Analysis on Dick Smith

This document provides a comprehensive analysis on the collapse of Dick Smith, including the role of directors and auditors. It explores the company's financial statements and includes ratio analysis. The document also discusses the causes of the collapse and speculations surrounding it.

Running head: ANALYSIS ON DICK SMITH
ANALYSIS ON DICK SMITH
Name of Student
Name of University
Author’s Note

2ANALYSIS ON DICK SMITH
TABLE OF CONTENTS
RESPONSE TO QUESTION 1:..........................................................................................4
RESPONSE TO QUESTION 2...........................................................................................5
RESPONSE TO QUESTION 3:..........................................................................................7
RESPONSE TO QUESTIONS 4:........................................................................................8
RESPONSE TO QUESTIONS 5:..................................................................................11
RESPONSE TO QUESTION 6:........................................................................................12
REFERENCE....................................................................................................................14

3ANALYSIS ON DICK SMITH

4ANALYSIS ON DICK SMITH
RESPONSE TO QUESTION 1:
Dick Smith Holdings Limited which is formerly known as Dick Smith or Dick Smith
Electronics or also known as DSE is a chain of retail service store which focuses on the goods
which are related with electronics, electronic components which is hobbyist and all the electronic
project kits. Dick Smith is an Australian company. The company has its branches all over the
world including countries like New Zealand. This company was founded in 1968 in the state of
Sydney. The company was founded by Dick Smith himself and his wife and hold maximum of
share of the company. In the year 1980 they have sold 60% of the shares of the company tyo
Woolworths Limited (Brasel et al., 2016). In 1982 the company has sold other 40% to
Woolworths. In 2016 the company was acquired by Anchorage Capital Partners.
After the competition met by the company in electronics products Dick Smith has moved
to whole sale business with the name of Dick Smith Wholesale. The main profit which the
company wants to be profited was from the CB radio boom. This enables the company to open
new stores all over the mainland in the last decades. In the last decade the company’s sales also
boom by selling the components of the PC and also its kit lines. The wife of Dick Smith has sold
the whole percent of shares to Woolworths for Australian $25 million. In 2008 Dick Smith has
changed the name from Dick Smith Electronics to Dick Smith Technology. Woolworths has
changed the logo of Dick Smith. In 2016 Dick Smith was acquired by Anchorage Capital for the
price of $115 million.
There are many causes for the collapse of Dick Smith. As per the analyses made in
accordance with the annual report and the market condition of electronics based company
became the reason for the collapse for Dick Smith (Gimbar, Hansen & Ozlanski, 2016). As per

5ANALYSIS ON DICK SMITH
the report it can be stated that the market at that point of time are very competitive and there are
present of competitors who are creating a considerable amount of market share. It can be stated
Dick Smith was failed to analysed the competition which are to be faced in the electronics
market. Some of the blame may also go for the management of the company because they failed
to create the strategy which may become fruitful enough to attract more customers and ultimately
become the ace in the market when it comes to the competition in the market. Another reason
which can be spotted behind the collapse of Dick Smith is the huge network of stores and the
cost which comes with it. Dick Smith has to spend a considerable amount of price for
maintaining the stores in various places. This exposes the capital to the maintenance of the stores
and not focusing in the improvement of the products and hence the company has fallen. Revenue
growth is one of the important factor for every company’s sustainability in the market but in the
case of Dick Smith it can be seen that the growth of the company has fallen and also it can be
seen that market share has fallen to a greater extent and hence Dick Smith has collapsed.
RESPONSE TO QUESTION 2
It is found out that the directors have played a great role behind the collapse of Dick
Smith. Many cases has been launched against the directors of Dick Smith by its stakeholders. As
per the stakeholders of the company it is stated that the former directors of the company has been
accused of receiving of $2 million which is tax-free cash in the year of 2015. These was claimed
to be the amount which was denied from the receivers by providing the reason of poor
performance in retail business of the company. The directors were also accused of using the
strategy which was claimed to be flawed as the strategy was driven by rebates. The strategy as
per the shareholders which should be implemented for recurring the loss and comes to its
business was the customer demand. The directors were also accused for failing to put in any

