ACC6030 Case Study: Auditing of JB Hi-Fi's Financial Statements

This case study report examines the auditing and assurance services of JB Hi-Fi Ltd. It investigates the quality of the company's reporting framework, focusing on key audit matters included in the financial report and the independent auditor's report. The methodology includes a review of JB Hi-Fi's annual reports and financial information, employing qualitative data analysis and a deductive approach. The research addresses risk assessment, material misstatements, going concern, and modifications to the audit opinion. Findings cover ethics, internal controls, auditor's reporting obligations, and fraud considerations. The report concludes with recommendations for improving the audit process and financial reporting practices. The study utilizes Australian Standards of Auditing (ASA) to derive its conclusions and recommendations, providing a comprehensive analysis of JB Hi-Fi's financial reporting and audit procedures, including the auditor’s responsibilities and the importance of ethical considerations.

Running head: AUDITING AND ASSURANCE SERVICES
Auditing and Assurance Services
Name of the Student
Name of the University
Author’s Note

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Table of Contents
1. Executive Summary...............................................................................................3
2. Problem Statement...................................................................................................3
3. Methodology.............................................................................................................4
3.1 Introduction.........................................................................................................4
3.2 Outline of Research Method...............................................................................4
3.3 Research Onion..................................................................................................4
3.4 Research Philosophy..........................................................................................5
3.5 Research Approach............................................................................................6
3.6 Research Design................................................................................................6
3.7 Process of Data Collection..................................................................................6
3.8 Data Analysis Plan..............................................................................................7
4. Findings....................................................................................................................7
4.1 Identification and Assessment of Risk of Material Misstatement.......................7
4.2 Planning of Materiality and Performing the Audit...............................................8
4.3 Response of the Auditor to Risk Assessed........................................................8
4.4 Going Concern....................................................................................................9
4.5 Opinion Forming and Reporting on a Financial Report....................................10
4.6Modification of the Opinion in the Independent Auditor’s Report......................10
4.7 Emphasis on Matter Paragraph and Other Matter Paragraph..........................11
4.8 Code of Ethics for Professional Accountants...................................................12
4.9 Key Audit Matters..............................................................................................12
4.10 Auditor’s Responsibilities relating to Fraud....................................................13
5. Implications of Findings..........................................................................................14
5.1 Ethics and Culture.............................................................................................14
5.2 Inherent and Control Risks...............................................................................14
5.3 Internal Control.................................................................................................15

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5.4 Auditor’s reporting Obligations..........................................................................16
5.5 Auditor’s Independence, Duties and Continuity................................................16
5.6 Fraud and Misappropriates...............................................................................17
5.7 Whistle-blowing.................................................................................................18
5.8 Key Audit Matter...............................................................................................19
5.9 Business Risk....................................................................................................20
6. Conclusion and Recommendations........................................................................21
6.1 Conclusion........................................................................................................21
3.2 Recommendations............................................................................................22
7. References and Bibliography..............................................................................25

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1. Executive Summary
The research paper appropriately deals with the quality of reporting framework which
is used by the business of JB hi Fi ltd for the current period. The research paper
would be dealing with whether the business has included relevant key audit matters
in the financial report or not. The quality of the independent auditor’s report is matter
of question on which the research would be conducted. The analysis would be
showing the methodology which is utilized for the business for collecting appropriate
data and the same is analysed for identifying key findings from the research. The
research would be listing out key findings of the research on JB hi Fi ltd for the
period and ensure that appropriate reporting framework is used for representing key
financial information regarding the business.
2. Problem Statement
The main aim behind the preparation of this case study report is to address
the relationship as well as impact of different relevant auditing standards in related to
different aspects of auditing. The objective of this whole report is the assessment of
the true and fair standing of the financial reports of a high profile international
organization with the aim to criticize the auditor’s opinion provided in the
independent audit report through the consideration of the key audit matters
considered by the auditors of the organization. In order to proceed with this report,
JB Hi-Fi Limited is taken into consideration which is considered as one of the
leading retailers of electronic goods in Australia. The presence of the business
operations of JB Hi-Fi can be seen in the regions of Australian and New Zealand.
The major products of the company are consumer electronic goods, major
appliances and small appliances. The main problem statement of this study is to
discuss about the impact and relationship of the auditing standards in context of
different auditing theories, concepts, regulations, practices and others. Another
crucial aspect of this report is the risk of material misstatement and the determination
of the fact that the auditors of the selected company has been able in determining
such risk of material misstatements. It also taken into consideration the examination
of the going concern position of the company along with determining the fact that
whether the company has done any modification to the audit opinion that the
auditors have issued. This paper undertakes the analysis of the related auditing

