What are the risks associated with e-commerce?

Subject E-Commerce
NU Year Set: 6.(e) Marks: 3 Year: 2017

E-commerce, or e-business, via the internet is now bringing fundamental changes to the way business is conducted. The continued evolution of technology, the economics of the internet, and the growth of e-commerce are significantly affecting the traditional business environment. E-commerce is changing the competitive market and making international trading viable for a much larger number of businesses.

When a business engages in e-commerce, it runs many new risks. The internet provides every entity with the opportunity to trade in a global market. But when transactions are initiated by unknown parties on the internet, there are risks relating to the authenticity and integrity of trading partners and e-commerce transactions. Usually, management will identify e-commerce business risks, and address those risks with appropriate security and control measures. In contrast, the auditor will consider e-commerce business risks only in so far as they affect audit risk. Audit risk relates to the risk that the entity's financial report (on which the auditor provides an audit report) is materially misstated.

A business may be faced with a number of constraints when developing e-commerce, including the availability of appropriate technical and marketing expertise, the need for continuing investment, and the identification and resolution of security issues. Although these issues may remain unresolved, many entities are continuing to develop e-commerce on a'risk-reward' basis. As a result, the e-commerce market is growing rapidly, particularly the use of e-commerce on a business-to-business (B2B) basis to shorten supply lines and reduce costs. Such growth, without due attention to the risks in an electronic trading environment, impacts on both business risk and audit risk.

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