6ANALYSIS ON DICK SMITH
place any full systems or procedures which will help to monitor the purchase the impaired the
inventory. The directors are also accused of not able to analyses the financial statement of the
company and hence the company has made serious mistake in case of properly accounted for
inventory and also the discount which are not followed in accordance with the accounting
standards of the country (Gimbar, Hansen & Ozlanski, 2015). This cost the company of $189
million of bad stock which was published in the financial statements for the last time. This was
the main reason for not providing the dividends or providing the lower amount to the
shareholders of the company. As per sated by the receiver of the dividend the strategy adopted
by the directors of the company is to maximize the rebates for the suppliers which leads to the
collapse of the company because it helps to increase the bad stock of the company (Arya &
Glover, 2014). As per the history of Dick Smith Company has acquired $520 million from the
market in its initial public offering but it ended with $180 million of bad stock in just two year.
At the end of the year of 2014 it is seen that the group tried to increase the invoices and also
cancelling previous invoices for stock which are to be issued by the group of the company with
rebates. This leads to increase the cost of the goods which became one of the reason for the
collapse of the company. This decision made by directors of the company lead to certain
decrease in cash flows and sales. This also caused the situation where the company has to delay
the payments of the supplier because of the fewer funds with them. Over the next few months the
company’s stock kept on increasing and cash flows kept on worsened (Inua & Abianga, 2015).
By the end of the year the company needs to spend $11.8 million for the interim dividend to its
shareholders. The directors of the company has placed the solvency and the cash flows and
placed the company into voluntary administration. The stamen produced by directors accused the

7ANALYSIS ON DICK SMITH
auditor of the company who was Deloitte went on take some extensive measures for testing the
rebates which was in accordance with the Australian Accounting Standards.
RESPONSE TO QUESTION 3:
There are many speculation has been made against Dick Smith’s collapse in 2016. The
receiver of the dividend has accused the directors of the company. On the other hand as per the
director of the company, the auditor are also responsible for the collapse of Dick Smith. As per
the directors point of view the Deloitte who is the auditor of the company provided the green
signal in response to adopt the strategy of providing rebate to the supplier. The auditor of Dick
Smith has also placed the company into voluntary administration. In the audit of 2014-15
financial year Deloitte has provided green signal in case of going concern of Dick Smith.
Deloitte has received $338,000 for rendering the service of auditing the company. Deloitte has
also asked for $103,927 for the services rendered (He, Pan & Tian, 2017). Auditor did not
mention about the insufficient inventory management for the collapse of the company which
leads to write down of $60 million and also 20% reduction in value of Dick Smith’s stock.
Inventory is one of the major part specifically when the company is working in retail business. In
the balance sheet of the retailed company inventory holds maximum amount in the whole assets
structure which is same for Dick Smith’s retail business. The risk factor for the inventory is also
high and hence the company need to look after. Deloitte has also being questioned by the
directors of the company as the auditing company has practiced dubious auditing method which
is also known as the real activities management. Auditor of Dick Smith is also being accused of
providing the manipulated sales figures and also the inventories of the companies are also
altered. This leads Dick Smith to purchase more inventories and also increase the expansion of
the stores. This act also provides space for the company to provide bank rebates to the suppliers

8ANALYSIS ON DICK SMITH
so the earnings are also boosted (Simunic, Ye & Zhang, 2017). On the basis of this structure
Dick Smith has went for raising money from the market which also leads to increase in the share
price of the company. The company has raised $520 million in the initial public offering. As the
shares were are floating with high price leads to provide the incentives to the directors of the
company. The company has myopic reduction in research as per the real activities management
concerns. The reason ,for the auditor of dick Smith created the pathway for manipulate the
accounting policies which helps the company to increase the operating income of the company
and it can easily evade the debt and hence the results is positive even it went to improve the total
financial statements monitoring the shareholders of the company (Handen et al., 2015). These
flaws which are made by the auditor of the company and the mistakes which are overlooked for
the company leads to collapse of Dick Smith and also creating the pathway for the company to
move forward and taking wrong decision regarding the strategy which includes the rebate policy
happens to give to the supplier and also opening new stores for the development.
RESPONSE TO QUESTIONS 4:
After the analysis of the financial statement of Dick Smith from the annual report of 2015
it can be stated that the company has the net profit of $37,905 in the year of 2015. It can also be
stated that the revenue of the company may also has revenue of $1319670. The company also
shows the total assets of $451171 in the year of 2014 and in the year of 2015, the total assets
valuation has rose up to $508521. The equity of the company has also increased drastically
which can be stated that the company’s total equity in the year of 2014 was $169147 and in the
year of 2015, the total equity has rose up to $166940.

