Areas of the audit that appear to have not been carried out in accordance with the auditing standards and/or the Code of Ethics for Professional Accountants
The current essay aims to select media articles associated with Dick Smith, which is an Australian organisation. Dick Smith Holdings Limited has been, until 2016, an Australia-wide chain of retail stores engaged in selling electronic goods for consumers, electronic project kits and hobbyist electronic components. However, in 2016, the online retailer Kogan has purchased the brand of Dick Smith and its online business in Australia and New Zealand. The essay aims to lay stress on the areas of audit that have not been conducted in compliance with the standards of auditing and the Code of Ethics for Professional Accountants. Finally, the essay sheds light on linking the various standards of auditing and sections of the Corporations Act to the issues discussed in the articles.
Dick Smith Holdings Limited has encountered class action from its shareholders, in which nearly 1,000 former shareholders lost around $500 to $2 million have decided to take class action against the organisation (NewsComAu 2017). According to the experience of a shareholder, the financials of the organisation did not suggest that the company would crash down. In addition, there has been absence of any external factor that lead to the collapse of the organisation. In this case, this particular non-disclosure of financial information of Dick Smith has violated “Section 320 of APES 110” (Davidson, Desai and Gerard 2013).
According to “Section 320.1 of APES 110”, the business members are often engaged in developing and reporting information, which could be disclosed to the public or the insiders might use it. Such information would comprise of both financial and management information, which takes into account forecasts and budgets, discussion of management and analysis, financial statements and the management representation letter given to the auditors while auditing the financial statements of the organisation (Ridley-Duff and Bull 2015). A business member needs to prepare these statements with honesty, fairness and in accordance with this section for easy understanding of information. In addition, according to “Section 320.2 of APES 110”, those members involved in preparing the financial statements of the concern need to ensure that such statements are developed in compliance with the International Financial Reporting Standards. In accordance with “Section 320.2.1 of APES 110”, when the conditions of preparing financial statements are not met, the business members need to notify those charged with governance along with documenting communication (Stewart and Shamdasani 2014). Hence, it could be said that Dick Smith has not prepared its financial statements; instead, they misrepresented the figures in the same only to maintain the trust and confidence of its shareholders and investors (Alles, Kogan and Vasarhelyi 2013).
Applicable audit standards and sections of the Corporations Act (2001) to the issues raised in the articles
In addition, the shareholders have further alleged about the impact of the accounting treatment in its financial statements. These are briefly related with the relevant auditing standards in Australia:
- According to “International Federation of Accountants (IFAC)”, due to the national comparison of culture, legitimate, dialect and social frameworks, the adoption of point by point moral prerequisites is primarily the part bodies in each nation and they have the extra responsibility of executing and authorising such requirements.
- Moreover, as per IFAC, the personality pertaining to the calling of accounting is explained globally with the help of an effort to achieve different daily targets and through the realisation of various central benchmarks for that cause.
- IFAC has perceived the duties pertaining to the calling of accounting and it views its specific portion for providing direction, advancement of harmonisation and empowerment of congruity of endeavours (Ling 2014). It has adjudged this necessary for developing a global code of ethics for the professional accountants to be the base on which the ethical needs like moral code, basic principles, regulations and lead models for qualified accountants in each nation is required to be developed.
- This global code has been laid out as a model on which the global moral direction would be developed. It develops regulations for the professional accountants and lays out the primary functions, which these professional accountants often envision as the path for achieving daily destinations (Dai and Handley-Schachler 2015). The calling related to accounting functions in a condition with different societies and administrative necessities. The primary goal of the code, as it might be, needs to be regarded dependably. It is probably recognised that in those instances, in which a national need is in line with the code arrangement, there is greater chance of winning the national necessity. In addition, wording has been developed on the part of IFAC for the countries wishing to obtain the code as their specific national code. This would be used to depict to the specialists in the specific nation concerned. Such wording is included in the “IFAC Statement of the Council Policy” associated with the ethical needs (Nagar, Rajan and Ray 2016).
Since the heads and beneficiaries of the Australian Securities and Investment Commission are investigating the collapse of Dick Smith, it is widely inherent that the profession of accounting needs to be inquired thoroughly. According to the report of the head of the commission, supposition has been developed behind the failure of the business (NewsComAu 2017). The discounts from the providers, their effect on administration seeking choices and their ability to hide the actual facts related to the profit figures is inherent. In 2014, Dick Smith has accounted an income of $72 million before interest, expenditure, depreciation and amortisation. If the discounts and other endowments are not included, this amount would have been reported as a loss of $119 million (Malley 2017).
