Question

Super Lumber Inc. is a retailer of hardwood flooring in the US. Its basic business model is to offer great value, superior service, and a broad selection of high-quality hardwood flooring products. The strategic objective, or company mission, is to continue to increase revenues and profitability by strengthening its position as a leading provider of hardwood flooring within its growing market. Specific business objectives are: 1. expand its store base; 2. Improve productivity and efficiency; 3. build on core strengths; 4. leverage its multichannel sales and brand marketing. Which of the following identified risks should be considered having a key link with the 2nd objective, (in another word, a key risk to the 2nd objective), hence should be the focus of internal audit function?

Select one: a. Lack of availability of sufficient suitable hardwood in the market. b. Decrease in home remodeling activity and homebuilding industry in the event of economic decline. c. Increased competition in terms of price and variety of products from other flooring companies operating in the same areas as Super Lumber Inc. d. Inability of management information systems to support planned expansion and development of new stores.

Answer 1

Answer is D.

Inability of management information systems to support planned expansion and development of new stores.

This risk directly impacts the business objective of improving productivity and efficiency. Becuase of the inability of information systems in handling the expansion, there will be delays in, from order taking to execution, resulting in inefficiency, under utilisation of available reources resulting into lower productivity.

Key risks mentioned in options A & B will not have direct impact on the business objective of improve productivity & efficiency.

In case of Key risk mentioned in C, Increased competition in terms of price and variety of products from other flooring companies operating in the same areas as Super Lumber Inc. will infact force the company to work more in acheiving the objective of improved productivity and efficiency. In fact, this business objective is the risk mitigator of this identified risk.

This risk is  having more threat to the strategi objective of Increased revenue and profitability.