WZX has late been engaged to supply audit and income revenue enhancement services to UQ Retail Industries afterlife referred to as UQ Retail.
The audit squad selected has extended experience in the diversified retail and belongings investing sectors.UQ Retail Industries – Corporate Profile & A ; BackgroundUQ Retail is an iconic incorporate retail, franchise and belongings endeavor. UQ Retail Industries is listed on the Australian Stock Exchange ( ASX ) . UQ Retail sells franchises merchandising under two trading names. These franchises sell electrical goods, furniture, computing machines, bedding and manchester direct to the populace. The operations of UQ Retail besides include belongings investing and the proviso of consumer finance and other commercial progresss ( Morning Star DatAnalysis, Company Details ; Corporate Profile ) .UQ Retail has been merchandising for 10 old ages, and been listed for five old ages.
The company has adopted a “ growing & A ; enlargement ” scheme during the last three old ages in order to increase its market portion, achieve economic systems of graduated table and better its fight. UQ Retail presently has 250 franchised shops throughout Australia and New Zealand. UQ Retail besides operates corporate ( entirely owned ) shops in Australia, New Zealand, Singapore and Malaysia.The CEO, Mr John Smith, founded the company and is besides the Executive Chairman. The CEO holds a 20 % interest in the company with employees besides having a important sum of the company ‘s issued equity.UQ Retail has a balance day of the month of 30 June 2013. The audit is required to be completed no later than 20 July 2013.
Consequently deriving a elaborate apprehension of the client, measuring the internal control environment and interim testing must be completed by mid-May 2013 and presented to the audit and hazard commission at their meeting scheduled for 20 May, 2013.The timeline imposed by the client is really tight, nevertheless we have committed to accomplishing the day of the months outlined supra. In order to avoid last infinitesimal ‘surprises ‘ and to guarantee audit efficiency, the client has requested seasonably and clear communicating sing information required, audit timetabling, audit issues originating and possible accommodations to the fiscal statements. The client has besides made it clear that the communicating petition extends to scrutinize fees and possible overproductions.Page 1 of 9An audit planning meeting has been scheduled for the hebdomad get downing 29 April 2013. To ease audit planning, the undermentioned paperss are attached:i‚·iˆ ! elaborate dispersed sheet detailing UQ Retail ‘s audited fiscal information for the last threefiscal old ages and the unaudited interim direction histories to 31 March 2013. The dispersed sheet has been prepared by the client. The dispersed sheet besides includes analytical informations and other back uping information ;
! brief sum-up of the company ‘s cardinal accounting policies extracted from the 2012 auditedfiscal statements ;i‚· Memorandums detailing treatments with:o the predecessor hearer ;o the Board and the Audit and Risk Committee Chair ; and o the CFO.
As you review each memo please place any built-in hazards that come to your attending, and be prepared to discourse the averments that might be misstated and deductions for the nature, timing or extent of audit processs. After reexamining this information come to the planning meeting prepared to discourse a general audit program for how to near the UQ Retail audit. It is of import that you come good prepared for this meeting as we need to use every minute to the fullest benefit.
You should execute extra analytical processs prior to the meeting to place extra risks/concerns that I may hold non noticed.Specifically I expect to cover the undermentioned affairs in this planning meeting:1 ) Discuss the consequences of analytical processs and the hazard of material misstatement indicatedby this information. Identify extra analytical processs that we should execute to help in the planning procedure.2 ) Identify the gross acknowledgment related accounting issues so that we can develop atailored audit plan.3 ) Identify what extra information and / or other paperss, we should bespeak from the clientin order to ease our audit planning procedure.4 ) Have a ‘fraud ‘ discussion- i.
e. discourse possible countries for fraud in the administration and howthey might impact our audit program/plan.5 ) Identify audit issues ( and the general lineation of our audit plan ) by each of thefollowing countries:a. Gross – Generally & A ; specific to Sale of Goods, Franchise Revenue andCommissariats of Consumer FinanceB.
