Auditing and Assurance Report: Billabong International Financial Risks

This report provides an analysis of the auditing and assurance procedures applied to Billabong International Limited. The report begins with a background of the company, its operations, and recent financial developments, including revenue and profit figures. The core of the report focuses on identifying significant business and audit risks faced by the company. These risks are categorized into inherent risk (related to capital and revenue treatment), control risk (regarding inventory valuation), and detection risk (due to the lack of a global internal audit function). The report also addresses risks related to the completeness of liabilities and revenue. The analysis draws on recent news articles and financial data to support the identification and justification of these risks, providing a detailed assessment of the challenges and potential issues faced by the company in terms of financial reporting and auditing practices. The report is designed to assist students and professionals in understanding the intricacies of auditing and risk assessment within a real-world corporate context.

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Auditing and Assurance
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Table of Contents
Part 1................................................................................................................................................3
Background of Billabong International Limited and its recent developments................................3
Part 2................................................................................................................................................4
Significant business and audit risks for Billabong International Limited.......................................4
Reference List..................................................................................................................................7

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Part 1
Background of Billabong International Limited and its recent developments
This study had been conducted to prepare a report based by researching on the client’s
business named as Billabong International Limited (Billabongbiz.com 2017). La Trobe Partners
is the audit firm that had been assigned to audit for Billabong International Limited for the first
time. Billabong International Limited is a surf company that initially was a clothing retailer that
used to produce accessories such as watches, skateboard, backpacks as well as snowboard
products under the brand names. Billabong International Limited is a public limited company
that operates in retail sector and listed in Australian Stock Exchange. Billabong International
Limited offer major products such as apparel and sporting goods to the customers. Billabong
International Limited has 5000 staff members working for them in and across the world. Their
shares are listed in Australian Stock Exchange (William, Glover and Prawitt 2016). The products
of Billabong International Limited are licensed and spread in more than 100 countries and
available in around 10,000 doors in and across the world. Majority of revenue of Billabong
International Limited is generated through wholly-owned operations in different countries.
Billabong International Limited believes in promoting worldwide through relationship with high
profile specialized athletes, events as well as junior athletes (Billabongbiz.com 2017).
From the recent news articles that was published on 30th August 2017, it is understood
that Billabong International Limited financial year revenues deals with continued operations
down by 8.9% to $979.5 million (Editorial 2017). The company suffers loss that is attributable to
members of continued $77.1 million versus loss of $23.7 million a year ago. Billabong

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International Limited expects that FY 18 will show further progress in Americas and Europe.
They expect that combination of earnings will continue to be weighted towards Asia Pacific and
retail in first half of 2018.
Part 2
Significant business and audit risks for Billabong International Limited
Audit risk is the risk that the auditor of La Trobe Partners expresses to an inappropriate
audit opinion when the financial statement of Billabong International Limited is materially
misstated. In addition, audit risk is a purpose of the risks of material misstated figures and
detection risk (William, Glover and Prawitt 2016). Therefore, audit risk is made of two main
mechanisms such as risk of material misstatement and detection risk. Here, risk of material
misstatement means the risk that arises when the financial statement of any company are
misstated prior to audit. This includes two major mechanisms such as inherent risk and control
risk (Billabongbiz.com 2017). There is five audit risk or business identified for the company
Billabong International Limited that is mentioned below with proper justification:
1. Inherent risk- One of the major risk faced by Billabong International Limited is the
inherent risk that arises from the propensity of an declaration about a class of
transactions, account balance or revelation to misstatement that could be material
(Simnett, Carson and Vanstraelen 2016). Treatment of capital and revenue capital of
Billabong International Limited is one of the risks that had been found from the financial
statement. This risk takes place when it relates with the survival of property, plant and
equipment when revenue expenditure has been capitalized rather than charged as an

