Finance in a Global Perspective - Toyota Motor Corporation

1.    Documentation of Knowledge of the audit client’s business, environment risks and management control

Knowledge of business

 Toyota Motor Corporation is a Japanese automobile manufacturer that was established in year 1937 with its headquarters in Aichi japan. The company generates revenue through its three major business segments. The automobile segment is involved in designing, manufacturing and sales of its vehicles. The finance segment provides financial related services for its products and leasing services of its equipment and vehicles. The other segment is involved in a number of non-automotive services, which includes the design, manufacture, and sales of housing facilities, theft detection service and its vehicle tracking services.

The corporation has 54 manufacturing companies in 28 countries and regions outside japan and it currently has over 330,000 employees worldwide. As of 2015, it reported revenue of 25.6 trillion, which was a 1.3 trillion increase from its last year’s results, and earnings of 2.3 trillion that was a 30 billion increase from its 2014 results. Toyota’s Continued success rests in its ability to build quality and affordable car products and its continuous improvement in its products to meet safety needs and customers demands.

Environment Risk

In its internal environment, Toyota’s risks include buyer’s power, supplier’s power, competitive rivalry and other risks relating to its products safety, quality and pricing. Toyota’s main source of revenue is its automobile business segment. It has strived very hard to build a worldwide reputation for manufacturing safe and affordable quality automobiles. The recent recall of over 6.6 million of its vehicles globally in just 2015 can significantly impair its brand image and its reputation. If consumer’s loss interest or Toyota cannot remain attractive to its customer, its affordable quality strategy would lead to adverse business results. Toyota competes directly with established and well-known brands in Europe, the US and all over the world for factors including Product quality and features, reliability, safety and pricing in the automobile industry. The recent recall issue can present new opportunities for its competitors that have the means to capitalize on the defects in its products in real time and overtake it both in product quality and features which would pose a great risk to its global position as well as its Financial condition.

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In its external environment, the main risks relates to the economic situation, political factors, regulatory, legal and other risks relating natural disasters and fuel economy. Toyota largely depends on the financial performance in North America and japan, if the economy condition goes down, and fluctuations in currency rates occurs in one or more of these countries, the revenue it generates from other countries may not be able to compensate for it to maintain a strong financial position. The recent recall exposure can subject Toyota to lawsuits in various areas including product liability and safety issues. An unfavorable outcome from one or more of these factors can negatively affect its business results.

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