CORPORATE ANALYSIS AND AUDIT PLAN PAPER 7
CorporateAnalysis and Audit Plan paper
Theauditing team will comprise of at least six members namely auditpartner, senior manager, senior auditor, two audit staffs, and taxspecialist. The auditing partner helps in providing the seniormanager with the necessary support to improve organization internalcontrols. The senior auditor carries out verification process and isassisted by at least two auditing staffs. The auditing teams ensurethat the financial statements are free from errors and confirm withthe stipulated accounting standards. Tax specialist verifies whethernecessary tax matters have adhered when preparing financialstatements. The target company, in this case, is Ascena Retail Group,which specializes in selling women clothing and fashions (Weber, &Wasieleski, 2013).
AscenaRetail Group comprises of other partners such as Maurice Company,Lane Bryant, Louandgrey, Ann Taylor and LOFT Company. Therefore, theauditing plan summary consists of the eight auditing steps thatauditors must adhere when conducting an audit. The first stepinvolves audit planning. Second one is understanding client’snature of business and industry under which they operate. Third oneinvolve, assessing different types of risk that may face theorganization performance. Fourthly, execution of both analytical andpreliminary procedure and the fifth step focuses on evaluating ofvarious forms of inherent and acceptable risks. The sixth stepentails setting forth internal audit control to assess the risk. Theseventh step focuses on information gathering and assessment offrauds. The final step involves developing auditing plan andprocedures (Soltani, 2014).
Overviewof Company and Annual Report
AscenaRetail Group operates under the retail industry specializing inselling women clothes and fashions. The company is located in theU.S, New Jersey. The shares of Ascena Retail group are listed on theNASDAQ where they are traded under the symbol ASN. The companycurrent stock price is trading at $6.79 with a percentage change of+0.89%. The founder of Ascena Retail Group was Jaffe Roslyn in theyear 1962. The company provides a broad range of women productsoffered under different brands such as Catherines, Cacique, LaneBryant, Justice Brand, Lou, and Grey. Besides, Ascena Retail Grouphas invested in real estate’s as part of its operations. Some ofits real estate brands include dress barn, Maurice, Justice, and LaneBryant. The company utilizes cotton, nylon, animal’s skin and woolto come up with fashionable clothes for women under different agegroups. The company is closely associated with its partners such asMaurice, Dress Barn, Loft Lou and Grey, Ann Tylor Catherine and LaneBryant. The partners play a significant role towards its success(United States Security Exchange Commission, 2014).
AscenaRetail Group is one of the largest retails clothing company, dealingwith women clothes in the U.S. The company reported sales revenue of$4.79 billion and an operating income of $210.8 in 2014 billion asshown in Appendices 1.0. Besides, the company reported sales revenueof $4790600 million in 2014 which increased to $4802900 million in2015. The total organization assets amounted to $4 3.123 billion witha total equity of $1.733 in 2014 as shown in Appendix 1.2. Thecompany has employed over 14000 employees to work in differentdepartments. The annual reports in the appendix convey the image thatthe firm has been growing in various aspects such as assetcapitalization, sales, and profitability. From the annual reports inappendix 1.0, there are four segmented parts. Those parts includesales revenue section, gross profits, expenses and net incomesegments. The segments give valuable information for effectiveauditing. In Appendix 1.2 there is a balance sheet that has fourmajor segments namely current assets, non-current assets, currentliabilities, long-term liabilities and shareholders’ equity (UnitedStates Security Exchange Commission, 2014).
Assessmentof the 10-k Report
Basedon the 10-k reports shown in Appendix, it can be observed that the10-k report differs from the annual reports in numerous various ways.Firstly, 10-k tends to me more comprehensive because than the annualreport. Unlike annual reports, 10-k financial reports are mostlysegmented into quarters per year. Each quarter comprises of at least3months. Annual reports are meant for shareholders to help them makeproper investment decisions while 10-k reports are intended for SECfilings. The company uses 10-k instead of the annual report becauseit gives specific details about the company and areas that may needimprovement (United States Security Exchange Commission, 2014).
Oneof the main competitors of Ascena Retail Group is American EagleOutfitters Inc The company uses both annual and 10-k financialreports. The reports indicate that the American Outfitters carry outthe preparation of a quarterly financial statement in January andFebruary. On the contrary, Ascena Retail Group carries outpreparations on July as shown in Appendix 1.0 (United States SecurityExchange Commission, 2014).