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standards along with its impacts on the financial reports of the companies in order to
show true and fair value.
3. Methodology
3.1 Introduction
In order to collect appropriate information regarding the quality of audit
procedures which is applied on a reporting framework that the business
organizations use. The annual report for the business is the main source of
information which is considered. In addition to this, the financial information of JB hi
Fi for past years is also considered. The research would be relying more on
qualitative information considering the external sources for information as well as
internal sources would be analysed. The methodology of the research is an
important part of the study as different methods, approaches and philosophy which is
used for the research is discussed in this part. The information which is associated
with the key audit matters would be analysed from the auditor’s report which is also
involved in the annual report of the companies.
3.2 Outline of Research Method
The plan of the research methodology would be showing the approach which
is undertaken by the researcher for accumulating information which are essential for
drawing out conclusions from the research. The research method which is followed
for the research would be based on the nature of the topic and would also be
depending on the information which is available for the research. The research
would be applying concepts of epistemology and positivism approach for undertaking
the research process. The research paper would be following a descriptive
framework so that proper explanation is available in case of future reference. In
addition to this, the research paper would be following a deductive approach for
analysing information and testing out theories and different hypothesis.
3.3 Research Onion
The research onion is considered to be an integral part of the research
process and the same provides detailed explanation regarding the methods which
are conducted for research and also the different frameworks which is used for the
research(Mayer, 2015). The research onion would be explaining strategies and
procedures which are applied by the researcher for deriving appropriate conclusion

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in respect for the research which is conducted. The research onion is quite helpful in
planning the research process and the same includes important steps such as data
collection and formulating appropriate design for the research work. The researcher
has the option of choosing qualitative, quantitative or mixed approach for the
research and the approach which is adopted needs to be incorporated in the
research onion.
3.4 Research Philosophy
The research philosophy takes into consideration the approaches which is
utilized by the researcher in order to collect, process and interpret the data so that
appropriate conclusion can be drawn from the research. The researcher has different
options available to him for conducting the overall research process. It is to be noted
that the research philosophy is useful for collecting information and the same also
sets the tone for the entire research. The research philosophy which is adopted by
the researcher also depends on the nature of the topic which is selected for the
research in the first place. The research methodology would be addressing key belief
and approaches which the researcher intends to follow for the purpose of
accumulating information and identify key findings (Saunders et al., 2015). This
research paper is based on quality of reporting framework which is utilized by JB hi
Fi ltd and the key audit matters which are recognised in the annual report of the
business. Further the research paper would be focusing on the quality of reporting
for the business and whether the information which is included in showing true and
fair. In addition to this, non-financial aspects which are also included in the reporting
framework would be considered such as code of ethics, key audit matters and risks
of the business would be considered for the purpose of the research and appropriate
qualitative data would be collected for the same as well. The approach which is
undertaken in the research paper would be selected in such a manner so that
maximum results can be obtained from the same. As per the nature of the topic and
wide range of arguments and theories which are available for analysis, positivism
approach would be most appropriate in this case(O’Gorman, Lochrie& Watson,
2014). Positivism theory approach allows a business to appropriately identify
theories and practices which can helping the researcher to get results. In addition to
this, the analysis would also be using statistical as well theoretical approach for
collecting appropriate information for the purpose of the research.

