI) Sustainability reporting Guidelines. Thirdly, the company Website for CSR communicates the company’s ongoing policies, practices, and programs associated to the material issues. The company stakeholders may get extra details about different topics, access the company’s Glossary of Terms. Thinking like its customers would be beneficial to Rogers since there would be loyalty of the brand and reduced threat of losing its share of the market as well as its presence in the market. With regards to lowering the prices of goods sold for Rogers, Communications Inc. Rogers ought to invest a lot of money on the new and latest technologies so as to improve the operations of the company. This would in return, lower the prices of its goods sold as well as increase the efficiency of its business. Besides, Rogers may also decide to outsource part of the company operations as it has normally been outsourcing the company’s physical Information Technology infrastructure from the IBM with the aim of making efficiencies of the capital expenditure.

SCHEDULE 1.   MANAGING RISK WORKSHEET

OBJECTIVE

RISK

CONTROL

ASSESSMENT(1-5)

Impact / Likelihood

1

Insufficient supply of innovative products           

Ensure innovation and creativity of the products and services offered.

3

2

Reduction of sales growth

Reduce the prices of the products and services.

4

3

Failure to report all

essential information

Ensure that the report contains every detail that the stakeholders would require.

5

4

Failure to meet the set policies and standards

Ensure that the set policies and standards are met by every personnel in the company

4

5

Hiking of prices

Ensure the prices are standard

4

6

High debt to the equity ratio

Ensure that the debts are in any case not used to finance any project.

3

SCHEDULE 2. IDENTIFICATION OF CRITICAL RISKS   (L/M/H)

IMPACT (Seriousness)

Very low

Low

Medium

Very High

Very High

5

 

 

 

 

 

4

 

 

 

 

 

3

 

 

 

 

2

 

 

 

 

 

1

 

 

 

 

 

 

1

2

3

4

5

LIKE-LIHOOD

SCHEDULE 3. AUDIT REVIEW OF CONTROLS WORKSHEET

 

Risk

Management Control

Assessment

Audit Opinion

Agree/disagree

1.

Insufficient supply of innovative products

Ensure innovation and creativity of the products and services offered.

3

 Agree

2

Reduction of sales growth

Reduce the prices of the products and services.

4

Disagree

3

Failure to report all

essential information

Ensure that the report contains every detail that the stakeholders would require.

 

5

Agree

4

Failure to meet the set policies and standards

Ensure that the set policies and standards are met by every personnel in the company

4

Agree

5

Hiking of prices

Ensure the prices are standard

4

Agree

6

High debt to the equity ratio

Ensure that the debts are in any case not used to finance any project.

3

Disagree

References

Chick, G., (2013). Supply chain innovation is a double edged sword for sustainability, The Guardian. Retrieved from: https://www.theguardian.com/sustainable-business/supply-chain-innovation-double-edged-sword 

Rogers Corporation, (2011). 2011 Annual Report: Creating a Bright Future. Retrieved from:

www.annualreports.com/HostedData/AnnualReportArchive/r/NYSE_ROG_2011.pdf 

Rogers Corporation, (2017). 2017 Annual Report: Creating a Bright Future. Retrieved from:

https://about.rogers.com/wp-content/uploads/2018/.../2017-Rogers-CSR-Report-en.pd..

Rogers Communications Inc., (2013). 2013 CORPORATE SOCIAL RESPONSIBILITY REPORT.

Sturgeon, J., (2012). Rogers gaining competitive edge but regulatory risk a growing challenge, Financial Post. Retrieved from: https://business.financialpost.com/technology/rogers-confident-regulators-will-approve-score-bid

Simply Wall St., (2018). How Financially Strong Is Rogers Communications Inc (TSE:RCI.B)? retrieved from: https://simplywall.st/stocks/ca/telecom/tsx-rci.b/rogers-communications-shares/news/how-financially-strong-is-rogers-communications-inc-tserci-b/

Yang, K., (2014). Rogers Communications: Overlooked Telecom Because Of Perceived Competitive Risk, SeekingAlpha. Retrieved from: https://seekingalpha.com/article/2373705-rogers-communications-overlooked-telecom-because-of-perceived-competitive-risk 

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