As we have mentioned in introduction, Harvey Norman (ASX. HVN) is a giant company, business cover Australia nationally, Asia in Singapore, Malaysia and Europe- Ireland. Core business specialized in retailing & franchising, in areas of electrical, computer, furniture, entertainment, bedding goods. In this part of assignment, we aimed to find out some non-quantitative factors that might leads to potential misstatement, which eventually overstated or understated specific accounts that shown in profit and loss or balance sheet. . Disappointed sales figure in Ireland and north Ireland The economy condition in Ireland & north Ireland had stepping into recession, due to global financial crisis, has given Harvey Norman’s business that owned or franchised in Ireland a massive drop in sales. Hence that unsold stock will be remaining at a high level. According the business nature of Harvey Norman, part of it business sells electric good, which highly related to technology, and most importantly technology are growing in extremely fast pace.
Therefore when this financial year ended, stock that record in inventory might not value the same as new release and we are strongly suspected that there will be potential misstatement within inventory account. Under an assumption that current technology or inventory is decreasing in value every season, figure that shown in balance sheet (inventory) may not be updated fast enough, hence potential misstatement existed. In this case inventory account has been directly affected. http://www. smartcompany. com. au/retail/20091001-harvey-norman-optimistic-despite-trading-loss. html 2. Location issue
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As discussed earlier, Harvey Norman is a Australia based company, business cover globally, in process of annual report, auditors have to conclude number figure into Australia dollar as reported currency. In this case, PP& E account or Revenue account (overseas part) could have possibly affected by potential misstated. As we all know currency are floating every second 24 hours, which means, the profit company made today may not equal to tomorrow’s value under a condition that the money still haven’t convert into Australian dollar, hence holding foreign currency( in this case EURO).
In order to establish business overseas, we do earn and spent foreign currencies and since Harvey Norman is an Australia based enterprise. There’ll be transactions involved currency conversion; hence number shown in annual report may not catch today’s currency. This assertion against accounts above could be arguable. Although parent company is based in Australia, but in order to run a business, we require the domestic currency that the country of business bases on. In accounting term refers to free cash flow.
In this case as conclusion, due to the matter of currency compare to annual report, number figure shown in annual report could be possibly misstated. 3. Close down of new business In 2008, Harvey Norman has made an important decision in regards of its business expenditures; the new business is totally new to the firm itself, a chain stationery store called OFIS. The firm itself had planned to open 100 stores across national. However in 2009 the firm had decided to close down the total of 5 stores due to unsatisfied earning.
Moreover it had made financial loss in between 7-8 million in 08-09 financial report. In regard of this case, I did an assumption on potential misstated on inventory account or revenue account, from this closing down, what we been told in annual report is company had record 7-8 million loss, but except for loss, company didn’t release information arrangement on existing stock (stationeries), there are possible firm just reuse the stationery which should have increase in stationery account, however listed company not likely to take this accounted.
The other way firm may have re-sell inventory and record in sales revenue, the major reason the assumption been made is because, regards to the business nature, stationery is definitely not the core part of the business. So most likely they would have resell them to cover expenses or loss. If that assumption stands, revenue account is possible potentially misstated. http://www. smartcompany. com. au/retail/harvey-norman-shuts-down-ofis-chain-after-just-one-year. tml 4. Revalue portfolio. In 26 March 2009, the chairman of Harvey Norman Gerald Harvey had made an announcement, that during the economy downturn, company is not revaluating its billions property portfolio. As other listed property company had been revaluated and receive a massive wrote down. With this action that come from Harvey norman, i highly doubt the trustworthy on number that shown in property plant & equipment.
Quote from AASB116 para 38’states that a class of assets may be revalued on a rolling basis provided that the revaluation of the class of assets is completed within a short period of time and provided the revaluations are kept up to date’ under an assumption that within the economy turndown, PP&Es have been wrote down for certain percent, however the firm itself didn’t provide the true current value in the report, i would strongly suspect the annual report contain potential material misstatement on PP account.
And infect the market had truly wrote down most of the property on the market which can support by other listed company who had their revaluate done in that period. In this case, as conclusion potential material misstatement fairly existed under observation and gave directly affect to PP account.