The auditors have approved the records of Dick Smith in August 2015. The global regulatory authority has been appointed on 4th January 2016. The outcomes associated with the refund treatment of accounting are an instance of the collapse of Dick Smith, which needs special attention for investigation. Thus, the discounts are not the sole issue, which could be considered behind the downfall of the organisation. A code of morals has bound the profession of accounting, which needs the accountants act in the intrigue of general population, which is inherent for a justified cause (Mihret 2014). The code offers assistance to the experts for exploring the business situations, which would be intricate along with settling on choices. For instance, the treatment of stock and income need to conform to the strict use of measures and regulations along with the intention of accomplishment.
The financial reports take into account the declaration of the financial position, description of executive remuneration, assertion associated value changes, notes to the financial statements, and statement of the chief executive officer and the reports of the auditors (Kogan et al. 2014). The yardsticks for material accounting need to be followed for developing the financial description, undertaking significant disclosures by taking into account the outcome to be illuminate and uncomplicated about the financial condition and exercise of the substance. The developers tend to consider the current media discharge of ASIC for groups of centre and link with master assistance where fitted like complicated valuations.
The financial statements of Dick Smith need to be joined through form 388 when curbed with ASIC. The recorded constituents need to hold the financial statements with the Australian Stock Exchange (ASX). After this, they are delivered to enroll of ASIC for meeting the requirements of lodgement. In addition, ASIC utilises the consistent projects for ensuring constituents to achieve the commitments under the Corporations Act 2001.
A manager needs to have a centre and irreducible requirement of inclusion in the organisational administration. Hence, it is of utmost need for the manager to place in a position for guiding and screening the overall administration associated with the organisation. The obligations of Dick Smith are not controlled through information and experience of particular foundation (Mohammadi 2015). Hence, the manager needs to be accustomed with each organisational matter and the way they are managed while ensuring the legitimate functioning of the administration. On the other hand, Dick Smith has wrongly interpreted a portion of its exceptional obligations. This includes the seat associated with a review advisory group of an official executive, it needs to complete these diversified responsibilities with adequate consideration and tirelessness (Knechel and Salterio 2016). Dick Smith needs to explore ways for adhering or ensuring consistence with the financial declaration along with reviewing needs of the Corporations Act. In addition, it needs to take into account the requirement for keeping legitimate records and books.
Dick Smith needs to keep effective monetary records for clarifying and recording the transactions of the organisation and its financial position. In addition, it could have kept effective budgetary proclamations for investigation. The commitment of the organisation has stretched out to ensure that the records of the organisation are correct and complete through embracement of fitting approaches of accounting while outlining and executing the effective procedures and controls. Such commitment occurs through exercising minimum respect as to whether the financial books of accounts and records are kept properly inside the organisation or outsourced to an external party and whether the records are printed or kept electronically (Lu 2015).
As a move to achieve the targets related to the calling of accounting, professional accountants are required to monitor the different needs or necessary standards. These standards are briefly discussed as follows:
- The initial standard is integrity, which needs to be genuine and direct while carrying out effective services.
- The second standard is objectivity, in which the skilled accountants need to be reasonable and not permitting inclination, preference, unwanted situations or effect of others to violate objectivity (Broberg, Umans and Gerlofstig 2013).
- The third standard is due care and professional competence, in which the professional accountants tend to carry out effective administration with diligent care, consistency and they proceed with an obligation for keeping effective expertise and information. These are kept at a position needed to ensure that a manager or a client obtains the advantage of effective expert administration in the context of progressive advancements through adoption of policies and procedures (DeFond and Zhang 2014).
- The fourth standard is confidentiality, in which the professional accountants need to respect the confidentiality of data obtained over the period of carrying out proficient administration along with non-using or uncovering any information without legitimate and specific specialist or there is any lawful expert or obligation to disclose (Anderson et al. 2014).
- The fifth standard is the professional behaviour, in which the professional accountants need to behave in a way with the notoriety of calling along with forgoing any stuff that might dishonour the calling of accounting. The obligation to forgo any direct might convey dishonour to the calling of accounting. This needs the part bodies of IFAC for consideration at the time of developing moral needs, the commitments of skilled accountants to clients, external parties and other individuals from the calling of accounting, businesses, employees and the overall population (Chiu, Liu and Vasarhelyi 2014).
- The sixth standard is the technical standards, in which the skilled accountants are required to finish effective administration, according to relevant specialised and standard yardsticks (DeVellis 2016). The professional accountants have a commitment to finish with expertise and care, the directions of the clients or business by envisioning that they are effective with the requirements pertaining to objectivity, honesty and skilled accountants in open practices along with autonomy. In addition, they are required to adjust with expert and specialised models. The proclamations are made on the parts of IFAC, International Accounting Standards Committee, the proficient body or administrative body of the part and pertinent enactment (Abdullatif 2016).
