Assignment -
On 4 January 2016, the value of shares in Dick Smith Holdings having fallen by more than 80% since they were listed on the ASX in December 2013. A halt in trading was requested. The following day, Dick Smith Holdings Limited (and associated entities) was placed into administration by its major creditors National Australia Bank (NAB) and HSBC Bank. Dick Smith Electronics, in its own company reports, attributed failure to cyclical factors specific to the company, namely unexpected weakness in sales and constraints on its ability to finance inventory investment. But market analysts have suggested that structural company-specific factors; in particular, poor corporate governance arrangements, low transparency in financial reporting and internal control system was also contributed to this failure - which is to some extent, auditor responsibly to assess.
In Australian Auditing standard, ASA 315, it requires that auditors must have good understanding of the entity and its environment, including the entity's internal control system, which includes, but not limited to:
(a) Relevant industry, regulatory, and other external factors and the applicable financial reporting framework. (Ref: ASA 315, Para. A25-A30)
(b) The nature of the entity, including: (i) its operations; (ii) its ownership and governance structures; (iii) the types of investments that the entity is making and plans to make, including investments in special-purpose entities; and (iv) the way that the entity is structured and how it is financed to enable the auditor to understand the classes of transactions, account balances, and disclosures to be expected in the financial report. (Ref: ASA 315, Para. A31-A35)
(c) The entity's selection and application of accounting policies, including the reasons for changes thereto. The auditor shall evaluate whether the entity's accounting policies are appropriate for its business and consistent with the applicable financial reporting framework and accounting policies used in the relevant industry. (Ref: Para. A36)
(d) The entity's objectives and strategies, and those related business risks that may result in risks of material misstatement. (Ref: ASA 315, Para. A37-A43)
(e) The measurement and review of the entity's financial performance. (Ref: ASA 315, Para. A44-A49)
Based on Dick Smith Electronics' published information, research articles and Auditing standard ASA 315, write down a short essay on the (i) factors that might have contributed to this corporate collapse and (ii) identify which of these factors should have been identified (if any) by the auditor.
Attachment:- Auditing Assignment.rar