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)

Contents
Introduction Internal control Materiality Preliminary Judgment Audit Risk Areas and Substantive Testing Conclusion Reference Bibliography

Introduction
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)

Internal Control

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 Continued

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)

Materiality
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 Continued
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 -Qualitative estimates

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.

Preliminary Judgment
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.

Areas Requiring 100% Audit

Areas we expect 100% audit are as follows: i) Cash and Cash Equivalent ii) Impairment of Investment iii) Investment Disposal iv) Acquisition of new business v) Tax matters vi) Investment income

Areas Requiring 100% Audit continued

vii) Inventories viii) Bad Debt written off ix) Account Receivables x) Account Payables xi) Directors Emoluments

Audit Risk Areas

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

Audit Procedures

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 continued

sales and account receivable:

Conclusion

Reference
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-andpresentations/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/a0182010-iaasb-handbook-isa-320.pdf (Accessed: 6th May 2012).

Reference

Bibliography

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.

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