harris scarfe
... without comparable data, reasonable assumptions cannot be made. For example, the client may be a newly established entity, a new client or may be operating in a new industry. Secondly, an uncooperative client may make it difficult for the auditor to obtain any meaningful information about the client’s business. This may be due to personnel simply being unhelpful in assisting the audit team, or in extreme cases, may be due to employees or management deliberately withholding information or providing misleading information to conceal fraudulent activities, or poor financial performance or poor corporate governance. Thirdly, technological restraints or complex operations and policies may make it difficult for auditors to comprehend the client’s activities and processes. Fourthly, while observation may be an effective technique in gathering information, it may also cause personnel to change their behaviour to emulate what they think the auditor would consider appropriate. Lastly, the absence of an audit trail will make it extremely difficult for the auditor to form any opinion and gather any information on the client’s business. AUDIT TECHNIQUES There are a number of audit techniques (risk assessment procedures) available to the auditor to employ in order to gain an understanding of the client’s business. These may include enquiry of employees and management, observation and inspection of processes, operations and client premises or facilities, performing analytical procedures and comparing results to previous years’ figures or industry averages, and reviewing documentation of company manuals, reports and business plans . AUS 402 provides further guidance, suggesting the auditor make enquiries of and obtains documentation from external sources, such as banks, analysts, or even financial journals and newspapers. In addition, previous experience with the client or discussion with previous auditors provides a foundation from which to expand an understanding of the client’s business. HARRIS SCARFE’S INDUSTRY AND PLACE At the close of the year 2000, Harris Scarfe Holdings Limited was one of Australia’s oldest retailers, established over a hundred and fifty years ago. Over the years, it mainly operated in south-east Australia across Victoria, South Australia and Tasmania, and had thirty-five stores, over a thousand suppliers and approximately two and a half thousand employees . At that time, Harris Scarfe was the country’s third largest retailer, closely behind David Jones (36 stores), with Myer (68 stores) clearly leading the Australian retail industry. The retail industry involves the sale of new or used to final consumers for personal or household consumption, and also involves the repair of household equipment or motor vehicles . At the start of the 1999-2000 financial year, there were 98,289 employing businesses in the retail industry, which generated a total income of $169.3 billion and employed just over 1.1 million people. Total expenses for the retail industry were $164.9 billion, with the largest single expense being purchases, accounting for 73% of total expenses, followed by labour costs (13%) . The most profitable retail trade industry group was the Household equipment repair services industry with a 7.3% operating profit margin, and one of the least profitable groups was Department stores with 1.7% . The r...