Management and Auditor Responsibility in Fraud Prevention and Detection at JB Hi-Fi

JB-Hi-Fi

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
PART – A........................................................................................................................................3
Identification of Management and Auditor Responsibility in Relation to the Prevention and
Detection of Fraud.......................................................................................................................3
The Misconception That Exists in Society..................................................................................4
Reasons for Potential Revenue Recognition Fraud.....................................................................4
Case Examples of Revenue Misstatements.................................................................................5
Part B...............................................................................................................................................6
Describing Core Business of JB Hi Fi Limited and Explain the Significance of Deep
Understanding of Client’s Business for an Auditor.....................................................................6
Identifying The Four Major Business Risks of JB Hi FI and Providing Explanation of Each
Factor Being Identified as A Risk...............................................................................................7
Results of Analytical Procedures.................................................................................................8
Inherent Risks..............................................................................................................................9
Key Account and Key Related Assertion..................................................................................10
Determining Various Methods that can be implemented by company for overcoming the high
control risk.................................................................................................................................10
CONCLUSION..............................................................................................................................11
REFERENCES................................................................................................................................1

INTRODUCTION
The term auditing means to conduct an official inspection over the financial aspects of a
company. The current report is divided into 2 parts. The part - A of the report will be explaining
the difference between the responsibility of management & the individuals that are in charge of
governing them and auditor’s responsibility with respect to the detecting and preventing of
frauds. In the current report discussion of misconception of the society regarding an auditor’s
role with regards to auditing of financial statements will be done. The report will be including
two key reason for presuming of risks of potential frauds by auditor in relation to revenue
recognition. Further two case examples of revenue misstatement will be covered. The part B of
the report will be based on JB Hi Fi. It is an Australian origin company that functions in the
retailing sector whose core business will be discussed and importance of it for auditor will also
be explained. In the report four major business risks will be identified along with four inherent
risks. Financial statements of the company will be analysed on the basis of financial ratios.
Various methods implementing which the company can overcome high control risk will be
determined.
MAIN BODY
PART – A
Identification of Management and Auditor Responsibility in Relation to the Prevention and
Detection of Fraud
As per ASA 240 - The Auditor's Responsibilities Relating to Fraud in an Audit of a
Financial Report, the primary responsibility rests with the management as well as the TCWG
(Those Charged with Governance) to prevent and detect frauds. Fraud prevention has to be
strongly focussed on which will eventually result in reduction of opportunities leading to the
occurrence of fraud along with deterring the fraud happening which will compel individuals to
not engage in the fraudulent activities knowing the risk of being detected and punished (David
and Abeysekera, 2021). Such a system will need creation of a work culture in the organisation
fulfilling the aspects of honesty and ethical behaviour. Such culture will involve strict and
continuous maintenance of oversight by those charged with governance which will include its
duties and responsibilities including consideration of potential overriding of the controls existing
in the organisation or influencing inappropriately over the process of the financial reporting.
Such inappropriate influence includes managing of the earnings of the organisation by its

management for the sole purpose of influencing the analyst’s opinion on the profitability and
performance of the entity.
Also, the auditor responsible for conducting of audit of the organisation has a crucial
responsibility of obtaining the reasonable assurance that the financial statements are free from
misstatements which are essentially material no matter whether these misstatements are either
caused by error or a fraud (O'Connell and et.al., 2020). But, due to the presence of certain
inherent limitations in the conduct of audit, there is a risk which is also inherent or unavoidable
that some of those material misstatements may not be detected or corrected even after effective
planning and performance of the audit.
The Misconception That Exists in Society
Following the large scale and frequently occurring corporate failures, corporate frauds,
and significant financial and administrative losses, the main individuals who always comes under
the radar of inefficiency, extensive scrutiny and high criticism. It is also extensively believed by
the layman that these failures and frauds occurs due to gap that has been created between the
shareholders and users of the financial statements and the auditors whose roles as well as
responsibilities are clearly defined (What is the Risk of Material Misstatement? 2022). But it
shall be noted that these collapses and failures cannot be entirely be connected to the roles and
responsibilities of the auditors as ISA says that the future transparency of the entity or even the
effectiveness or efficiency of the organisations’ affairs are not assured by the opinion of the
auditor in the independent auditor’s report. Such affairs also include financial standing of the
organisation, financial or any other kind of risk, etc. According to certain legislations, auditor is
just a watchdog whose responsibility is to ensure that the financial statements are free from any
material misstatements but such collapses or failures are ultimately the responsibility of the
management since it is the one who has the primary responsibility towards preparation and
maintenance of the financial statements and also implementing a strict and effective internal
control system to be able prepare and maintain such financial statements adhering to various
standards and other regulations.
Reasons for Potential Revenue Recognition Fraud
Now, there is no denying that there are very strong and potential risks of happening of
frauds in relation to the recognition of revenue in the organisations (de Comptes, 2022).
Therefore, such fraudulent reporting of the financials related to the revenue recognition may be