Question

(1)

In the Internal Auditing 3rd edition, by Kurt F Reding chapter 5 Case 2

Select a company that has undergone an initial public offering withing the last five years and
obtain the prospectus (these are usually available on the company's website, EDGAR for
companies listed on the U.S. stock exchange, or other information services).

A. What is the business strategy and business model?

B. Identify the strategic objectives.

C. Identify the key risks.

D. Construct a matrix with the strategic objectives on the Y axis and the critical risks on the X
axis. For each objective, indicate which key risk applies.

E. Discuss which risk you think the internal audit function should set as the highest priority.

How do I find a company and what should I look for on the website?

Expert Answer
100% (6 ratings)

This solution was written by a subject matter expert. It's designed to help students like you
learn core concepts.

Anonymous answered this5,850 answers

Spotify had an initial public offering on February 28, 2018. They have a music online
streaming application and have more than 159 million users as of December 2017.
1. There business model and strategy is as follows:
● Free music streaming in case you are willing to listen to advertisements.
● They also have a paid service for music streaming, you can subscribe to their service
and get premium services.
● They combat music piracy
● They pay artists and music companies royalties.
● They ensure downloading and streaming of music legally
● They have paid a music royalty of $ 9 billion since their inception on December 31,
2017
● Their main competitors in live music streaming are Apple I tunes, Google Play etc.
● The make money from premium services and advertisements played while live
streaming the music.
● Their premium service allows premium users free downloading across all devices like
television, smartphones and tablets.
● 70% of their earned revenue went back to the music owners.
● They charge $ 4.99 a month from students, $ 9.99 per month for a regular account
and $ 14.99 for a family account.
1. Their strategic objective is to allow access to unlimited music legally. They provide
live streaming of music across devices. The free users have to listen to
advertisements and paid users to get premium services. 70% of their revenue went
back as royalties to music companies, independent artists, record companies,
publishers and distributors. They have helped reduce music piracy. Their strategy is
to earn from premium services and advertisements.
2. The key risks faced by the company are as follows:
● The company reported losses of $ 460 million in 2017.
● They have been accused of unfair loyalty payout despite paying 70% of revenue as
royalty.
● They have to compete with Google play to maintain a competitive advantage.
● They have to compete with giants like Apple and Google and do not have deep
pockets.
● Spotify’s average revenue per premium user has seen a downward trend. IT dropped
from $ 6.20 from a premium user to $ 5.32 for a premium user.
1. Refer to attached slide
1. The risk inter auditing should focus on is falling average revenue per premium user
as the customer base will determine their longevity and business success. They need
to reduce the churn and encourage more users to try the premium services.
Currently, 70% of revenue is paid out as royalty. The company has reported a loss of
$ 460 million in 2017. They have 71 million paid user in 2017 which is up by 48
million users in 2016. The total paid and free user were 159 million users in 2017
compared to 123 million users
 in 2016. The churn rate or the rate at which users leave is 5.5% in 2017 which is
lower compared to 2016.

Was this answer helpful?