ACCT2216: Dick Smith Forensic Accounting Fraud Risk Analysis Report

This report conducts a fraud risk analysis of Dick Smith Holdings Limited, an Australian retail chain, as part of an ACCT2216 assignment. It reviews the company's corporate governance structure, analyzes its financial performance in comparison to industry competitors (JB Hi-Fi), and considers non-financial elements. The analysis identifies and assesses fraud risks, focusing on three areas of higher risk and financial statement fraud. The report applies knowledge of ASA 240, the fraud triangle, and fraud symptoms to describe four specific fraud types, detailing their symptoms and red flags. It concludes with recommendations for proactive measures to prevent fraud or enable early identification, considering both overall actions and those specific to each identified fraud. The analysis incorporates insights from the company's annual reports, ASX disclosures, and relevant academic literature.

FORENSIC ACCOUNTING

Table of Contents
Dick Smith Holding limited...................................................................................................................2
Review the corporate governance structure...........................................................................................2
Analyse financial performance & comparison with industry sector competitors...................................3
Consider non-financial elements...........................................................................................................4
Assess fraud risk & identify three areas of higher risk..........................................................................5
Consider financial statement fraud........................................................................................................6
Apply your knowledge of ASA 240, fraud triangle and fraud symptoms..............................................7
Describe each fraud (4 in total), symptoms, and red flags.....................................................................7
Recommend actions to proactively prevent the fraud or enable early identification – consider overall
actions & any specific to each fraud......................................................................................................9
References...........................................................................................................................................12

Dick Smith Holding limited
Dick Smith was an Australian retail chain store who deals in selling electronic components,
electronic project kits, and consumer electronics. The retail store has expanded well in New
Zealand and it is not able remain successful in many countries. Dick Smith established the
organisation in 1968 in Sydney but they sold it to Woolworth limited. Further, it has 40
percent after two years. The organisation has closed in 2016 for four years, after the
acquisition by the Anchorage capital partners. It has an employee base of 3300 in 2015. ASX
disclosures take control out of Dick Smith`s assets and business, where sale processes was
not acceptable offer for the group for Australia and New Zealand, which offer group as
liquidation values (Abc.au.in., 2012).
A publically listed organisation (in 2015) under the corporation act (2001), at the end of
financial year in 2015, operating cash flows was negative near to $ 4 million where there is
an increase in inventory and supplier, which finally result into accounts payable. The
business is needed to take $71 debt to fund more sustainable for working capital. The
organisation reports a provision and toxic combination of facing same store and then lead to
shrinking gross profits (Trang, and Nga, 2017).
Review the corporate governance structure
Corporate governance avails most appropriate definition through which the companies is
directed and controlled. This gives leader of companies to give high level of understanding of
main attributes, which has to be implemented for the corporate governance. Corporate
governance affect the objectives of company that set and achieve, optimise the performance,
and then increase the confidence of investors (Henry, 2016).

Dick Smith has bad corporate governance, as it is not maintaining its transparency amongst
its stakeholders. It has led to collapse of corporation as professional accountants have been
attempted to reflect fraud events for last two years since Woolworth has purchased.
Analyse financial performance & comparison with industry sector competitors
The financial performance of the companies are evaluated with the help of ratio analysis. It is
tool, which analysis the elements of financial statements. The competitors is selected as JB
Hi-Fi holdings. Current ratio reflects the liquidity of the organisation and their position to
accomplish their short-term liabilities (Henry, 2016).
Computation of ratio analysis
Dick Smith holding limited JB Hi-Fi
Profitability Ratios 2015 2015
Net Profit Margin net profit/ revenue sales 0.03 0.37
Return on Equity net profit/ equity 0.22 0.42
Return on Total assets net profits/total assets 0.07 0.15
Solvency Ratios
Capital structure ratio 2015 2015
Debt- equity debt/equity 2.01 2.61
Activity ratio
Efficiency ratio 2015 2015
Inventory turnover ratio
Total Revenue/ average
inventory 2.08 6.09
Assets turnover ratio Total revenue/Average assets 2.75 4.16

