You are an audit manager at Jonas Inc currently engaged on the audit of AXA Ltd which commenced operations about 20 years ago and has since grown significantly and become a prominent company in the financial services industry in the United Kingdom. AXA's key business is the provision of finance to entrepreneurs and companies that wish to expand current operations of their respective businesses. AXA also offers financial planning services to individuals and companies assisting them in investing, estate planning and finance risk management. AXA's year end is 31 July 2021. Over the past year AXA has noticed an increase in competition from companies offering similar financial and investment services and has found some of their clients moving to these newer companies. This has resulted in a loss of revenue for AXA, and possible going concern issues. 

As a result, the management of AXA are considering diversifying their business and expanding into other industries in order to mitigate the situation. The diversification process will require a significant capital investment in plant and machinery as AXA would like to expand into the manufacturing and retail industry. This will also require extensive training of new staff and research plans to assist in the expansion. The directors are very keen about the  expansion and believe that Diversification is the key to resolving the going concern issue and the loss of revenue. The impact of Covid has affected the financial services sector, and exacerbated the situation resulting in further pressure on those companies in this sector. The directors of AXA therefore believe that this is the best time to diversify to avoid further losses. AXA has a strong corporate governance control structure and believes that the governance structure will be the cornerstone to ensuring the successful diversification into the manufacturing industry. ELECTRONIC CLIENT REGISTER AXA uses an electronic client register which is stored in a masterfile, which maintains the details of all their clients. A staff member of AXA was recently found to have been distributing confidential client information (from the electronic register) to a competitor of AXA in exchange for 'kick-backs'. The staff member has since been dismissed and the directors are confident that this was an isolated incident and is not indicative of a pervasive IT security problem in the company. They are, however, considering hiring an IT expert (on a contract basis) to assist in the management of the maintenance of the IT security at the company to ensure compliance with the Data protection Act. 

REQUIRED 

1. With specific reference to AXA Ltd, identify and describe the business risks related to going concern that AXA Ltd faces assuming that the company continues with their diversification plans. 

2. With specific reference to the use of the electronic client register prepare a memo for management advising them of the general controls that AXA Ltd should implement in order to limit the access and maintain confidentiality of the electronic client register per the Data Protection Act, thereby ensuring the integrity of the client data.

Answer rating: 100% (QA)

1 Business risks related to going concern that AXA Ltd faces assuming the company continues with their diversification plans a Financial Risks The diversification into the manufacturing and retail ind... View the full answer