INHERENT RISK

Overall Inherent Risk - Merrill Lynch Investment Solutions



Merrill Lynch Investment Solutions

Factor

Discussion

Low

Moderate

High

 

According to ASA200.Aus13.4 inherent risk (IR) is a measure of the susceptibility of material misstatement before considering any internal controls.

Nature of client's business

Inherent risk differs from business to business due to the accounts such as accounts receivables, payables inventory, loans, and property, plant, and equipment. There is small business nature impact on the cash and payables.

The business nature of the Merrill Lynch investment solution is basically of investment banking activities and financial services. The fund's objective is to achieve capital appreciation primarily through investing and trading in stocks, both long and short. The sub-fund will invest in global markets, with a focus on the United States of America. The sub-fund also uses stock index futures for hedging purposes and to implement its investment strategy. The investment manager uses fundamental analysis in its stock selection.

Certain asset allocation techniques are another component of the investment strategy. Other investments portfolio may include, but are not limited to, the following: financial and other futures and derivatives put and call options on various financial instruments, debt securities and other financial instruments (Merrill Lynch Investment Solutions Annual report, 2012).

 

 

Moderate

 

Results of previous audits

The mistake made in the last years is expected to make in the following year as well which is termed as Misstatements. Many Misstatements nature is systematic and the approach to eliminate such Misstatements, the process in the organization s very slow.

Merrill Lynch Investment Solutions generates the majority of its revenue from trading activities and from fees charged for financial advisory services (e.g. mergers and acquisitions) and underwriting services (e.g. debt and equity underwriting). Most macroeconomic factors affect this highly cyclical industry, including the level of trading and business activity, interest and employment rates, income levels and consumer confidence. Because of the Merrill Lynch Investment Solution's reliance on the overall economy, revenue has experienced severe highs and lows over the five years to 2012.

The Merrill Lynch Investment Solutions has been on a roller coaster since it achieved record-high revenue of $219.9 billion in 2007. The 2008 recession, highlighted by contracting equity markets and low business confidence, destroyed initial public offerings (IPOs) and merger and acquisition (M&A) activity. The decline in stock and bond markets also significantly hurt trading revenue of Merrill Lynch Investment Solutions. As a result, Merrill Lynch Investment Solutions revenue fell 42.0% in 2008. Revenue rebounded 30.4% in 2009 and 12.7% in 2010, but it still remained well below 2007 levels. Overall, revenue has decrease at an average rate of 4.1% annually over the past five years. Recovering from a dip in 2011, however, industry revenue is expected grow 3.3% to $178.7 billion in 2012.

As far as Hedge funds pool is consider of Merrill Lynch Investment Solutions, investors' capital are invested in these funds in various traditional and non-traditional asset classes. In order to earn more money than higher than traditional market returns, they pursue leveraging and other speculative investment practices that magnify investment gains and ...