Sainsbury's Audit: Importance, Challenges and Financial Performance

This report examines the crucial role of audits in large corporate houses, using Sainsbury's as a case study. It begins with an overview of the audit process, its importance, and the rationale for the study. The report delves into the concept of auditing within corporate firms, the factors that determine the success of Sainsbury's audit committee in enhancing financial statement effectiveness, and the challenges Sainsbury's faces in improving its financial performance. The research employs both primary and secondary research methods, including a review of literature and a discussion of the research methodology. The findings are analyzed and discussed, leading to conclusions and recommendations for improving audit practices and mitigating risks, with a focus on fraud detection and financial transparency. The report aims to understand the importance of audits for businesses in general and Sainsbury's in particular.

Sainsbury report
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ABSTRACT
The report below is offer adequate knowledge about the importance of investigation that
is required to process and analyse better information that provide long term success and
development. For this research rationale is to know more about relative prospect as with this
profitable outcome is attained that is relative to systematic collection of various data through
which profitable outcome is achieved by business with productive manner. In this both primary
as well as secondary source of method is used that assist to attain better knowledge in relative
manner.
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CONTENTS
CHAPTER 1: INTRODUCTION....................................................................................................4
Overview of the study..................................................................................................................4
Rationale......................................................................................................................................5
Importance of study.....................................................................................................................5
Research Aim ..............................................................................................................................6
Research objective and questions................................................................................................6
Structure of report........................................................................................................................6
CHAPTER 2: LITERATURE REVIEW.........................................................................................8
The concept of audit within corporate firms................................................................................8
The factors determining success of Sainsbury's audit committee to enhance effectiveness of
financial statement. ................................................................................................................11
The challenges of audit which Sainsbury’s face while improving its financial performance...14
CHAPTER 3: RESEARCH METHODOLOGY...........................................................................16
CHAPTER 4: RESULT AND DISCUSSION ..............................................................................23
Analysis of research results ......................................................................................................23
Interpretation and discussion of collected data .........................................................................23
CHAPTER 5: CONCLUSION AND RECOMMENDATION.....................................................38
Conclusion ................................................................................................................................38
Recommendation ......................................................................................................................40
REFERENCES..............................................................................................................................42
Appendix 1: ...................................................................................................................................45
Research Proposal .....................................................................................................................45
APPENDICES...............................................................................................................................54
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CHAPTER 1: INTRODUCTION
Overview of the study
Sainsbury's is a UK retailer which operates its business in several countries throughout
the world. It offered range of product categories such as grocery items, clothing, homeware and
outdoors etc (Tuck and McKenzie, 2014). As it operates at international level this make it very
essential for the Sainsbury to ensure that each and every activity whether its is financial and non-
financial activities must be executed within the organisation by considering all the legal as well
as ethical principles.
Audit is defined as the evaluation inspection of several book of accounting by an
authorised person named as auditor along with certain physical check of inventory in to ensure
that all the department of an organisation are following the documented system of recording the
transactions. This is mainly performed to ascertain the accuracy within the financial statement
provided by the organisation so that transparency and accuracy in financial documentation can
be assured (Brazel, 2018). Audit is considered to be a crucial activity for an organisation which
support in getting an insight in the procedure, policies, culture as well as management which
further help in verifying the each and every practice that are executed within the organisation in
right and ethical manner. This bring transparency within the financial performance of the
company and help in maintaining the trust among the shareholders. Addition to this it also helps
in determining and preventing the fraud, testing internal control, assuring the operational
efficiency, mitigating the risk and monitoring the practices performed within the organisation.
The audit process help a lot in determining if any kind of fraud practice are going within the
organisation in secret. In order to perform the audit practice effectively there is a audit committee
which is formed in each organisation in order to keep the process free from any kind of biasness
which can affect the outcome of such process (Comer, 2017). This committee is responsible for
identifying the several kind of risk that are prevailing within the organisation or expected to
occur due to likelihood of certain action.
Therefore, the auditing practices within an organisation is very crucial to determine the
accuracy of operation along with any fraudulent practice or financial risk that may occur in the
organisation. This support an organisation in staying free form any kind of issue that may affect
their performance or brand image in marketplace. IN order to further study about the role of
audit within an organisation this research is conducted which is based on Sainsbury.
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Rationale
The main purpose behind conducting this study is to investigate about the necessity of
audit practice within an organisation and manner in which it is helpful in improving the
performance of an organisation with this function. This study helps the investigator in creating
awareness about the role of auditing within a larger organisation and also make them aware
about its contribution toward detecting fraud that may affect the performance of organisation or
its brand image in front of stakeholders. Despite of this, the researcher chosen this area of study
so that with the medium of information gather it can be presented the actions to be consider by
an organisation for performing using auditing as a tool for enhancing the profitability and overall
performance of organisation by keeping frauds away from business practices. Addition to this
study also conducted to enhance the understanding about the importance of audit within
organisational functioning and its influence over the performance of brand and creating its
positive brand image in front of stakeholders.
