Founded in 1996, Amazon.com, Inc. is an eCommerce retail company that offers a wide range of products for its customers. The company offers online shopping services, direct shipping, and allows online payment for products purchased by customers. The major products that are sold by Amazon.com, Inc. include computers, books, electronics, furniture, and many other products. Amazon.com, Inc. has been able to expand its customer base because of its competitive advantage on price and reliability among customers. With the numerous assets that the company holds, it exposes itself to risk attributed to assets safety. With the million dollars’ worth of assets that the company holds, it is exposed to the risk of physical loss of assets and economic loss or financial loss.
The risk of physical loss of assets arises from theft, fraud, infringement, or natural disasters that result in loss of company assets. With the company holding a large amount of stock to safeguard its demand for products, such assets may be lost through internal or external thefts. Internal thefts are facilitated by the employees, whereas external debts arise from third party theft. Consequently, the physical loss of assets results in economic or financial loss.
As noted, the loss of assets through thefts or fraud results in the risk of economic loss to the company. Additionally, economic factors such as currency fluctuation, loss of customer goodwill or reputation, and loss of market share result in financial or economic loss to the company. With the use of online payments and other means as debit and credit payments, the company may suffer from financial loss arising from interest and commission by banks on payments. Additionally, with varying interest rates across countries, Amazon. Com, Inc. may suffer financial loss from interest rate fluctuations. Also, foreign exchange risk may result from transfer pricing and related cost of sale and transportation. These factors contribute to significant financial loss by the company.
Other risks faced by the company are associated with the growing dynamics of technology that affect business operations. With the growing competition on e-commerce, new companies are emerging that offer lower prices compared to Amazon.Com, Inc. With the growing aggressiveness of shipping among retailers, thus pose a significant risk to the company. Additionally, entry into new markets with no competitive advantage poses a considerable risk of loss to the company.
To control these risks, the controls established by the company include cloud computing that would allow the company to monitor its services and movement of goods. This also enables the monitoring of market share to enhance profitability in the market.
With this risk posing significant financial loss to the company, Amazon. Com, Inc. has established controls that would minimize the risk of physical and financial loss of assets. To reduce the physical loss of assets, the company has established a comprehensive assets insurance cover for its assets against such risk as theft, fraud, infringement, and natural disasters that would lead to loss of assets. The comprehensive assets insurance plan established protects all the physical assets within the framework of the company. This would provide an indemnity guarantee for the company in case of theft of insured assets.
Amazon.Com, Inc.’s annual report provides specific assets risk controls that have been adopted by the company to safeguard its assets. For such intangible assets as movie stores, the company has launched a streaming partners program that allows for a prime membership subscription to access the movie stores to minimize the risk of hacking. The company has also launched web services which ha recently expanded to the Asia Pacific (Amazon.Com, Inc., 2019).
Based on the Amazon.Com, Inc. (2019) annual report, under property and equipment, net, under its notes on financial statements, Amazon.Com, Inc. has indicated its method of depreciation and amortization as a straight-line basis. The straight-line method is subjected to the useful lives of its assets. The useful life would vary from one asset to another. For underlying building, the useful life is the remaining life of the building or the lesser of 40 years. For heavy equipment, the useful life is estimated as ten years, and for fulfillment equipment, the useful life is three to seven years. Networking equipment is estimated to have a useful life of five years, whereas servers are estimated to have a useful life of three years. In its financial statements, the depreciation cost is classified under the consolidated statement of operations as depreciation expense.
References
Amazon.Com, Inc. (2019). Annual Report, 2019. Retrieved from https://s2.q4cdn.com/299287126/files/doc_financials/2020/ar/2019-Annual-Report.pdf