9ANALYSIS ON DICK SMITH
As per the ratio analysis from the financial statement of the company which are derived
from the annual report of Dick Smith of 2015. As per the ratio analysis it is seen that net profit
margin of the company has increased from the year of 2014 to the year of 2015. The percentage
increase of the company’s net profit margin is 1% as the net profit margin of the company in the
year of 2014 is 2% and in the year of 2015 is 3%. In the case of the gross profit margin of the
ratio it can be stated that it has also increased by 1%. In the year of 2014 the gross profit margin
the percentage was 24% and in the year 2015 the percentage of gross profit margin is 25% (Dick
et al., 2017). This shows the indication of company having increase in the profit margin as a
whole and hence the company may move up to more good position in near future.
Profitability Ratio
Net Profit Margin 2% 3%
Gross Profit Margin 24% 25%
As per the calculation made with the help of the annual report of Dick Smith of 2015 the
ration analysis using the liquidity ratio it can be stated that the company will able to provide
enough amount against the long term debts of the company
(https://www.asx.com.au/asxpdf/20150818/pdf/430kvhrl8cpg0l.pdf, 2019). In this aspect it can
be seen that current ratio of the company which rises of 1.258984959 in the year of 2014 and in
the year of 2015 it can be stated that the current ratio is 1.232056033. In the same context it can
be stated that the company has quick ratio or acid test ratio is the 0.307683082 which comes out
in the year of 2014 and in the year of 2015 the ratio of the quick test ratio has rose up to
0.306245597. This shows that the company has provided liquidity ratio is much better for the
company.

10ANALYSIS ON DICK SMITH
Liquidity Ratio
Current Ratio 1.258984959 1.232056033
Quick Ratio 0.307683082 0.306245597
As per the ratio analysis which is based on the annual report of 2015 of Dick Smith it can
be stated that the company has great efficiency ratio which must be stated the efficiency ratio of
the company. This states that uses its assets and liabilities of the company internally. The
inventory turnover ratio of the company in the year of 2014 which has 4.672525592 and in the
year of 2015 it can be stated that the inventory turnover ratio has 4.503316908 (Addis, 2016). As
in the case of the debtor’s turnover ratio in the year of 2014 is 27.36471899 in the year of 2014
and in the year of 2015 is 24.74860754
(https://www.asx.com.au/asxpdf/20150818/pdf/430kvhrl8cpg0l.pdf, 2019)
.
Efficiency Ratio
Inventory Turnover Ratio 4.672525592 4.503316908
Debtors Turnover Ratio 27.36471899 24.74860754
As per the study made from the annual report of 2015 of Dick Smith it can be stated that
the solvency ratio of the company which shows that the capital structure of the company. It can
be stated that the company’s solvency ratio in the year of 2015 of 0.422307416.
Solvency Ratio
Debt Equity Ratio 0.422307416

11ANALYSIS ON DICK SMITH
Equity Ratio 0.374906632 0.328285361
From the ratio analysis it can be stated that the company shows positive going concern.
RESPONSE TO QUESTIONS 5:
Unmodified report is the kind of the report which issues by the company when the
financial situations of the company is quite good and it can be authenticated from the financial
statement of the company. Auditors applied different techniques and methods to scrutinize the
financial statement of the company and observe the financial statement and if there any kind of
any presence of misstatement. If all the financial statement of the company are materially correct
then auditors provides unmodified report and if it is not happening then the auditors provide
modified report (Gosden & Allen, 2015). As in the case of Dick Smith, it can be observed that
the financial statement of the company is quite good as the auditor’s report also said that there is
no presence of any misstatement of the company. As per the analysis of the financial statement
of the company and also the annual report of the company of the period of 2015 it is stated that
the company has some good financial structure. It can be easily observed after the analysis of the
income statement of the company and also the balance sheet of the company. As per the ratio
analysis it is seen that the company has great liquidity ability. It can also be stated that the
profitability ratios also provided positive part which means the company is in good point and
moving in right road and hence the company can be said going concern.
There are other matters which can be also be pointed out maybe due to the pressure from
the management of the company or maybe pressure provided by the directors of the company on
the auditors of the company may also leads to some false statement in the annual report of the
company (Khair, Mushtaq & Reardon‐Smith, 2015). As per the allegations made by the receiver