Importance of study
The current research is conducted to represent the role of auditing within an organisation
and in improving the overall performance. This study holds huge significant as it helps in making
several multinational organisations about the necessity of auditing. This is so because it helps in
an organisation to operates its functions efficiently and at the same time in ethical manner. As
auditing practice support in providing an idea about the credibility of financial statement which
represent the true picture of organisational performance in front of stakeholders. Additionally,
also support in improving the internal control of organisation (Davies, 2016). So, this study is
significant as it help an organisation in identifying the risk which may affect its performance by
providing relevant information regarding the fraudulent activities to top management so that
appropriate measures can be undertaken on timely manner.
Sainsbury is a multinational organisation which operates at several different geographical
location and for due to this it has to perform range of financial transactions where it become
quite difficult to have a insight over each and every transactions. Hence audit committee help a
lot in keeping insight over the operations performed in organisation to ensure that each and every
action are performed in ethical manner and there not remain any space for unethical or fraud
practices. This this study will support Sainsbury in determining the ways in which it must adopt
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and manage with the auditing practices to maintain efficiency in operations by detecting fraud
and hence put emphases toward improving performance(Zhang and et. al., 2016).
Research Aim
“To understand the importance of audit for big corporate house in detection of fraud” –
Case Study on Sainsbury's
Research objective and questions
Research Objective
 To study the concept of audit within corporate firms.
 To identify the factors determining success of Sainsbury's audit committee to enhance
effectiveness of financial statement.
 To investigate the challenges of audit which Sainsbury’s face while improving its
financial performance.
Research Question
 What is the concept of audit within corporate firms?
 What are the factors determining success of Sainsbury's audit committee to enhance
effectiveness of financial statement?
 What are the challenges of audit which Sainsbury’s face while improving its financial
performance?
Structure of report
The structure of a study support in presenting the blue print of the set of activities that are
involved within a report along with the pattern of execution it follows. This support in presenting
giving an overview about the sections present within the report so that reader get an idea about
the sections involve within the report and what is discussed under each section that help in
developing better understanding. In context of current study for determining the importance of
audit for big corporate houses, the chapters structure is followed in order to represent the data in
more systematic manner. the chapters involve within this study are mentioned below:
CHAPTER 1: INTRODUCTION – In current report Introduction is the first chapter of
this investigation that present the overview and background of the research area to provide an
idea about what is the main concept or direction of study. additionally, it also represents the
reason behind conducting study along with the aim, objectives and research questions that set the
criteria for gathering information.
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CHAPTER 2: LITERATURE REVIEW – The second chapter of this investigation is
literature review in which the data from the existing available information is gathered from
several different sources that is previously investigated by another person. This support on
determining the nature of study area by gathering view point of several scholars and then
evaluate it critically to extract best information that cover all the major aspect and help in
creating further direction for primary study.
CHAPTER 3: RESEARCH METHODOLOGY – In this section of report the
investigator will present a detailed information regarding the set of tools, techniques, approaches
and methods that they will use in order to conduct this study in term of gathering, analysing and
interpreting the information to reach at final conclusion. This section is very crucial as it help the
investigator in providing a view regarding the reliability and validity of the investigation because
the method used provide an idea regarding the effectiveness of study.
CHAPTER 4: RESULT AND DISCUSSION – This section involves the process of
analysing the data gather with the help of primary and secondary investigation and interpreted in
order to present adequate findings and discuss them in relation with the research question. This
step is very crucial as it help in determining that whether the aim of study get achieved or not
and help in drawing the conclusion of study`.
CHAPTER 5: CONCLUSION AND RECOMMENDATION – This is the last chapter
of investigation which represent the actual conclusion that has been extracted out of the analysis
performed for the primary and secondary y data gathered. Addition to this it also involve certain
recommendations on the basis of finding over the issues which is being focused within an
investigation.
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CHAPTER 2: LITERATURE REVIEW
Literature review is defined as the process of reviewing number of secondary sources in
order to gather the information regarding a particular area of study from the perspective of
different view point of scholars (Flick, 2015). This support in developing an understanding
regarding the nature of study so that appropriate points can be explained which can be used to
proceed further. In other words it can be said that literature Review is the review of scholarly
sources that gives an overview of specific topic. It includes the process of systematic review of
different articles, journals, books and other sources related to the different themes of study area.
