Strategic Audit of JD SPORTS FASHION PLC

By:Mba Kalu Mba (12403327)

Odunayo Ogunsanwo (12404944)Sarfdar Haider (11428196)

Suraj-Dean Akintoye Balogun (07460057)

Xin Jin (10346879)

IntroductionInternal controlMaterialityPreliminary JudgmentAudit Risk Areas and Substantive TestingConclusionReferenceBibliography

Contents

UK quoted retail company Selling and buying of sports and fashion wears 538 stores, namely UK, Europe and Rest of world Turnover £883.6m Revenue generated from the UK segment accounted for 90.7% of the company's total revenues followed by Europe (6.2%) and Rest of world (3.0%) in 2011.

(JD Sports Fashion Plc, 2011)

Introduction

Internal controls according to Millichamp & Taylor (2012) are the detailed controls within an accounting system which are designed to minimize the risk of a material error or misstatement going undetected.

Only provides directors with reasonable assurance that objectives are met but there could be inherent limitation.

Internal Control

Cash sale system and collections Purchase system bank payments Wages and salaries Capital and revenue expenditure Cash system Stock system Recoding Fixed Assets Other Expenses

(Ritlenberg, 2010)

Internal C ontrol Continued

ISA 320 Audit Materiality states:

Information is material if its omission or misstatements could influence the economic decisions of users taken on the basis of the financial statement. The assessment of what is material is a matter of professional judgement.

IFAC (2009)

Materiality

On the basis of Turnover£883.67m - 1% of the turnover would be

£8.83m.

On the basis of Net Assets£367.79m - 5% of Net Asset will be £18.39m.

On the basis of Profit before Income Tax£78.63m - 5% of this would be £3.93m.

Materiality Continued

Materiality also has qualitative aspects and these relate to the nature of the error or misstatement detected, regardless of its financial value.

An item which might affect the accounts but which has been omitted because it cannot be quantified with a reasonable degree of certainty e.g. the outcome of a court case.

Materiality -Qualitative estimates

Cash and Bank Balance £90,131,000 - Error of £10,000 could be considered material.

Debtors balance £37,105,000 - Error of £10,000 could be considered material.

Inventory balance - In inventory value of £84,490,000 error of £10,000 could be considered material.

Sales - Sales value £883,669,000 - Error of £100,000 could be considered material.

Preliminary Judgment

Areas Requiring 100% AuditAreas we expect 100% audit are as follows:i) Cash and Cash Equivalentii) Impairment of Investmentiii) Investment Disposaliv) Acquisition of new businessv) Tax matters vi) Investment income

Areas Requiring 100% Audit continuedvii) Inventoriesviii) Bad Debt written offix) Account Receivablesx) Account Payables xi) Directors Emoluments

Non-current asset recording Receivables ledger balances Purchase ledger balances Inventories Provisions - for bad debt; for depreciation, impairment, and Contingent liabilities.

Audit Risk Areas

Risk assessment – require more substantive testing

Strongly covered by the internal control system, e.g. : non-current assets, receivable balances, purchases, accounts payable etc., will be tested in a sampled manner.

Audit Procedures

sales and account receivable:

Audit Procedures continued

Conclusion

Alan, M. & John T. (2012). Auditing. 10th Edn. Canada: Cengage Learning EMEA.

JD Sports Fashion Plc (2011). Annual report. [Online]. Available at:http://www.jdplc.com/~/media/Files/J/Jd-Sports-Fashion-Plc/reports-and-presentations/JDaccounts2011.pdf (Accessed: 10th June 2012). JD Sports Fashion Plc other information: [Online]. Available at:http://www.jdplc.com/investor-relations/reports.aspx (Accessed: 10th June 2012).

Rittenberg, Johnstone & Gramling. (2010). Auditing-A Business Risk Approach. Chapter 10 Auditing Revenue and Related Accounts. USA: South-Western/ Cengage Learning

ISA320: IFAC (2009). International Standard on Auditing 320 - Materiality in Planning and Performing an Audit. Available at: http://www.ifac.org/sites/default/files/downloads/a018-2010-iaasb-handbook-isa-320.pdf (Accessed: 6th May 2012).

Reference

Reference

Bahram. S., (2007). Auditing: An International Approach. England: Pearson Education Ltd.

John, D. (1996). Auditing-Theory & Practice. 2nd edn. Hertfordshire: Prentice Hall.Larry, E, R., Bradley, J, S., & Karla, M. J. (2008). Auditing - A Business Risk Approach. 6th edn. Canada: Thomson South-Western.

Philomena, L., Barry J, C. & Peter, R. (2007). 'The Role of Internal Audit in Corporate Governance and Management'. The Institute of Internal Auditors. [Online]. Available at: http://www.aiiaweb.it/files/aiia/CGA_Executive_Summary.pdf (Accessed: 7th June 2012).

Relationship between the Board and the Auditors: OECD (2006). Available at: http://www.oecd.org/dataoecd/50/6/37178451.pdf (Accessed: 7th June 2012).

Rick, H., Roger, D., & Arnold, S & etc. (2005). Principles of Auditing: An Introduction to International Standards on Auditing. 2nd edn. England: Pearson Education Ltd.

Bibliography

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