Tmh -Risk Assesments

Risk Assessments

The business and accounting analyses that we have presented above are essential in the assessment of the Company’s business risks. In the audit risk model, audit risk is composed of risk of material misstatement and detection risk. Since audit risk is normally preset at a low level, an assessment of customer risk, the product of inherent risk and control risk is necessary in the solving of detection risk. Once the detection risk and materiality has been set, auditors will be able to determine the level and quantity of evidence to be collected. Only with a deep understanding of the nature of the Company’s business and the Company’s financial reporting can further analysis regarding the specific customer risk be undertaken. The inherent risk of each individual account varies from company to company and year to year. Solid analyses of business model and annual report enhance auditors’ ability on understand those accounts and thus produce more accurate risk assessment. Below we will list some main factors related to the Company’s business risk.

Factors that Increase Business Risk

Firstly, the current success of TMH is highly dependent on the personal efforts and abilities of its current executive officers. Thus, the loss or prolonged absence of one or more of these individuals could create a significant negative effect on the Company’s business as a whole. This suggests that the authority is not assigned properly, which can increase the risk of the control environment.

Secondly, TMH earns a large portion of its income from selling installment sales to outside financial institutions with recourse. Yet, this can impose a high risk to its business because TMH is responsible for repaying the financial institution when the customer defaults. Customer defaults that typically involve the repossession of used manufactured homes can have a significant impact on inventories of used homes and can adversely affect operating results and cash flows. In...