Dick Smith Collapse Case Study
Collapse of Dick Smith and Audit Risks
The article selected is intended to discuss the causes of the collapses of Dick Smith and also the responsibilities of associated parties. The author, Knight (2016), provides a generic discussion on both of the issues based on public available financial information of the company as well as some preliminary findings of the investigation regarding the Dick Smith Collapse.
Dick Smith was floated by Anchorage Capital Partners, an Australian-based private equity firm, in 2013 for approximately $520 million on ASX, only one year after the original purchase of the company from Woolworths’ for only $20 million (Morningstar,2016). The miracle turnaround faded into a corporate train wreck in just two years. According to Knight (2016), the search for …show more content…
First of all, the inventory was overvalued by $60 million and the subsequent impairment crashed the balance sheet of the company (Knight, 2016). In fact, this surprising impairment announced only three months after the audited report being issued, which were assured by auditors with no adverse findings (Knapp, 2016). Second, the directors told the market that a $43 million profits will be achieved in 2016 financial year; however, Knight (2016) revealed that the company was losing almost $5 million per week before its closure. In a recent report covering the court discovery, Knight (2016) reported that the reported sales of several stores may be fraudulent. Rob Murray, the chairman of Dick Smith, claimed that ‘the books are a lot easier to write after the conclusion has been written.’ (Knight, 2016). From the perspective of auditors, the risks of misstatement in terms of inventory and sales revenue should be of great concern, and therefore, prime assertions and relevant substantive procedures associated with these two accounts will be discussed in this
The article selected is intended to discuss the causes of the collapses of Dick Smith and also the responsibilities of associated parties. The author, Knight (2016), provides a generic discussion on both of the issues based on public available financial information of the company as well as some preliminary findings of the investigation regarding the Dick Smith Collapse.
Dick Smith was floated by Anchorage Capital Partners, an Australian-based private equity firm, in 2013 for approximately $520 million on ASX, only one year after the original purchase of the company from Woolworths’ for only $20 million (Morningstar,2016). The miracle turnaround faded into a corporate train wreck in just two years. According to Knight (2016), the search for …show more content…
First of all, the inventory was overvalued by $60 million and the subsequent impairment crashed the balance sheet of the company (Knight, 2016). In fact, this surprising impairment announced only three months after the audited report being issued, which were assured by auditors with no adverse findings (Knapp, 2016). Second, the directors told the market that a $43 million profits will be achieved in 2016 financial year; however, Knight (2016) revealed that the company was losing almost $5 million per week before its closure. In a recent report covering the court discovery, Knight (2016) reported that the reported sales of several stores may be fraudulent. Rob Murray, the chairman of Dick Smith, claimed that ‘the books are a lot easier to write after the conclusion has been written.’ (Knight, 2016). From the perspective of auditors, the risks of misstatement in terms of inventory and sales revenue should be of great concern, and therefore, prime assertions and relevant substantive procedures associated with these two accounts will be discussed in this