It administers foundation of knowledge on the topic.
The concept of audit within corporate firms
According to information presented by Bansal. G., 2017, audit is consider as an
independent as well as systematic examination of book of accounting, statutory records, voucher
and documentation of a company. The auditing is mainly performed within an organisation in
order to get an idea about how far the financial statement represent the fair view as well as true
picture of organisation’s performance. This support in ensuring that the book of accounting are
properly maintained as per the accounting standards and principles, so that fair picture of
company can be represented which maintain trustworthiness and transparency among its
stakeholders. Financial audit is consider to be most effective as it support in highlighting the area
of success or concern within the business and support the management team to determine the
greater pathway for achieving the success. The auditing is mainly performed by a authorised
person who is specialised in the area of auditing and usually known as auditor. In this process of
auditing the auditor mainly obtain the evidences and formulate he opinion as per his judgement
which is then communicated with the help of report presented by them (Halbouni, Obeid and
Garbou, 2016). The auditor mainly work for providing the third party assurance on every subject
matter and by presenting true picture of a company also support them in taking up better
decision. It support in several areas such as,
 Risk of misstatement: Sometimes statements in book of accounting may be missed or
placed wrongly which may result intro wrong representation of information. But auditor
help in assessing this issue from the financial report. This mistake is mainly happen as the
company itself is not able to create a reliable financial report as it is not easy to allocate
the resources to understand which of its segment is more profitable. But the auditor help
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in performing this by ensuring that each asset nad liability must get valued in right
manner and present the actual image of company’s performance.
 Fraud prevention: By performing auditing of internal system it become possible ti
determine the fraud practices so that a corrective actions can be taken on timely manner
for reducing the fraud practices (Halbouni, Obeid and Garbou, 2016). By maintaining the
rigorous system for the internal control one can prevent as well as detect the various kind
of fraud as well as other accounting irregularities. If an organisation maintain the active
as well as diligent audit system within the company then with the popularity of it alone
company become able to prevent an employee or a vendor from attempting any kind of
fraud practices within the organisation.
 Cost of capital: It is also consider as an important aspect of an organisation, as investment
is largely consist of risk where the more risk is of getting higher return over the capital
invested. So by maintaining a string audit system an organisation be able to reduce the
various tyep of risk within an enterprise by presenting true financial position which in
turn help in predicting the future return as per the current value and also alert about
upcoming issues so that correcting measures can be taken on timely manner (Fox and
Alldred, 2015).
On the other hand, according to Brazel, J.F., 2018, audit means the examination of something
thoroughly. So, auditing is defined as the process of independently inspecting the financial
information about an organisation whether is profit organisation or not for profit organisation,
despite of its status, legal form or size when such kind of evolution is conducted with a view to
express the opinion. Hence in order words it can be said that auditing of book of accounting is all
about the verification of accounts by a professional for ensuring that the accounting has been
conducted as per the appropriate regulatory requiring and to check about eh veracity of the
transactions performed by business. The audit within a corporate is consider to eb a continuous
process which consists of examination of several compliances, risk as well as accounting
practices. At the closure of financial year a company mainly prepare its financial statement
according to the book of accounting that is to be maintained and it shall be approved by the
board of director for giving the audit process (Goel, 2015). After that the auditor make its report
as per evaluation of these financial statements in order to disclose the accuracy of transaction
whether it represent the fair view of the financial information or not.
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Despite of this the Comer, M.J., 2017, audit is consider as the examination of several book of
accounting as well as financial statements by the auditor. This can be done internally by the head
of financial department or by some other worker selected by the higher management or it can be
doen externally by the independent auditor or the external organisation. The author further
extended that, auditing is a systematic process used by auditor for examine the financial
statement and information of the organisation. In this process, auditor examine or analyse that is
the organisation making profit or not. Along with this, it is an useful process in which auditor
examine the economic actions and conditions. Audit is completed to find out the accuracy of
financial information or statements provided by corporate firm (DeZoort and Harrison, 2018).
An auditing mainly includes the examination on the basis of testing the evidence supported by
the amounts as well s disclosure of an organisation’s financial outcome throughout the year. It
also includes evaluation of accounting principle followed by the company as well as significant
estimates done by the management. Addition to this the auditing also involve the understanding
about the internal control of organisation structure as it is also connected with the financial
statement. Overall it can be said that the audit is a useful tool for a company for the investors as
well as for internal management to for determining the ways of safeguarding the assets and
processes related with the financial reporting.