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3.5 Research Approach
The research approach is an important component for the entire research
process and the same helps in collection and interpretation of the data which is
collected for the research. The approach which is applied for the purpose of the
research will be focusing on data collection method and data analysis method which
is applied by the researcher. The approaches which can be applied by the
researcher should be aiming to get a clearer view of the research topic. The
researcher has decided to apply deductive approach for collecting important
information for the purpose of research(Teherani et al., 2015). The research also has
the option of using inductive approach for collecting information but it is estimated by
the researcher that the business would be able to collect more information with the
help of deductive approach in the research. It is to be noted that deductive approach
is based on application of theories and hypothesis. In addition to this, the approach
is also based on certain assumptions which are undertaken by the researcher.
3.6 Research Design
The design of the research would be determining the objectives and scope of
the research. The research design would be stating the methods and techniques
which is to be applied for the research. The options in regards to research design
which is available to the researcher are exploratory, explanatory and descriptive
approach. The research pattern which is to be applied for the business is descriptive
in nature. The nature of the study which is being conducted is descriptive in nature
as the study would be applying various theories and hypothesis and therefore, it can
be ascertained that the descriptive approach is most suitable for the research.
3.7 Process of Data Collection
The process to collect data is considered to be one of the most significant
process on the basis of which information is collected for estimating the findings of
the research process. The two types of data which is available to the researcher are
primary and secondary data. Primary data for a research would be collected directly
from the source and involves procedures such as interviews, survey results for such
type of data collection. The secondary data for a research is collected from different
articles and sources which are not directly associated with the business. The
research paper is associated with the reporting framework which is used by JB hi Fi
ltd and the same can be analysed with the help of annual report of the business.

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Further relevant information can also be made available from the official website of
the business. In this research case, majority of the data would be collected from
secondary sources such as financial reports of the business and other secondary
sources. The accounting standards which is used for reporting financial information
is also considered to be important and would be a valuable source for collecting data
for the business.
3.8 Data Analysis Plan
The data for the research will be collected from secondary sources mainly
from the annual reports which is formulated by the business and in addition to this
past year records would also be adhered. The annual report for JB hi Fi ltd for the
year 2019 is considered to be the secondary source from which data is collected by
the business. The key audit matters that the auditors have identified is clearly stated
in the annual report of the entity and the same appropriately shows whether the
reporting framework of the business is following true and fair view for the financial
information which is included. The data analysis plan would be ascertaining the
financial information and it is on the basis of the same findings and conclusion would
be drawn by the researcher.
4. Findings
4.1 Identification and Assessment of Risk of Material Misstatement
In Australia, it is required for the auditors to adhere to the rules of ASA 315
Identifying and Assessing the Risks of Material Misstatement through
Understanding the Entity and Its Environment. According to Paragraph 3 of ASA
315, it is the objective of the auditors to recognize as well as measure the risks of
material misstatements due to of error or fraud, by gaining understanding of the
business organizations along with its business environment (auasb.gov.au, 2019).
Certain steps are required to be considered for assessing the risk; they are
understanding the entity, identification of risks, assessment of risks and responding
to the identified risks. It is needed to the auditors to have a minimum understanding
of the industry as well as economic situation of the company with the aim to
recognize and analyse the risks of material misstatements due to frauds or errors
(Sanderson, 2014). According to the 2019 Independent Auditor’s Report of JB Hi-Fi,
the audit partner that is Deloitte has taken into consideration the assessment and