Conclusion:
The current essay aims to select media articles associated with Dick Smith, which is an Australian organisation. Dick Smith Holdings Limited has been, until 2016, an Australia-wide chain of retail stores engaged in selling electronic goods for consumers, electronic project kits and hobbyist electronic components. However, in 2016, the online retailer Kogan has purchased the brand of Dick Smith and its online business in Australia and New Zealand. Dick Smith Holdings Limited has encountered class action from its shareholders, in which nearly 1,000 former shareholders lost around $500 to $2 million have decided to take class action against the organisation.
According to “Section 320.1 of APES 110”, the business members are often engaged in developing and reporting information, which could be disclosed to the public or the insiders might use it. Such information would comprise of both financial and management information, which takes into account forecasts and budgets, discussion of management and analysis, financial statements and the management representation letter given to the auditors while auditing the financial statements of the organisation. A business member needs to prepare these statements with honesty, fairness and in accordance with this section for easy understanding of information. In addition, according to “Section 320.2 of APES 110”, those members involved in preparing the financial statements of the concern need to ensure that such statements are developed in compliance with the International Financial Reporting Standards.
According to “International Federation of Accountants (IFAC)”, due to the national comparison of culture, legitimate, dialect and social frameworks, the adoption of point by point moral prerequisites is primarily the part bodies in each nation and they have the extra responsibility of executing and authorising such requirements. This global code has been laid out as a model on which the global moral direction would be developed. It develops regulations for the professional accountants and lays out the primary functions, which these professional accountants often envision as the path for achieving daily destinations (Dai and Handley-Schachler 2015). The calling related to accounting functions in a condition with different societies and administrative necessities. The primary goal of the code, as it might be, needs to be regarded dependably. It is probably recognised that in those instances, in which a national need is in line with the code arrangement, there is greater chance of winning the national necessity. In addition, wording has been developed on the part of IFAC for the countries wishing to obtain the code as their specific national code. This would be used to depict to the specialists in the specific nation concerned. Such wording is included in the “IFAC Statement of the Council Policy” associated with the ethical needs (Nagar, Rajan and Ray 2016).
Dick Smith has wrongly interpreted a portion of its exceptional obligations. This includes the seat associated with a review advisory group of an official executive, it needs to complete these diversified responsibilities with adequate consideration and tirelessness (Knechel and Salterio 2016). Dick Smith needs to explore ways for adhering or ensuring consistence with the financial declaration along with reviewing needs of the Corporations Act. In addition, it needs to take into account the requirement for keeping legitimate records and books. The commitment of the organisation has stretched out to ensure that the records of the organisation are correct and complete through embracement of fitting approaches of accounting while outlining and executing the effective procedures and controls.
References:
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Alles, M.G., Kogan, A. and Vasarhelyi, M.A., 2013. Collaborative design research: Lessons from continuous auditing. International Journal of Accounting Information Systems, 14(2), pp.104-112.
Anderson, U.L., Gaynor, L.M., Hackenbrack, K.E., Lisic, L.L. and Wu, Y.J., 2014. Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on PCAOB Release No. 2013-009, Proposed Rule on Improving the Transparency of Audit: Proposed Amendments to PCAOB Auditing Standards to Provide Disclosure in the Auditor’s Report of Certain Participants in the Audit: Participating Committee Members. Current Issues in Auditing, 8(2), pp.C1-C7.
Broberg, P., Umans, T. and Gerlofstig, C., 2013. Balance between auditing and marketing: An explorative study. Journal of International Accounting, Auditing and Taxation, 22(1), pp.57-70.
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DeFond, M. and Zhang, J., 2014. A review of archival auditing research. Journal of Accounting and Economics, 58(2), pp.275-326.
DeVellis, R.F., 2016. Scale development: Theory and applications (Vol. 26). Sage publications.
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Lu, Q., 2015. A Review of Auditing Quality Research in the West: Based on IAASB Framework of Auditing Quality. In Accounting Forum (Vol. 1, p. 008).
Malley, A. (2017). Dick Smith collapse raises more questions for accounting profession. [online] The Sydney Morning Herald. Available at: https://www.smh.com.au/business/retail/dick-smith-collapse-raises-more-questions-for-accounting-profession-20160721-gqagz5.html [Accessed 1 Jul. 2017].
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Mohammadi, S., 2015. Full development of the theory of accounting and auditing. International Journal of Accounting and Economics Studies, 3(1), pp.7-9.
Nagar, V., Rajan, M.V. and Ray, K., 2016. The Role of Auditing in Mediating Firm Conflict.
NewsComAu. (2017). ‘I wanted to support an Australian company’. [online] Available at: https://www.news.com.au/finance/business/retail/dick-smith-shareholders-launch-class-action/news-story/2e5df4b5d580e9d205c5cad77e3b04ec [Accessed 1 Jul. 2017].
Ridley-Duff, R. and Bull, M., 2015. Understanding social enterprise: Theory and practice. Sage.
Stewart, D.W. and Shamdasani, P.N., 2014. Focus groups: Theory and practice (Vol. 20). Sage publications.
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