Other audit areas/concerns that have come to your attending.At the decision of this meeting we will be required to document our preliminary appraisal of hazard as it relates to the gross rhythm every bit good as identify other hazard factors. I would besides anticipate that we would be able to outline a preliminary audit plan, capable to alterations and alterations as the consequence of farther planning activities and controls proving.Page 2 of 9Consequently, in add-on to being prepared to discourse the general audit processs with regard to the trials of controls you should be prepared to place and discourse specific substantial audit processs with regard to the audit issues you identified in ( 5 ) above.If you would wish to discourse any of this information ( or other related affairs ) prior to the meeting, delight make non waver to reach me. Thank you for being portion of the audit squad. It will be a batch of work over the following few months but it should be an unbelievable acquisition experience.Page 3 of 9MemoDate:14 March, 2013To:UQ Retail Industries Planning MemoFrom:Kim KercherSubject:Summary of Key Accounting PoliciesThe followers is a sum-up of the cardinal accounting policies with regard to gross acknowledgment and related affairs included in the anterior twelvemonth ‘s fiscal statements:1 ) UQ Retail sells franchises to independent contractors who sell merchandises to consumersthrough retail mercantile establishments.
UQ Retail besides owns corporate shops which sell merchandises straight to consumers. The franchises are located in Australia and New Zealand, with corporate shops located in Australia, New Zealand, Singapore and Malaysia. The Company owns investing belongings in Australia and Malaysia. The company besides provides consumer finance and other commercial progresss straight to clients and franchisees.2 )Sale of Goods:Gross ( and related histories receivable ) is recorded when rubric base on ballss, which is by and large when goods are delivered. Lay by gross revenues are recorded after the concluding payment is received from the client.The company has a 30 twenty-four hours return policy in which client ‘s may return faulty merchandises.
However, the company is sing whether to increase the return period in an attempt to hike gross revenues. The return rate has historically been about 1 % of gross revenues.The Company provides for uncollectable sums based on the Company ‘s historical experience. The allowance for uncollectable or dubious histories historically runs at less than 1 % of recognition gross revenues. An allowance for uncollectable histories is non generated for consumer finance loans as the default rate has historically been deemed immaterial.3 ) Franchisee Gross:Gross attributable to franchise fees is brought to account merely when the franchise fees have been earned, or where the franchise fees are unpaid but recovery is certain.4 )Interest:Gross is recognised as the involvement accrues ( utilizing the effectual involvement method, which is the rate that price reductions estimated future hard currency grosss through the expected life of the fiscal instrument ) to the net carrying sum of the fiscal plus.5 )Rental Income:Rental income originating on investing belongingss is accounted for on a straight-line footing over the lease term.
Contingent rental income is recognised as income in the periods in which it is earned.6 ) Inventory is recorded at the lower of cost or cyberspace realisable value. Inventory is recorded cyberspace of all volume discounts, selling and concern development contributes and colony price reductions.
Costss are on a leaden mean footing and include the acquisition cost, cargo, responsibility and other goods inward charges. Inventory is located in Australia, Malaysia and NewPage 4 of 9Zealand. Net realisable value is the estimated merchandising monetary value in the ordinary class of concern, less estimated costs necessary to do the sale.
7 ) Use of estimations – The readying of fiscal statements in conformance with GAAP requiresthe usage of estimations in the readying of the fiscal statements. The Company bases its estimations on historical experience and on assorted premises that are believed to be sensible under the fortunes. Actual consequences could change from those estimations.The Company provides for an estimation of costs to be incurred under the Company ‘s merchandise guarantee based on historical guarantee claims.8 ) The functional and presentation currency of UQ Retail is Australian dollars.
Minutess inforeign currency are ab initio recorded in the functional currency at exchange rates governing at the day of the month of the minutess. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange opinion at balance day of the month. Gains or losingss from foreign currency minutess are included in the income statement in the period they arise.The functional currency of abroad subordinates is the currency normally used in their several states. As at the coverage day of the month the assets and liabilities of these abroad subordinates are translated into the presentation currency of UQ Retail at the rate of exchange opinion at the balance day of the month and the income statements are translated at the leaden mean exchange rates for the period. The exchange differences originating on the retranslation are taken straight to a separate constituent of equity called the foreign currency interlingual rendition modesty ( FCTR ) . On disposal of a foreign entity, the deferred cumulative sum recognised in equity relating to that peculiar foreign operation is recognised in the income statement.