While comparing net profit ratio of both the companies, it is seen that dick earned a profit of
percent but JB hi-fi earned a ratio of 37 percent. This indicates that JB performs well. The
solvency ratio for both the companies is near ideal ratio of 2:1. Return on equity comes up
with high net profit while employing (Yee, Sujan, James, & Leung, 2017).
The ratio calculates as COGS divided by the Average inventory. The ratio indicates how well
the Dick performs which indicates poor ratio and poor management. It do not have adequate
procurement and other stock control strategies. On the other hand, JB Hi-Fi maintains higher
inventory turnover (Kamal, Salleh, and Ahmad, 2019).
Consider non-financial elements
While considering the non-financial elements of the company. Non-financial metrics include
company reputation, competitiveness, innovation, and customer value. Non-financial
elements comes up with materiality information in regards to data of material directorship,
revelation of material risks, which are likely to to safety, health of workstation, and macro-
economic risks, which will include impact on cash management, discretionary spending,
reputational risks, materiality feature of fraud, and competition policy risk (Haller, Link, and
Groß, 2017). Dick smith avails relevant details, which have highest predictive value. The
company avails relevant information for product efficiency, which have minimum level of
energy performance standards for its retailers (Acharya, S., 2016).

(Source: Dick Smith Annual report, 2015)
Assess fraud risk & identify three areas of higher risk
The fraud risks of the company have resolved major reasons behind failure of inventory
purchases in bulk due to poor planning and inappropriate expenses, which the top
management started before (Ionescu, 2017). The case of dick Smith, which was acquired by
Woolworth in 2012 where the employees received updates of stock options that were listed
under Woolworth. The share of dick Smith has holding of owned shares that includes
anchorage capital associates that exchange share options for share floating options for share
to float in 2013 (Ionescu, 2017). This has led to losing of the jobs and then it finally become
worthless in 2016. Kogan had purchased Dick Smith from liquidators. Employees can save
money to transfer self to equity because it is was at high risks and departed from risks. Here
are some deep instances and fraud actions of dick Smith given below ( Bagus, and Marquart,
2016).

The fraud action included anchorage capital used to trick books of accounts in a manner,
which turned to reflect from $10 million to $520 million. This induced the dick smith to
acquire dick smith organisation from the Woolworth. It said that they nearly paid $115
million according to the manipulated financial statements where it has observed in 2014,
which includes nearly $20 million with cash. It can acquire Dick Smith with cash $115
million and anchorage forked at $10 million. Misrepresentation in financial statements of
Dick Smith.
With an aim to avoid next Dick Smith electronics and then protect shares in against to the
disclosures. It is seen where stockholder as employee stock option, and purpose of selling
same. It is quite crucial to know where one do not lulled as floats that is lower risks related
with money (Tan, Guo, Cahalane, and Cheng, 2016). A seller will always a deeper
knowledge of awful stock, which is more about business as the probability to enhance worth
of private equity as compared to get into the benefits from profits. Making sure where one
can intend investors as reading as biased document. It is crucial to know where one do not
take any fast decision in regards to authorized discussion on profits forecasts where it cannot
safeguard title with the independent empire and to maintain it in a sustainable way (Kamal,
Salleh, and Ahmad, 2019).
Consider financial statement fraud
An accountant is important, where one can judge other organisations by share price. It strives
to know the share price, historical revenue, and innovations to know that it will know
regarding the prospects for upcoming for 20 years. It is obvious, which does not have any
favourable prospects (Dick Smith Annual report, 2015). This incorrect accounting estimates
that increasing the oversight to the misrepresentation of facts.

