Myer Australia Limited | Auditing Assignment Help

Introduction

Myer’s Holding Ltd. operates 60 departmental stores across Australia. The company’s product portfolio includes womenswear, toys, homeware, beauty, childrenswear, menswear, electrical goods and general merchandise. The company operates under Marcs, David Lawrence and Sass & Bide brand names in Australia. Moreover, it has different sourcing offices in Hong Kong and China (Myer Store, 2020). As a part of audit team, this report is prepared for presenting analysis of three key segments that needs to be focused for audit planning of financial statements for 30^th June, 2020. The report is dissected into two major parts with first being the risk assessment followed by implication of COVID-19 for auditing.  

PART A

A: Five Key Facts of Myer’s Limited

The key facts of Myer’s Limited as per the financial annual reports of 2019 are outlined below:

• In 2019, the company appointed Geoff Ikin as the new Chief Customer Officer for managing key customer facing function through online store. The CCO was also made responsible for marketing, advertising, social media, corporate affairs, communication and public relations management. Other than Ikin, Paul Goodall and Tabitha Person also joined the executive team as Executive General Managers of Store Development and People & Culture respectively(Myer’s Limited, 2019).  
• With several new additions to the board (IT entrepreneur Lyndsey Cattermole and a new retailer Jacquie Naylor), the company moved towards equally splitting female and male directors (Myer’s Limited, 2019). This effort was made for demonstrating the commitment to the gender diversity at Myer’s Limited. The workforce comprised of 80.2% females, with 55.5% of leadership roles and 57% NED roles.
• The company has added new features of online website by allowing suppliers to use portal for uploading products. During 2019, total 39,000 products were published via portal. The company grew its distribution reach by having over 145 sellers and 58,000 new products sold through online portals. (Myer’s Limited, 2019)
• RFID smart labels were introduced for Myer for ensuring correct entry of inventory for meeting customers’ needs. RFID enabled company to track movements of the products for improving cost allocation and enhancing customer experience.
• The company focused on supporting office efficiency by vacating spaces at Docklands Support Office in July 2019. The offices occupied 30% less space in 2019 and as a result, the company was able to enjoy cost efficiencies (Myer’s Limited, 2019).

 

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B: Analytical Review of Performance and Financial Position

• Total sales got down by 3.5% till July, 2019 and then further fell to $1.608 million till January, 2020. The comparable store sales got down by 2.9% till July, 2019 followed by an increase of 0.4% in next six months uptil January, 2020 (excluding Apple & Country Road Group Sales).
• Total digital sales grew by 21.9% (to $292 mn) in FY2019 with a followed up increase of $168.2 million in half FY 2020. The digital sales represented 10.5% of total sales by January 2020.
• The OGP margin rose by 65 basis points to reach 38.9% in FY 2019 followed by further rise by 62 basis to 39.14% till January,2020.
• The cost of doing business fell by 3.1% to $1,002 million due to increased efficiencies and cost savings in occupancy, marketing and IT in FY2019. The cost further fell to $516 mn (down by 2.6%) in next six months upto January, 2020.
• Operating cash flow increased by $8 mn in FY2019 followed by a decrease of $8 mn in next six months.
• EBITDA increased by 7.2% to reach $160 mn in FY2019 followed by an increase by $113 mn in next six months till January, 2020. The EPS rose from 4.0 cents in FY2019 to 5.0 cents till January, 2020.

Overall, the improved operating gross profit margin and reduction in costs resulted in improved business operations of the company. The reduced store occupancy, improved store efficiency and enhanced in-store staffing model worked charms for Myer Ltd till January,2020. The balance sheet also strengthened as the net cash rose from $65 mn to 103mn, capital expenditures were reduced by half and dividends remained suspended. Through upgrades and restructuring programs, the company was able to achieve excellent results by prudent fiscal management including closure of clearance floors and accelerated liquidation of clearance inventory.

C: Five Main Matters

The five main matters to look into before planning the audit for coming year are listed below:

• During 2019, the Group recognized $372 million of the intangible assets. As per AAS, the impairment tests for intangible assets must be conducted on yearly basis. Hence, assessing whether the Group allocated intangible assets into cash generating units and carried impairment assessments as per AAS is required to be looked upon in the year 2020 (Myer’s Limited, 2019). Due to huge magnitude of intangible assets with indefinite lives, this is a key main matter for auditing.
• The key assumptions made by Group including cash flow forecasts, short-term & future growth rates in EBITDA margins and the discounting rate applied must be reviewed (Myer’s Limited, 2019).
• The changing of store sizes and landlord negotiations as part of efficiency levers must be reviewed in 2020 (Myer’s Limited, 2019). During 2019, the Group carried on with restructuring and redundancies for moving towards cost efficiency. Recognition of provision associated with the strategic decisions and allocation of lease and redundancy costs must be reviewed as well  (Myer’s Limited, 2019).
• A detailed analysis of inventory for analyzing inventory aging, damaged and/or obsolete inventory levels must be conducted. This is to ensure that the company follows the lower of cost & net realizable value standard as per AASB. This is a key matter because it will help in estimating inventory shrinkage and forecasting future selling prices (Myer’s Limited, 2019).
• Suppliers’ rebates must be reviewed as well for 2020 (Myer’s Limited, 2019). The rebates are treated as a reduction in cost of inventory purchased that reduces the cost of goods sold. Although the rebates are lower in value, but high in volume due to which the income statement would be affected in case of discrepancies. This is a key matter because it requires detailed understanding of contractual agreements, purchases and information of suppliers.

 

 

PART B

Figure 1: Auditors Response towards COVID-19

Source: (ACCA COVID-19 Global Survey, 2020)

• Business Continuity Planning

According to the ACCA Covid-19 Global Survey (2020), the pandemics like COVID-19 puts pressure on auditors to complete the work during peak periods due to employee mobility issues (see figure 1 above). The audit teams are required to review new and existing key risk areas faced by the businesses as a result of COVID-19. The risks like fraud can exaggerate during such pandemics. The controls must also be designed according to new system workflows, segregation of duties, monitoring and detection (BDO Australia, 2020). Having scenario planning in place can help firms and auditors in analyzing the economic impact and cost implication of COVID-19 for firms in future. Having an emergency scenario has become essential for ensuring business continuity that covers infrastructure, cyber, business, operational, employee and communication risks for businesses in case such pandemic rises again (Albitar, Gerged, Kikhia, & Hussainey., 2020). The auditors need to see impact and risk associated with employee travel bans, readiness of infrastructure for higher-load of employees working remotely, failure points of infrastructure, cyber-attacks, remote access patches, management of workforce stress, reaction plans, supply chain disruptions and closure of business premises on the business continuity process (Lesi, 2020).

• Information Technology

COVID-19 crisis has specific implications for the auditing teams as it requires interaction and engagement with audited entity on regular basis. However, with COVID-19, the digital technology has progressed as audits are being conducted, evidences are being acquired and reports are released through digital media (Lesi, 2020). For auditors, during COVID-19 it has become imperative to obtain read-only access to IT systems for purpose of monitoring the activities and reducing the touch point with management. Details of critical controls, real time auditing using analytics or checking of non-automated controls and providing feedback on critical control points have to be done through IT support systems. Business sharedrives and access to IT systems might also be required by auditors (Lesi, 2020).

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