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analysis of the external environment of business of JB Hi-Fi in order to undertake the
analysis of the material mistsement related risks. For example, the auditor has
gained knowledge of the internal control of JB Hi-Fi for designing audit procedures
while they have also evaluated the correctness of the accounting applied accounting
policies along with the assessment of the rationality of the accounting estimates as
well as related disclosures that the directors have made (investors.jbhifi.com.au,
2019).
4.2 Planning of Materiality and Performing the Audit
ASA 320 Materiality in Planning and Performing an Audit provides the
auditors with the needed standards and regulations for planning materiality as well
as performing audit. As per Paragraph 10 of ASA 320, it is the on the external
auditors to determine the overall materiality of the financial report at the time to
develop the overall audit strategy. In addition, it is mentioned in Paragraph 11 of
ASA 320 that the external auditors have the obligation for the ascertainment of
performance materiality for the analysis of the risks of material misstatements along
with the determination of the nature, timing as well as level of additional audit
procedures (auasb.gov.au, 2019). Apart from this, as per ASA 320, Paragraph 14, it
is required for the auditors to ensure the appropriate documentation of certain
aspects; such as financial report’s materiality, level of materiality for specific classes
of transactions and any revision of the above. However, it can be seen from the 2019
Report of Independent Auditor’ of JB Hi-Fi that the auditors have not disclosed any
information related to materiality planning (Sanderson, 2014). More specifically, they
have not disclosed information on the amount of overall materiality as well as any
performance materiality. In the auditor’s report, the auditors have mentioned that
they have communicated all the related information associated with the
determination of materiality with the directors, but the process of materiality
determination and the amount of overall materiality threshold is not provided in the
auditor’s report (investors.jbhifi.com.au, 2019). This can be considered as a
drawback of the auditor’s report of JB Hi-Fi as many audit firms are showing the
same in the auditor’s report.
4.3 Response of the Auditor to Risk Assessed
The responsibility of the auditors is to follow the rules and regulations of ASA
330, The Auditor’s Reponses to Assessed Risks for responding to the audit risks

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they have already assessed (auasb.gov.au, 2019). As per Paragraph 5 of AASB
331, it is the objective of the auditors for ensuring the design and implementation of
the overall responses with the aim to address the audit risks of material
misstatements assessed at the financial statements level. It can be seen from 2019
Independent Auditor’s Report of JB Hi-Fi that the auditors have responded well to
the assessed risks for the audit of the company’s financial statements. The auditors
have undertaken certain audit tests for addressing to the risks identified. For the first
risk, the responses of the auditors include the assessment of the design as well as
implementation of major controls, valuation of the value-in-use methodology of the
management, challenging the major accounting assumptions, assessment of the
appropriateness of the disclosure of the management and others (Abdallah, 2018).
The responses of the auditors related to the second risk are examination of the
completeness assertion, assessment of the accuracy assertion, evaluation of used
judgments as well as estimates, recalculation of certain liabilities and assets and
assessment of the appropriateness of the disclosures (investors.jbhifi.com.au, 2019).
All these matters are the proofs that the auditors of JB Hi-Fi have given effective
responses to the assessed risks of material misstatements while they have disclosed
them in the report of the auditors.
4.4 Going Concern
In order to audit the going concern situation of the companies, it is required for
the auditors to obey the rules and requirements of ASA 570 Going Concern. As per
ASA 57, Paragraph 9, it is the objectives of the auditors to gain adequate information
and conclude the correctness of the management’s utilization of accounting in the
financial reports that is in line with going concern; to ascertain based on the audit
evidence whether material uncertainty that can contribute major uncertainties on the
aptitude of the company to remain as a going concern is there or not and to report as
per the Auditing Standards (auasb.gov.au, 2019). It can be seen from 2019
Independent Auditor’s Report of JB Hi-Fi that the auditors have mentioned that it is
their responsibility to conclude the correctness of the directors’ utilization of going
concern basis of accounting from assessing the obtained audit evidence on the fact
that whether there is any uncertainty on the company’s capability to remain as a
going concern. It is also mentioned by them that they would report in the
independent reports of the auditors in case there is any uncertainty (Carson, Zhang