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expense in the income statement. Upon recent trading, it was found that Billabong
International Limited shares caught focus of OTC traders because the prices moved by
$0.02 that touches $0.97 price point. Here, it is understood that financial statement of
Billabong International Limited was misstated that need proper attention by the auditor of
La Trobe Partners (Billabongbiz.com 2017).
2. Control Risk- One of the major risk faced by Billabong International Limited is the
control risk that arises from the misstatement because of an assertion about the
transaction class, account balance or disclosure that could be material either individually
or aggregated by the other misstatements that cannot be prevented or corrected so easily
(Louwers, et al. 2015). Here, the problem is the valuation of inventory when there are
significantly levels of aggregate inventory that cannot be properly managed by Billabong
International Limited. Recently, Billabong International Limited received horrible news
that profits had collapsed where the banks were looking threatening and the company has
only two choices, either to sell assets or ask shareholders for more money. Billabong
International Limited share prices are falling (Billabongbiz.com 2017).
3. Detection risk- One of the major risk faced by Billabong International Limited is the
detection risk where the risk takes place from the process that the auditor follows to
reduce audit risk to an acceptably lower level (Knechel and Salterio 2016). Billabong
International Limited does not have a global internal audit function but engages different
professional firms to assess certain financial control environment as well as performing
independent assessments of key project plans. In this case, detection risk can be reduced
by the auditor by identifying the material misstated figures and presenting in the audit
statement with proper measures as well. During the financial year 2016 and 2017,

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Billabong International Limited has continued to focus on areas that are identified by the
professional firms as well as improve in the level of consistency of accounting practices
as well as control over environments at the same time (Arens et al. 2016).
4. Completeness of liabilities- Billabong International Limited faces risk from liabilities as
their provisions have been incorrectly treated as contingent liabilities (William, Glover
and Prawitt 2016). Asian markets modestly higher as risk aversion eases. Here, Billabong
International Limited reports a new loss for the financial year 2017 because their
underlying earnings missed its guidance range. The brand name (Billabong International
Limited) shares remain unchanged (Eilifsen et al. 2013).
5. Completeness of revenue- This risk is faced by Billabong International Limited where
the entity being audited has considerable cash sales that was difficult to manage by the
company (Billabongbiz.com 2017). Billabong International Limited restructured E-
commerce overhaul after NetSuite. It is noted that Billabong International Limited had
broken up the core components of its omni-channnel that in real handed the pieces to
separate software providers after ditching its first attempt with NetSuite (Cohen and
Simnett 2014).

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Reference List
Arens, A.A., Elder, R.J., Beasley, M.S. and Hogan, C.E., 2016. Auditing and assurance services.
Pearson.
Billabongbiz.com. 2017. Billabong Biz : Behind the Brand - Investors - Investors Home. [online]
Available at: http://www.billabongbiz.com [Accessed 10 Sep. 2017].
Cohen, J.R. and Simnett, R., 2014. CSR and assurance services: A research agenda. Auditing: A
Journal of Practice & Theory, 34(1), pp.59-74.
Editorial, R. 2017. Stock Quote News - Stock Market Quotes, Online Stock Quotes, India.
[online] IN. Available at:
http://in.reuters.com/finance/stocks/BBG.AX/key-developments/article/3663501 [Accessed 10
Sep. 2017].
Eilifsen, A., Messier, W.F., Glover, S.M. and Prawitt, D.F., 2013. Auditing and assurance
services. McGraw-Hill.
Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Taylor & Francis.
Louwers, T.J., Ramsay, R.J., Sinason, D.H., Strawser, J.R. and Thibodeau, J.C., 2015. Auditing
& assurance services. McGraw-Hill Education.
Simnett, R., Carson, E. and Vanstraelen, A., 2016. International Archival Auditing and
Assurance Research: Trends, Methodological Issues, and Opportunities. Auditing: A Journal of
Practice & Theory, 35(3), pp.1-32.

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William Jr, M., Glover, S. and Prawitt, D., 2016. Auditing and assurance services: A systematic
approach. McGraw-Hill Education.