1. Code of ethics face complex business environment but Dick`s accounting procedure
has undermined its constant principle based approach.
2. Although nearly more than 3000 dick Smith labours lost their job after the retailer has
distorted. This misrepresentation led little control over the decision-making of the
organisation. However, Dick leadership was remunerated at huge amount-
(Source- Royden, 2017)
Apply your knowledge of ASA 240, fraud triangle and fraud symptoms
According to ASA 240 for fraud triangles and fraud symptoms where misstatement can arise
from fraud. There is an underlying action, which results in misstatement of financial reports.
Error refers to unintentional reporting such as mistake gathering and processing of
information from the business reports. It is an incorrect accounting, which evaluates the
increase from misrepresentation and oversight (Mui, 2018).
For instance- The term “fraud” is a deliberate act conducted by one and more person amongst
the internal environment of the business, which includes this party, governance, customers.
The red flag sings include recording of wrong journal entry in the accounting period,
inappropriate assumption can change the judgement used to eliminate the account balances
(Dobrovic, Lambovska, Gallo, and Timkova, 2018).
Describe each fraud (4 in total), symptoms, and red flags
To foresee the seek help from auditors; the organisation has reflected many as red flags. With
an aim to avoid and protect shareholders in the name of employee stock, seller can consider
this option and purpose of selling this. It is quite important to know that stockholders and

suppliers have deeper sense of knowledge for the stock (Dick Smith Annual report, 2015).
Furthermore, it is important to know that any worthy the private equity, the employee must
keep the shares as emergency so that they will be able to get money when it is needed. Make
sure that intended investors have been reading the biased document, which shows one has not
to take any hard decision and fast decision because of official profitable aspects, which is not
to ensure title prospects with the independent umpire as far as sustainable development, is
concerned. It is quitter practical that innovation and historical revenues have issues towards
unfavourable prospects (Negri, 2018).
The red flag indication shows that it is quite significant to pay a major role that affect the
prospects. After the auditor signed it, it was seen that there is no profitability as there is as
need to discretion where actual profits can report every year.
Woolworths has acquired senior employee who has stock possibilities of the dick smith at the
time of procedure. The anchorage capital associates often manages the shareholders to buy
the Dick smith in 2011 with the capital value of 115 million and skating which is equal to the
market share $520 million (Henry, 2016).
There is as greater need to regain share amount of reliable sources as the outlay of the
employees. There is a variety of accounting guidelines, adjustment policies as a range of
sections but at last it will affect the strong future profitability whereas sustainable business
can squeeze Hugh expenditure so that increase the profitability in the larger market. This has
specialised in getting analytical skills, which a forensic accounting can apply, to accounting,
economic issues, which can help the approaches to dignify them where it claims to have
appropriate amount of company assurance (Bagus, and Marquart, 2016). Due to excellent
knowledge of GAAP and other accounting standards where it can conduct greater number of

operating assets. With an outcome, it is seen that the result it can impart the asset the name of
employees through one behalf of which employee stock options is maintained (Henry, 2016).
Another fraud issue is related to companies expanding the organisation to retain the
employees in against to the operations, equal retain, continuous audit, updated programs,
background checks, and other special projects that advice employee to take action with the
investment (Negri, 2018).
It has suggested poor competition to the market without any human costs, which contributes
to economic system operating, is intended to operate. The competition and severe fast
business has expanded rapidly and the financial distress level as Dick Smith lead to isolated
failure. Furthermore, Dick Smith never gained and suffered massive progress looking at the
prospectus in 2011, which has proceeds for $1.28 billion. The investors have believed that an
organisation has worth of $520 million where investors and regulators have been going long-
term private capital floats. Its activities were supposed to allegation of the fraudulent activity
on the private equity. This allegation can oppose the major benefits of fraudulent and dick
Smith has a severe collapse leaving negative impact on customers as dick smith consider
reliable brand as an unexpected one (Bagus, and Marquart, 2016).
Recommend actions to proactively prevent the fraud or enable early identification – consider
overall actions & any specific to each fraud
Each fraud has been affecting the code of conduct and ethics of the organisation and forensic
accountants are quite effective, robust faulty presumption, and important because it faces
challenges in operations and company assumption.
As a recommendation, the company will appoint a forensic accounting, which will help the
employees to prevent it from complex accounting schemes, which was evaluated and applied
for net profit and sales (Widhoyoko et al., 2018). As an evaluation, Dick Smith represented