9 ) Investing belongingss under building are valued at just value if just value can be faithfullydetermined. The appraisal of just value may be based on an internal appraisal approved by the Board, which may prosecute independent, qualified valuers to help in the rating procedure. The just value of investing belongings under building is calculated utilizing the capitalization method of rating. Borrowing costs straight attributable to the acquisition, building or production of measure uping assets, which are assets that needfully take a significant period of clip to acquire ready for their intended usage or sale, are added to the cost of those assets, until such clip as the assets are well ready for their intended usage of sale.
The Company has investing belongingss under building in Australia and Malaysia. Most of the Malayan contracts are fixed monetary value contracts and are quoted in Malayan ringget.Page 5 of 9MemoDate:14 March 2013To:UQ Retail Industries Planning MemoFrom:Kim KercherSubject:Communication with predecessor hearerOn 24 March 2013 I met with Ms. Jane Smith, Partner with the accounting house of Smith, Jones and White ( SJW ) who was the hearer for UQ Retail for the old ages ended 30 June 2009 – 2012.
The communications were in conformity with the Code of Ethics for Professional Accountants ( APES 210.11.1 ) :1 ) Ms.
Smith was non cognizant of any important issues with regard to the unity of directionor any accounting forces.2 ) Ms. Smith indicated that there had been no important dissensions with regard toaccounting rules, audit processs or related affairs.3 ) Ms. Smith stated that there has been no communications with the audit commission, board ofmanagers or direction with regard to fraud, illegal Acts of the Apostless or failings in internal controls.4 ) Ms.
Smith indicated that it was her understanding that UQ Retail was exchanging audit housesbecause they believed they were acquiring excessively big for SJW to be able to function the company ‘s demands.Upon farther treatment Ms. Smith besides volunteered the following information which she requested we keep confidential:1 ) While the internal controls were adequate the Company had grown well due to itsaggressive enlargement plan and some of the forces in cardinal control places were marginally qualified for their duties.2 ) The physical stock list counts were non ever performed with the degree of diligence and itemthat she would hold preferred.3 ) Ms Smith did bespeak that they had some issues come up in last twelvemonth ‘s audit that the client wasnon excessively happy about. They noted a few cut off mistakes that had to be followed up on.4 ) The Company had a pretty broad return policy, which consequences in blessing of guarantee claimsthat do non ever follow with the company ‘s formal ‘returns ‘ policy.
5 ) They noted a twosome of minutess toward the terminal of last twelvemonth whereby the Company agreedto include ‘buy back commissariats with deferred payment footings ‘ in a few of the contracts with new franchisees. She said they merely noticed this in a twosome of the more recent contracts, nevertheless deemed the sums to be immaterial and hence did non truly follow up on it much.6 ) Having said all of this, she did province that the ‘tone at the top ‘ had ever been reasonably good. Itseems that top direction and the Board of Directors by and large are ever stating that they want to make ‘the right thing ‘ . Ms Smith indicated that as the CEO was besides the Executive Chairman and laminitis of the administration, and has strong positions with respect to the operation of the company.
We have made agreements to reexamine the anterior twelvemonth audit work documents on 7 April 2013 at 9:00 am.Page 6 of 9MemoDate:15 March, 2013To:UQ Retail Industries Planning MemoFrom:Kim KercherSubject:Communicationss with the audit commission and direction during the scopingprocedureThe followers is a sum-up of some of the communications that I had with the audit commission and direction during our scoping meetings:1 ) The Company has late completed the acquisition of a smaller rival ( “ DiscountComputer and Electrical ” ) in order to increase it market portion. The company is still in the procedure of incorporating the acquired concerns and is sing teething jobs and unexpected costs in this respect.2 )Occasionally clients request that the company keep onto some of the merchandises after thesale day of the month and ship on petition.3 ) The company implemented a new customised stock list direction package system inthe ulterior portion of 2012. The company had antecedently been utilizing an off the shelf stock list direction package system.4 ) The Company has late had some cardinal forces turnover.
The corporate fiscalaccountant was terminated early in the twelvemonth and has merely late been replaced. The Company has in the past few hebdomads employed a new corporate fiscal accountant. The fiscal comptroller responsible for the Malayan operations is besides comparatively new.
