Company selected and brief introduction
The selected entity is Apple Inc. and the company is listed on NASDAQ stock exchange. The company is US based technology company which is headquartered at Cupertino, California. The company is also fourth largest PC company and second largest mobile manufacturer in world. The major products of the company are AirPods, iPad, watch, Mac and also providing various services. The total assets base of the entity is $99.80 billion in year 2022 and total assets base $352.76 billion. The auditor of the entity is Ernst and Yong LLP.
Reporting of effectiveness of internal controls and material weakness in internal controls including disagreement with auditors
The entity has followed all the accounting disclosure and guidelines and there is no disclosure related to disagreement with auditors reported by the entity under Item no 9. The auditor and management has conducted an assessment of effectiveness of internal controls over financial reporting as per criteria of COSO 2013 audit framework and the auditor has also reported audit report in Part II of item 8 of form 10K (Apple Inc, 2022). Further, the auditor has also issued unqualified opinion on weakness in internal controls. Further, the auditor has reported under Item 9A that the entity has recorded summarized and processed the information within time period defined in SEC rules and has also allowed timely decision regarding required disclosures. The auditor has also reported that there are appropriate policies and procedures regarding maintenance of record and all transactions and disposition of assets are correctly recorded. The company has also prepared its financial statements in accordance with GAAP guidelines and the receipts and expenditures are made as per authorization of company’s management and directors. Further, the company has also appropriate audit procedures regarding timely detection of unauthorized acquisition that can have adverse impact on financial position of the entity. Further, the auditor has also reported that there are no significant changes in internal controls over financial reporting during the year 2022 and the effective controls over internal control in place.
The auditor has stated that the company and its management is responsible for maintaining and establishing internal controls over financial reporting and the management has also conducted an assessment of effectiveness of internal controls. The top management including CFO and CEO does not expect that the internal controls will detect or prevent all errors and frauds. There can be chances regarding loopholes in internal controls but the effective internal controls provide reasonable assurance regarding effectiveness of internal controls and benefits of internal controls should also be analysed with respect to associated costs. Further, the auditor and management has also mentioned that the effectiveness of internal controls may become inadequate because of changes in business conditions and the compliances with procedures and policies may also be deteriorated in future period (Apple Inc, 2022).
Under item 9B, the auditor has mentioned that 5 officers of the entity had equity trading plans as per rule 10b5-1(c)(1) and there were no default made by the organization in this regard. The detailed inherent limitations mentioned in 10K report mentioned by the entity are as below:
Other than effectiveness of internal controls over financial reporting, the entity is exposed to various risks which can have significant impact on adequacy of internal controls. The company is mostly dealing in US currency and due to competitive prices the company can be required to adjust its local currency and to bear the pressure there are chances that internal controls may deteriorate because of adjustment in local prices. The company is having huge investment portfolio and debt and derivative position and the gains and losses on such instruments can be resulted in deterioration of internal controls because for earnings higher returns the company can invest in risky portfolio without proper authorization and it can be resulted in weakness in internal controls. The COVID 19 has also impacted the company’s business operations and processes in significant manner and the services related to logistics had also been disrupted due to which the internal controls related to raw material procurement have deteriorated and the company has paid high amount for logistic and inputs and it shows that the company was not able to plan its business operations in efficient manner and it was a major weakness in internal control weakness. There are chances that the entity may have old aged items and it can be resulted in higher inventory valuation and ultimately it can be resulted in wrong reporting and weakness in internal controls.
The company is having huge amount of liquidity and capital resources and due to lack of proper debt and funds management there are chances that the funds are not utilized in proper manner and it can be resulted in weakness in effective internal controls.
Reference
Apple Inc (2022). Annual report, 2022. Available at https://s2.q4cdn.com/470004039/files/doc_financials/2022/q4/_10-K-2022-(As-Filed).pdf