Apart from this, as per the view point of Dunleavy, P., 2018, it has been evaluated that audit
is vital and important for a corporate for as it facilities and ensures a more systematic and
effective examination of all the accounting records and other day to day transaction and
documentation. The importance of audit for a company can be derived from the fact that it leads
a check of fraud and other malicious practises along with ensuring a fair financial report and true
presentation of performance of organisation. Further, it is been also observed that the audit is
mainly lead out by an independent authorised person who is having a detailed and in-depth
knowledge about various accounting and auditing aspects known as the auditor. Apart from this,
an analysis about the main areas and importance served by audit is also evaluated which
comprises of more effective management of risk through keeping a better and regular check on
accounting reports so that chances of miss calculation or wrong presentation of information can
be eliminated (Deng and Macve, 2017). Further, prevention of fraud and presenting actual cost
of capital and other fair value of other important aspects is also ensured by auditing to have
better return on investment made.
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The factors determining success of Sainsbury's audit committee to enhance effectiveness of
financial statement.
Auditing is one of the most common factors or area of concern within an organisation that
operates at larger scale which remains beneficial for it. The auditing process is considered to be
important for an organisation which support in ensuring that its operations are being operates in
right direction. According to No, W.G., Lee, K., Huang, F. and Li, Q., 2019, auditing help in
improving the credit rating by presenting a clear picture of financial position of the company
which in turn allows the company to become more reliable as it presents the actual statement
about how the things are going within organisation in term of financial action. This in turn
further help investors in getting idea about whether they are being treated fairly and their
investment is getting in right direction. Other then this it also supports the organisation in getting
an idea about the actual organisational performance by thoroughly reviewing all the financial
statement. This is so because the auditing process support in brining the transparency within the
financial growth and progress of the company which provide stakeholder with the true image of
it that in turn help in enhancing the credibility and reliability over organisation. Therefore it
become very much essential that the auditing committee must be created in appropriate manner
that support in preforming each of the practice in right manner and allowing the Sainsbury in
improving the effectiveness of financial statements that further improve its brand image in front
of stakeholders (Grennan, 2019).
In continuation with this the Leka. L., tugman. L., 2019, as the corporate failure and
scandals are increasing across countries it all bring the political and regulatory attention over the
audit profession and also focusing toward exposing the corporate governance failures. This bring
more attention of organisation to consider factors that help them in achieving the success of
audit committee so that they would be able to achieve better financial performance and remain
free from any kind of legal compliances that affect their brand image. Hence there remain certain
factors that Sainsbury must consider in order to ensure its success of audit committee. These are
mentioned below:
 Audit committee transparency: It is essential to increase the transparency of how the
audit committee must discharge its duties and ensure that there remain a more informed
assessment which in turn help in improving performance and effectiveness. Despite of
this many of the corporate governance code as well as regulation mainly includes the
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requirement of audit committee disclosure. Hence, the Sainsbury must focuses toward
provoking that the audit committee make its disclosure continuously which in turn further
help in reflecting that the audit committee is focusing toward responding to the increasing
expectation of investors as well as other stakeholder and make them trust over audit
committee by regularly disclosing the information (Jacoby, 2018).
 Effective communication: The necessity of effective communication flow to and from
the audit committee is crucial to consider and can’t be overstated. The auditing process
mainly make use of written, oral, formal, informal, meetings with management etc. These
all are the sources of communication where it remain significant to maintain the
communication effectively (Gaddis, S.M., 2018). By ensuring effective flow of
communication Sainsbury would be able to ensure the effectiveness of audit committee
by making a regular availability of information so that they can easily detect the error
within financial statements and be able to enhance the effectiveness of it.
 Strength the finance function: The finance function remains responsible for creating
the auditable and reliable information about the external disclosure. The strength of
finance function is considered to be crucial in supporting the oversight role of audit
committee that can be severely inhibited through a weak finance function that lacks
capacity, effective CFO leadership and expertise. Hence, by strengthening the financial
function, the auditing process of Sainsbury can be improved (Kabir and Thai, 2017).
Therefore it can be said that by making the auditing process a part of a system, Sainsbury
would be able to improve its performance of financial statement. This is so because the effective
auditing process support in avoiding the risk of misstatement that can affect the final outcome of
financial statements at the end of year. As it perform a thorough check over all the financial
statement and help in removing the error by making correction throughout the auditing process.
Other than this, it also help in eliminating the fraud practices by detecting it through audit
analysis and preventing it by taking instant actions and also get benefited with appropriate cost
of capital where the company would be able to determine the actual cost they incurred over the
capital that kept aside within business for performing activities and return it provide on
investment. This is so because regular execution of auditing process will allow Sainsbury to have
a check over the range of transactions performed and recorded so that a clear spend and earn of
finance can be identify which further help in determining if any kind of fraud practice involve
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