1. Accounting Analysis
Assess the degree to which the firm’s accounting reflects the underlying business reality. Identify accounting distortions and evaluate their impact on profits and the sustainability of profits.
Financial statements are used to determine the business activities of a firm and the role of accounting analysis is to determine the accuracy and quality of the information provided. This analysis would look into the degree of its accounting figures captures its business reality through the policies used and its resulting noise, potential forecast errors and its impact on Myer’s profit.
A few critical areas which are vital to Myers business which includes credit losses, quality of net accounts receivable, inventory obsolescence, quality of carrying values of inventory and rebate programs would be evaluated to determine whether Myer’s financial report reflects its business reality.
Myer have used Pricewaterhousecooper as its external auditors and complies with the standard where there was a change in external auditor in 2009 with Andrew Mill replacing Nadia Carlin.
In order to determine whether if there is incentive for management to manipulate the financial statements, it is important that the remuneration policy is set up to minimise manipulation. The pay scheme is divided into 3 components namely base pay, short-term incentives and long-term incentives. For its short-term incentive, it is measured based on a few factors including sales, EBITDA, overall customer service and company stockturn performance. Myer’s long-term incentive includes options that are given to higher management. This is based on whether it meets the targeted EPS hurdles and share price hurdles. In 2011 no grants or bonuses was paid out. This is due to the fact that Myer did not hit its target that shows that it did not distort its accounting figures.
In the retail industry, inventory represents a large portion of a company’s current asset and in 2011 Myer have an

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