In add-on, a new division director of the New Zealand operations was appointed about 9 months ago.5 ) The Company ‘s compensation system provides basal wage at about the 50-55 percentile scopeof industry norms but includes a generous inducement compensation program that rewards directors for public presentation. The public presentation is based on a combination of gross revenues and gross growing and profitableness. Performance is measured at both the local/division ( Australia, New Zealand, and Malaysia ) degree every bit good as overall profitableness. Key direction forces have the chance to more than duplicate their base wage with the inducement compensation.6 ) The Company has been economically hurt by the recent strengthening of the Australiandollar and the slow down in the planetary economic system and its impact on the retail sector.7 ) There has been rumors go arounding that a big US pudding stone may aim the companyfor a coup d’etat.
The rumors are believed to miss substance, nevertheless the company ‘s portion monetary value has experienced volatility as a consequence of the rumor, and the overall down mentality sing the planetary economic system and local retail sector.Page 7 of 9MemoDate:14 March 2013To:UQ Retail Industries Planning MemoFrom:Kim KercherSubject:Communication Jim Jones, CFOA sum-up of the cardinal affairs identified from my meeting with Jim are summarised below:1 ) Jim informed me that they merely do rhythm numeration at the New Zealand and Malaysiaoperations. They have non done a complete ‘wall to palisade ‘ stock list count at those locations for some clip.2 ) The acquisition of ‘Discount Computer and Electrical ‘ is the company ‘s most significant today of the month and was funded by a mixture of bank debt and unbarred notes. The unbarred notes were offered to the populace and are listed on the Australian Stock Exchange.
Due to the addition in bank debt, the installation was restructured in late 2012.3 ) He indicated that with a downswing in the planetary economic system they were making whatever wasnecessary to increase gross, frequently giving important pricing and ‘terms ‘ grants to new franchisees, but he did non see any accounting issues. In add-on, aggressive gross marks have been set for the twelvemonth stoping 30 June 2013.4 ) 2012 was an improbably ambitious twelvemonth, nevertheless he is confident that 2013 and future old ageswill see strong growing, peculiarly in regional countries as a consequence of the excavation roar, and increased market portion.
5 ) He besides mentioned that they had a twosome of big minutess with some key clientswhereby the Company sold important measures of merchandises to the clients but were merely transporting them as the client requested the merchandises. These minutess are recorded as gross revenues prior to being shipped.6 ) In relation to relevant industry factors, Jim noted:i‚· The industry is labour intensive. It is of import that staff have strong merchandisecognition and stay up to day of the month sing engineering and consumer merchandises.i‚· Demand is driven by the handiness of disposable household income. i‚· Competitive force per unit area is really high.i‚· Stock direction is critical, ie guaranting do non transport extra sums or obsoletestock list lines and guarantee pricing is competitory.i‚· Three major participants account for 40 % of the market.
i‚· The industry as a whole expects to see a 4 % addition in gross growing and a 7 %addition in net net income before revenue enhancement for the twelvemonth stoping 30.06.13.7 ) He requested that we let him cognize every bit shortly as possible which sites we would be detectingthe physical stock list counts so that he could allow ‘his squad ‘ know and program consequently.We will necessitate to turn to these affairs at our upcoming be aftering meeting.Page 8 of 9MemoDate:18 March 2013To:UQ Retail Industries Planning MemoFrom:Kim KercherSubject:Communication with Simon Black, Audit and Risk Committee ChairpersonI attended the same fundraising event last weekend as Simon Black who is Chairperson of the Audit and Risk Committee, and a long clip member of the Board of Directors. Throughout the class of the eventide Simon mentioned several relevant affairs, in peculiar:1 ) He is concerned with the operations in New Zealand.
He does non believe the accountant at thatlocation has an equal apprehension of accounting rules and IFRS.2 ) He is really concerned that there might hold been some unusual minutess with regard tosome of the contracts related to the Malayan investing belongingss that are presently under building. In peculiar, Simon is concerned about the possibility of graft and corruptness. He is cognizant of the important inauspicious branchings of increased punishments for graft and fraud under! ustralia ‘s Criminal Code Act 1995 and wants us to look into this affair during our audit.
3 ) He besides expressed concern with regard to the truth of the quarterly fiscal statementsthat are distributed to the Board and the loaning establishments.4 ) And eventually he expressed his grasp that we were making the audit this twelvemonth. Simon hasheard great things about our Firm and several members of the audit squad.Page 9 of 9