misrepresentation and fraud of financial statements through forensic accountants so that it can
protect employees by fraud and misrepresentation. With an aim to have high profitability and
effectiveness after the investment withdrawn from dick Smith. Forensic accountant will come
up with undertaking creating portfolio of different investment areas, which includes different
shares of effective companies who undertakes to make varied options of investment. This
includes different shares through the effective companies where one undertake to diversify on
timely basis (Knapp, 2016). A forensic accountant have suggested legal sanctions where the
investment fraud that will lead to huge procedure (Van Akkeren, Buckby, & Tarr, (2016)).
Employers can claim actions with under actions, which is related to money laundering and
fraud related to financial transaction through employees that is able to retrieve money to get
compensation. An accountant can advise the employees, where actions are in the direction of
reimbursement in terms of receivable, asset, cash, and stake in the business, employability in
obtaining organisation and employee stock option in Woolworth. With the assistance of this
stake in dick Smith, the cash has resulting in making more than appreciated money in
counterfeiting shares. Employees is generally regarding the investment with huge returns
such as 25 and 50 percent, which hold little risks and claims (Knapp, 2016). It is the
obligation of the accountant where it can be the stocks by making and then investing in
protective and safe way. The accountant undertakes in getting legal movements where it
could defend from fraud investment rules where they can achieve sustainable success of the
organisation. It is quite essential to delegate the product line for perfect and acceptable in
associating with sufficient knowledge in regards to excessive with unauthorised fraud
transaction where it has avoid deceptions.
On a concluding note, it is seen that there is mathematical possibility to examine the
profitability with the application of many tools (Acharya, S., 2016). Here is one best way in
creating beautiful price to one that has low information in regards to share price and then

selling, which have great information of pricing. Smith was renowned and greatest private
equity theft of the business world. It is clear visible where Anchorage capital associates
undertook in management of dick Smith in 2012 to manage and deal with amount of $115
million, which has listed under market value of $520 million (Abc.au.in., 2012). With poor
strategy and poor inventory management, it is being viewed that private equity in dick Smith
did not suffer while comparing it to other stakeholders who have still been investing in
organisation and then it would become unsecured creditors while comparing it to simplify
who has actually transfer to private equity.

References
Abc.au.in., 2012. Woolworths sells Dick Smith to private equity. Available on:
https://www.abc.net.au/news/2012-09-27/dick-smith-sold-to-private-equity/4283098
[Accessed on: 14/04/2020]
Acharya, S., 2016. Public Lending to Private Hedge Funds is Inefficient, Unstable,
Unconstitutional and Unanimously Disagreeable. Journal of Governance and
Regulation/Volume, 5(2).
Auditing and Assurance Standards Board, 2018. Auditing Standard ASA 240: The Auditor's
Responsibility to Consider Fraud in an Audit of a Financial Report. Available on:
https://www.legislation.gov.au/Details/F2006L01368 [Accessed on: 14/04/2020]
Bagus, P. and Marquart, A., 2016. Blind Robbery!: How the Fed, Banks and Government
Steal Our Money. FinanzBuch Verlag.
Dick Smith Annual report, 2015. Dick Smith. Available on:
https://www.asx.com.au/asxpdf/20150818/pdf/430kvhrl8cpg0l.pdf [Accessed on:
14/04/2020]
Royden, R., 2017. "Total loss": Dick Smith shareholder's cautionary tale. Available on:
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australians-455691 [Accessed on: 14/04/2020]
Dobrovic, J., Lambovska, M., Gallo, P. and Timkova, V., 2018. Non-financial indicators and
their importance in small and medium-sized enterprises. Journal of Competitiveness, 10(2),
p.41.

Haller, A., Link, M. and Groß, T., 2017. The term ‘non-financial information’–a semantic
analysis of a key feature of current and future corporate reporting. Accounting in
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Henry, L., 2016. Fraud prevention: An effective control environment can deter or minimize
the occurrence of fraudulent activities. Internal Auditor, 73(2), pp.17-19.
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The conversation, 2016. How private equity won while other Dick Smith investors got burnt.:
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