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& Fargher, 2014). It is observable from the same auditor’s report of JB Hi-Fi that the
auditors have not mentioned anything further about the risk related to going concern
and this specifies that there is not any material risk in the capability of the company
to remain its business operations as a going concern (investors.jbhifi.com.au, 2019).
Apart from this, the auditors have also mentioned about the accountability of the
directors of the company to measure the ability of the company to remain as a going
concern.
4.5 Opinion Forming and Reporting on a Financial Report
It is required for the auditors of Australia to adhere to the rules of ASA 700
Forming an Opinion and Reporting on a Financial Reportin order to develop the
appropriate audit opinion on the financial statements (auasb.gov.au, 2019). It is
written in ASA 700, Paragraph 6 that there are two objectives of the auditors; first is
the development of audit opinion on financial reports by taking into consideration the
assessment of the audit evidence acquired and second is to ensure expressing the
opinion clearly through a written report. It can be seen from 2019 Independent
Auditor’s Report of JB Hi-Fi that the auditors have clearly demonstrated their audit
opinion on the final financial audit of the business entity. The auditors have
mentioned that they have audited all the financial statements of JB Hi-Fi and its
subsidiary companies along with the notes to the financial reports (Stannard, 2017).
According to the opinion expressed by the auditors, all the financial statements of the
corporation have given true and fair opinion of the financial situation as well as
financial performance of the selected business entity and all these financial
statements have complied with the required Australian Accounting Standards and
the Corporations Regulations 2001. At the same time, the auditors of JB Hi-Fi has
also disclosed the basis on which they have developed the audit opinion. This
indicates towards the compliance of the auditors of JB Hi-Fi with the necessary
standards for expressing the appropriate audit opinion (investors.jbhifi.com.au,
2019).
4.6Modification of the Opinion in the Independent Auditor’s Report
The auditors of Australia have the responsibility of adhering to the principles
as well as rules of ASA 705 Modifications to the Opinion in the Independent
Auditor's Report in case they want to provide a modified audit opinion
(auasb.gov.au, 2019). According to ASA 705, Paragraph 4, it is required for the

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auditions to follow two objectives for giving the modified audit opinion. It is required
for an auditors to express modified audit opinion in case it has been concluded by
the auditor on the basis of the assessment of acquired audit evidence that no
financial statements and information of the company is materially misstated and
he/she is unable in acquiring adequate audit evidence for concluding the fact that the
financial reports are not materially misstated (Nayır,Rehg& Asa, 2018). Expressing
modified audit opinion is considered as crucial for the overall financial position and
performance of the companies. However, it can be seen from 2019 Independent
Auditor’s Report of JB Hi-Fi that the auditors have not mentioned anything related to
the modification of issued audit report. The auditors have only mentioned about the
opinion along with the basis of opinion. This specifies towards the crucial aspect that
the entire financial accounts and reports of JB Hi Fi are not materially misstated; and
the auditors have obtained adequate audit evidence on the fact that there is not any
material misstatement in the financial reports of the company
(investors.jbhifi.com.au, 2019).
4.7 Emphasis on Matter Paragraph and Other Matter Paragraph
The responsibility of the auditors in Australia is to obey the principles of ASA
706 Emphasis of Matter Paragraphs and Other Matter Paragraphs in the
Independent Auditor's Report in order to express their concerns on certain
additional matters for the users of the audit reports (auasb.gov.au, 2019). As per
Paragraph 6 of ASA 706, it is the objective of the auditors to draw the attention of the
users on the matters where the judgment of the auditors is required. These are the
matters revealed in the financial reports that are crucial for increasing the
understanding of the users on the company’s financial statements; these can also be
the matters that are important for increasing understanding on the responsibility of
the auditors (Azim, 2013). It can be seen from 2019 Indepdent Auditor’s Report of JB
Hi-Fi that the auditors of the companyhas put major importance on the paragraph
named ‘Key Audit Matters’ where they have mentioned about two aspects that are
crucial for the final audit of the company. At the same time, the auditors have
provided certain emphasis on other paragraphs named ‘Other Information’, ‘Auditor’s
Responsibilities’ and ‘Report in the Remuneration Report’. It is required to mention
the fact that these matters are crucial to the users to comprehend the financial
reports of JB Hi-Fi while these matters provide increase the understanding of the