Myer Auditing Report
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Executive Summary
Background
Myer Holdings is an Australian non-discount department store chain providing variety of products. It is under the retail industry which is one of the largest industry and major economic forces in Australia.
Approach
Analysis of Business Operations, PEST (Political, Environment, Sociological and Technological) and identification of audit risks are conducted in this report. For the Business operations, nature of revenue sources, conduct of operation, products & services & markets and industry condition are taken into account.
PEST analysis is conducted to reflect the influence of macroeconomic factors to the companys daily operation.
Moreover, five key audit risks are identified including:
Overstatement of inventory
Complicated points sales programs and their large amount
Overstatement of intangible asset
Understatement of interest expense
Debt paying problem
In addition, Myer Holdings was listed on ASX on 2 November, 2009. Audit plan will be affected with this change as the corporate structure is changed due to the compliance of ASX listing requirements. This report analyzed the influence of those changes to audit plan.
Business Operations
Nature of revenue sources
There are three revenue sources for Myer: revenue from Sales of goods, other revenue (Concessions revenue and Rental revenue) and Financial revenue. Sales of goods are the main revenue source of Myer and it derived the largest proportion (96.6%) of Myers total revenue in the year 2009 . Myer progressively boost its revenue by opening new stores and renovating old ones, including the flagship Myer Melbourne store. In addition, financial revenue derived the least proportion (0.144%) of the total revenue.
Conduct of operations
The main operation of Myer is the sales of goods. Under the economic recession, Myer sustained it sales volume by promotional offers, improved store presentation and local marketing. Moreover, Myers operations also include the construction of new store in Robina and Top Ryde, the flagship Melbourne store and the refurbishment of existing stores in Castle Hill and Blacktown. Although the sales revenue has been dropped due to the economic recession, Myer had an increase in total earnings because of the sales of property. In accessing the audit risks, the above operations are required to be taken into account.
Products & services and markets
Being the largest chain of department stores in Australia, Myer focused on providing retail services within Australia. Merchandises include clothing, footwear and accessories; homewares; furniture and bedding; book and stationery etc. The MYER one reward program commenced in August 2004. This program reward customers for their continuous purchasing from Myer. In addition, Myer launches the Myer Visa credit card which links with the Myer one” reward program. Furthermore, Myer provides online shopping, bridal and gift registry service and Myer Insurance services.
Industry Conditions
Market and competition
Myer, as one of the leading department stores in Australia, belongs to the retail trade industry. According to Australian Bureau of Statistic (ABS), retail trade industry comprises business primarily engaged in the sale of new or used goods to final consumers for personal or household consumption . There are four main department stores in Australia- Myer, David Jones, Harris Scarfe and Dimmeys Forges, where David Jones can be seen as the major direct competitor of Myer. The company differentiate themselves from David Jones by focusing on different product range, target markets and shopping experience . Moreover, although Myer is a non-discount department store, it competes with discount department stores such as Big W and Target and other specialty retailers after it exited Coles Myer portfolio .
Regulatory environment
In order to operate under the retail industry, it is required for Myer to comply with certain legislations. For instance, under Trade Practices Act, goods supplied by Myer are required to comply with the prescribed safety and /or information standard. Moreover, in relation to environmental regulations, Myer is subject to the Energy efficiency Opportunities Act 2006 which requires the Group to assess its energy usage . Also, the National Greenhouse and Energy Reporting Act 2007 requires the Group to report its annual greenhouse gas emissions and energy use . In addition, Myer was listed on the ASX in 2009. It is required for the Group to follow the ASX rules and policies as well as the accounting standards and principles.
PEST Analysis
Political: In order to combat the threat of the global financial crisis, the federal government has issued a $42 billion second stimulus package (12 months) to revive the economy followed another round of income tax cuts since last year. The stimulus measures have brought new signs and helped to prop up the confidence of consumer spending. According to the data from the Australian Bureau of Statistics (ABS), retail sales have risen by 1% in May 2009 to a seasonally adjusted $19550 billion, from April. Although the retail trade data from ABS has shown that there was an immediate hit on spending when the government handouts were rolled out in March 2009, retailers were cautious about the fading effect which occurred after 3 months as people remained careful with their money. In addition, the ABS has estimated the seasonally adjusted value of retail trade in March, April and May 2009 was an average of $450 million per month above a trend measure, which therefore removes the effects of the handouts. MYER – one of the upmarket department stores was keen to receive some advantage from the cash bonus payment and offered a range of promotional activities and in-store special offers especially for clothing and electrical product. Nevertheless, MYER said it would not upgrade its full year guidance (2010) due to the same period of sales in June last year when it was boosted by the stimulus measures. Moreover, a recent government budget has plunged into deficit, which indicates that the governments focus