Auditing Theory and Practice for Dick Smith Electronics Ltd

Running head: AUDITING THEORY AND PRACTICE
Auditing Theory and Practice
Name of the Student
Name of the University
Author’s Note

1AUDITING THEORY AND PRACTICE
Table of Contents
Introduction..........................................................................................................................2
Brief history and rationale for collapse of Dick Smith Electronics Ltd..............................2
Standards considered for accusations on the on the directors for the collapse of the
company...........................................................................................................................................3
The signs auditors have considered to indicate the problem of going concern...................4
Analysis of the annual report and evidence which might not be considered with the going
concern.............................................................................................................................................4
Rationale for the auditors providing an unmodified audit opinion for the financial year
ended 30 June 2015.........................................................................................................................5
Auditor’s legal liability for unmodified audit opinion for the financial year ended 30 June
2015.................................................................................................................................................6
Conclusion...........................................................................................................................8
References..........................................................................................................................10
List of Appendix................................................................................................................11

2AUDITING THEORY AND PRACTICE
Introduction
The discourse of the aims at evaluating the various articles associated to Disc Smith
Electronics which led to its collapse. The important areas of the reporting are depicted in form of
causes of the collapse of the company. In addition to this, it will further analyses the various
reasons of breaching Australian Accounting Standards which are done by the directors of the
company. Some of the other sections of the study will evaluate the major concerns which are
seen in the areas of various aspect such as standards of accounting followed in Australia. The
study will also evaluate the sighs of the auditor which indicates the problem of going concern
and provide a brief analysis from the depiction of the annual report. Moreover, the study will
identify the various onions of the auditors from the annual report published on 30 June 2015. The
study has also provided an analysis of knowledge of the auditors about the legal liability of the
auditors. This is particularly related in the context of Dick Smith. The relevant findings of the
study have been further related to the unmodified audit onion for the financial year ended 30
June 2015. This is stated with a clear explanation of the relevant outcomes of the findings from
the topics of the study.
Brief history and rationale for collapse of Dick Smith Electronics Ltd
Dick Smith Holdings Ltd founded in 1968 is considered as one of the well-recognized
Australian chain of retail stores which sells consumer electronic goods, electronic project goods
and hobbyist electronic components. The expansion of the chain was seen in New Zealand and
several other parts of the world. During the initiation of the business in 1968, Dick Smith
invested $ 610 towards the business of installing and servicing car radios. In the beginning of
1980s the company had more than 20 stores and sold 60% of working share is worth limited. In
less than two years of time, Dick Smith sold balance of the amount of A$ 25 million to

3AUDITING THEORY AND PRACTICE
Woolworths as it took full ownership of the company. In 2016, Dick Smith was acquired by
Kogan.com and since then it continued to offer great value and service to the consumers in
electronic products across Australia and New Zealand (Australia, 2018).
The main reason for the collapse of the company is mainly due to massive failures in
inventory purchase combined with costly expansion. The expansion plans of the company led to
exhaustion of surplus earnings and the customers preferences started to lose market value.
Therefore, this expansion went unchecked and by means of 2015, the company was seen to be
carrying huge amount of stock which was overvalued stock. Moreover, the cash receipts were
sufficient to meet the objectives and future commitments. It was further seen that the losses
attributable were worse than expected margin, sale, lease provisions, asset impairments and
inventory write-downs (NewsComAu, 2016).
Standards considered for accusations on the on the directors for the collapse of the
company
The consideration of the main accounting acquisitions for Dick Smith needs to be
identified with maximizing the rebates. Therefore, this is the money which the retailers got from
the suppliers to stock and promote the goods instead of knowing whether the customer is actually
wanted to buy. Moreover, the rebate can be applied over a certain period of time will allow to
redeem a percentage of the amount invested. These negotiations are highly confidential and only
made between the retailer and supplier. However, Dick Smith is also held liable for falsely
accounting of rebates to inflate profits than it actually made. Over a period of nine months the
creditors were more than $260 million short. The banks charge the company with only half of the
total amount and the shareholders were warned unless the liquidators were after the Anchorage
capital. In addition to this, the director of the company received more than $ 2 million in terms of
free cash flow after it was declared that the dividends we are not to be paid for retailer claim.