12ANALYSIS ON DICK SMITH
dividend of the company, the auditors has benefitted for making false statement in the annual
report of the company by providing unmodified report.
RESPONSE TO QUESTION 6:
The auditors are plays a very important role for the development of the financial
statement of the company. It can be stated that the company may possess many fraud cases
which they did not showed in the financial statement of the company. The auditors are
responsible for pointing such discrepancies and state that in the auditor’s report of the annual
report of the company. The auditors are also responsible for searching material misstatement of
the company. This functions of the auditor of the company falls under the purview of the legal
liability of the company. To maintain the legal liability, the auditor need to maintain the requisite
skill, the auditor need to maintain the skill with diligence, integrity and faith is also on eof the
important factor for the company and dishonesty are not required (Rahmawati, Rispanty &
Djamaluddin, 2017). In case of Dick Smith’s auditor Deloitte has provided the unmodified report
to the company.
It can be concluded that the auditors of the company have benefitted from providing the
false auditor’s report and also accepting the false financial statement which the company has
provided in its annual report. It can be justifies from the case of the companies which was
launched after the company has closed off. The receiver of the dividend of the company has
alleged the company for providing mistaken in the annual report of 2015 and also allegations are
put forward against the directors of the company who took dividend by showing the company’s
profit and showcasing that company has gained considerable profit which liable it for the
dividend (Ijeoma & Nwufo, 2015). Neither the annual report nor the auditor’s report states

13ANALYSIS ON DICK SMITH
anything regarding the dividend received by the directors nor hence it can be safely stated that
company has no problem regarding the going concern and sustainability report also provided
positive report.

14ANALYSIS ON DICK SMITH
REFERENCE
Addis, J. (2016). Retail sector wrap: One opportunity and plenty of worry. Equity, 30(3), 6.
Arya, A., & Glover, J. (2014). Auditor independence revisited. Journal of accounting, auditing
& finance, 29(2), 188-198.
Brasel, K., Doxey, M. M., Grenier, J. H., & Reffett, A. (2016). Risk disclosure preceding
negative outcomes: The effects of reporting critical audit matters on judgments of auditor
liability. The Accounting Review, 91(5), 1345-1362.
Dick, A. A., Hansen, R. N., Montenovo, M. I., Healey, P. J., & Smith, J. M. (2017). Body mass
index as a predictor of outcomes among pediatric kidney transplant recipient. Pediatric
transplantation, 21(6), e12992.
Gimbar, C., Hansen, B., & Ozlanski, M. E. (2015). Early evidence on the effects of critical audit
matters on auditor liability. Current Issues in Auditing, 10(1), A24-A33.
Gimbar, C., Hansen, B., & Ozlanski, M. E. (2016). The effects of critical audit matter paragraphs
and accounting standard precision on auditor liability. The Accounting Review, 91(6),
1629-1646.
Gosden, C., & Allen, J. (2015). Report of the Lapita Homeland Project. Pacific Institute
Digitisation Project.
Handen, B. L., Aman, M. G., Arnold, L. E., Hyman, S. L., Tumuluru, R. V., Lecavalier, L., ... &
Silverman, L. B. (2015). Atomoxetine, parent training, and their combination in children

15ANALYSIS ON DICK SMITH
with autism spectrum disorder and attention-deficit/hyperactivity disorder. Journal of the
American Academy of Child & Adolescent Psychiatry, 54(11), 905-915.
He, K., Pan, X., & Tian, G. (2017). Legal liability, government intervention, and auditor
behavior: Evidence from structural reform of audit firms in China. European accounting
review, 26(1), 61-95.
https://www.asx.com.au/asxpdf/20150818/pdf/430kvhrl8cpg0l.pdf (2019).
www.asx.com.au/asxpdf/20150818/pdf/430kvhrl8cpg0l.pdf. [online] Asx.com.au.
Available at: https://www.asx.com.au/asxpdf/20150818/pdf/430kvhrl8cpg0l.pdf
[Accessed 22 Jul. 2019].
Ijeoma, N. B., & Nwufo, C. I. (2015). Impediments of the audit function in the public sector: a
critical analysis of the constraints of Auditor-General for the federation of
Nigeria. International Journal of Economics, Commerce and Management, 3(1), 1-25.
Inua, O. I., & Abianga, E. U. (2015). The Effect of Internal Audit Outsourcing on Auditor
Independence: The Nigerian Experience. Journal of Finance and Accounting, 6(10).3
Khair, S. M., Mushtaq, S., & Reardon‐Smith, K. (2015). Groundwater Governance in a Water‐
Starved Country: Public Policy, Farmers' Perceptions, and Drivers of Tubewell Adoption
in Balochistan, Pakistan. Groundwater, 53(4), 626-637.
Rahmawati, R., Rispantyo, R., & Djamaluddin, S. (2017). Mentoring function and quality of
supervisor auditor relationship: Organizational justice as a mediation. Indonesian Journal
of Sustainability Accounting and Management, 1(1), 40-48.

16ANALYSIS ON DICK SMITH
Simunic, D. A., Ye, M., & Zhang, P. (2017). The joint effects of multiple legal system
characteristics on auditing standards and auditor behavior. Contemporary accounting
research, 34(1), 7-38.