Due to laws in place, the SEC requires companies to file multiple reports a
year updating their financial information. The Form 10-K is an “annual report
(that) provides a comprehensive overview of the company’s business and
financial condition and includes audited financial statements” (Investor.gov,
n.d). For this discussion I chose to look at the streaming service provider,
Netflix. Streaming services have risks like every other type of business but are
unique given that there are no cash transactions, and everything is handled on
the internet.
After reviewing the Form 10-K, found here
https://www.sec.gov/ix?doc=/Archives/edgar/data/1065280/00010652802200
0036/nflx-20211231.htm#i6247e85bf60945eebf3a8edf21e717c5_40,
management believes they have identified the risks to the company. Some of
the risks that could lead to the overstating of receivables/revenue or
understatement of payables/liabilities include:
• Efforts to attract and retain customers
• Costs and challenges associated with acquisitions and investments
• Ongoing Covid responses causing delays in content releases and
increasing costs
As an auditor we need to find ways to lower the chances of these risks causing
damage to the company. The Netflix customer base is unfortunately dropping
and should be considered a serious risk given the other options available for
streaming services. To test customer attraction/retention, questionnaires and
surveys could be sent to a sample of current and non-current customers to gain
insight into how people feel about the company. The acquisitions and
investments should be reviewed regularly for unusual/stagnant activities. a The
delays relating to Covid, and their increased costs need to be estimated and
compared to what was expected to be the final costs. The cost differences
should be logical and not be a surprise. Finally, given the delays the auditor
should review cut off procedures to ensure that transactions are being recorded
for the time in which they occur.
References:
Netflix Form 10-K
https://www.sec.gov/ix?doc=/Archives/edgar/data/1065280/00010652802200
0036/nflx-20211231.htm#i6247e85bf60945eebf3a8edf21e717c5_40
