Module 9
Module 9
Ecommerce (or electronic commerce) is the buying and selling of goods (or
services) on the internet. It encompasses a wide variety of data, systems, and
tools for online buyers and sellers, including mobile shopping and online payment
encryption. Most businesses with an ecommerce presence use an ecommerce
store and/or an ecommerce platform to conduct online marketing and sales
activities and to oversee logistics and fulfillment.
Types of e-commerce
As commerce continues to evolve, so do the ways that it’s conducted. Following
are the most traditional types of e-commerce models:
1.Business to Consumer (B2C): B2C e-commerce is the most popular e-
commerce model. Business to consumer means that the sale is taking place
between a business and a consumer, like when you buy a rug from an online
retailer.
2. Business to Business (B2B): B2B e-commerce refers to a business selling a
good or service to another business, like a manufacturer and wholesaler, or a
wholesaler and a retailer. Business to business e-commerce isn’t consumer-
facing, and usually involves products like raw materials, software, or products
that are combined. Manufacturers also sell directly to retailers via B2B
ecommerce.
3. Direct to Consumer (D2C): Direct to consumer e-commerce is the newest
model of ecommerce. D2C means that a brand is selling directly to their end
customer without going through a retailer, distributor, or wholesaler.
Subscriptions are a popular D2C item, and social selling via platforms like
InstaGram, Pinterest, Facebook, SnapChat, etc. are popular platforms for
direct-to-consumer sales.
4. Consumer to Consumer (C2C): C2C e-commerce refers to the sale of a good
or service to another consumer. Consumer to consumer sales take place on
platforms like eBay, Etsy, Fivver, etc.
5.Consumer to Business (C2B): Consumer to business is when an individual
sells their services or products to a business organization. C2B encompasses
influencers offering exposure, photographers, consultants, freelance writers, etc.
COVID-19 has increased demand for eCommerce in the Philippines. While the
younger population was already open to online shopping, the need for social
distancing has pushed the cash centric and face to face shopping culture towards
a more digital one, and this is expected to continue. What is lacking is proper
digital and logistics infrastructure to truly enable a digital economy. There needs to
be higher bandwidth capacity to service the retail market.
Filipinos are prolific users of social media. Estimates this year show that there
are 76 million active social media users from the Philippines. Of this number, 75
million are on Facebook; 12 million on Twitter, and 4 million are LinkedIn users.
good reason to be optimistic about eCommerce growth in the Philippines.
However, the country also faces the following challenges:
Social Media
Filipinos are prolific users of social media. Estimates this year show that there are 76
million active social media users in the Philippines. Of this number, 75 million use
Facebook; 12 million use Twitter, and 6.7 million are LinkedIn users. The Philippines
is recognized as one of the top countries for internet users worldwide in terms of
time spent on social media; 4 hours on mobile and 5.2 hours on desktop and
tablet.
Challenges of eCommerce in the Philippines Cash-based
payment methods dominate, for now
One of the reasons behind the relatively slow uptake of eCommerce in the
country in the past few years is the continued dominance of cash-based
transactions. According to the Philippines’ central bank, cash accounted for 99 per
cent of all local transactions as of January 2018. In addition, the country has been
slow to adopt eWallets, with only 1.3 per cent of Filipinos owning electronic money
accounts based on Bangko Sentral ng Philippines’ 2017 Financial Inclusion
Survey. Meanwhile, merely 1.9 per cent of Filipinos over the age of 15 have a
credit card. 68 per cent of Filipinos with savings keep them at home instead of at a
bank in 2019.
Logistics concerns due to unique geography.
With the Philippines being an archipelago of more than 7,600 islands, logistics
naturally presents a challenge you will have to prepare for when serving
customers in this country. Consumers living in the sprawling capital of Metro
Manila enjoy access to huge shopping malls, flagship brick- and-mortar stores,
and even same-day online delivery from large marketplaces like Lazada and
Shopee.
Audit Considerations
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.
However, during these changes in the business environment, the auditor's
responsibility to provide an opinion on the financial report has remained
unchanged. Although communication and transactions over networks and through
computers are not new features of the business environment, the increasing use of
the internet for e-commerce introduces new variables of risk and control requiring
audit consideration. E-commerce is not clearly defined or constrained but comes
with 'open boundaries' in terms of scope. The auditor requires appropriate skills to
understand how an entity's e-commerce strategy addresses the business risks that
arise. Audit risk assessment for e-commerce requires a paradigm shift in the way
auditors consider client entities and the way auditors plan audit procedures to
reduce audit risk to an acceptable level.
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.
Audit guidance relating to e-commerce is only one part of a much larger project,
requiring continuous research into the potential audit and assurance implications
associated with advancements in technology. For example:
The audit profession will face further challenges with the internet enablement of
business reporting using XBRL (Extensible Business Reporting Language) (visit
www.xbrl.org for further information), or another business reporting language.
This 'next generation' of change is already on the horizon, as the development
and adoption of XBRL will also facilitate process alignment between transactions
from a website to back office reporting systems.
The migration of business from the document orientation of today's paper
environment to the electronic environment of the future (via existing internet
technologies) will prompt further change in the business reporting-information
supply chain, and issues for audit consideration.
As e-commerce continues to evolve, websites may become platforms to create
new markets and develop products. For example, facilities such as 'chat rooms'
or e-commerce auctions on their websites, may be used as platforms to reach
new markets.
Each of these 'new' developments carries risks, which may not be identified in
their early stages. Therefore, as the auditor reconsiders the impact of e-commerce
in each new reporting period, the audit profession must remain aware of the
potential impact of evolving internet technology and emerging standards of
industry practice on audit procedures.
Key Risks Areas in E- Commerce Industry
End of Module