AscenaRetail Group operates under clothing retail industry in the U.S. Thekey economic factors about clothing industry include employment,consumers’ confidence, inflation and wages. Employed people aremore likely to make purchases because they anticipate some income.Consumer confidence affects clothing industry in the sense thatconsumer are likely to make more purchases when they have confidencewith the economy. Higher Inflation tends to affect consumer purchasedecision by reducing the purchasing power. An increase in consumers’wages increases consumer’s purchasing power (Benjamin, 2016). Based on the analysis it can be observed that Ascena Retail group isunder the maturity phase in the business development cycle. Duringmaturity, the company should adopt innovation and venture in anothermarket. The company should take into consideration the following siximportant factors for business success namely strategic plans,creativity and innovation, good customer’s relations, properleadership, adaptability, and good corporate culture. Ascena RetailGroup stand with those success factors by ensuring appropriatestrategic plans are in place (Benjamin, 2016).
Thefive key business risks that relate to clients business industryinclude a decline in consumer’s confidence, lower wages, higherinflation, dynamic changes in fashion, and fluctuation of currency.The decrease in consumers’ confidence makes a purchase of clothingstagnant because consumers do not have faith in the economy. Thereduction in wages lower consumer’s purchasing power. Higherinflation makes commodity prices to rise. A change in fashion is arisk in the sense that the current styles tend to be displaced by newones making business to incur losses. Some of the notable accountingconsiderations for companies in clothing industry include accountingpolicies and taxation. Accounting policies are subjective and must beadhere. Companies must follow to accounting policies when preparingfinancial statements. Taxes must be taken into consideration becausethey affect company revenues. Some of the legal matters that are aconcern in this industry include licensing business, ensuring that nopatent violation and paying corporate taxes to the government. On theother hand, social matters must be taken into considerations. Thosematters are maintained good customers relationship and understandingclients need (Feizizadeh, 2012).
Basedon the financial statements represented in the appendices it can beobserved that financial strength of Ascena Retail has been declining.For example, the annual balance sheet in Appendix 1.2 shows thatcurrent assets were $166300 million in 2014, but it decreased to$131500 million in 2015. Also, shareholders equity in 2014was$1737700millions, but it declined to $1515100 million in 2015. Netincome was %133400 million in 2014 a loss of $236800 million was madein 2015. The financial strength in the next year is anticipated toimprove. More revenues are going to be generated because the companyhas put in place measure such as minimizing variable cost, properfinancial management and adopting more innovations (United StatesSecurity Exchange Commission, 2014).
Thecompany sources of capital include equity and debt financing. Thecompany has financed a significant portion of its assets via debtfinancing. The current value of the company capital is $1515100millions as at 2015. The capital market has been respondingpositively in the last year. The company has a cost of capital of11.46% and share price of $6.8 which has grown to $7.2 at a rate of6.63%. However, the quality of earning in the last year has beendeclining in relation to that of its competitors (United StatesSecurity Exchange Commission, 2014).
Theaudit plan is the first part of auditing process that involves fourprincipal activities namely understanding customer’s needs, riskidentification, identification of auditing strategy and materialityevaluation. Besides, the types of material transactions andtransaction cycle involved are as follows Sales cycle, purchasingcycle, payroll, and financing cycle. The high-risk areas are in salesand financing cycle. Sales cycle has a higher risk because someclients may fail to pay goods issued on credit and hence, exposingthe company to losses. Financing cycle is another high-risk areabecause it involves raising a substantial amount of money via debt.Exposing company to debt may compromise its liquidity position. Onthe contrary, low-risk areas include purchasing cycle. Suppliers mayfail to deliver merchandise on time which consequently courses thecompany to lose revenues. The opportunities available to engage infraudulent financial reporting include overstating losses andunderstating company revenues to evade corporate tax. The omission offinancial information and showing investors that their business is ingood condition which is not the case (Feizizadeh, 2012).
Theextent to which I believe it will be appropriate to assess control ofrisk is up to a point where all measures for minimizing risk are putin place. Besides, audit efforts may be allocated among all thegeographical areas to ensure that there is total compliance withauditing principles when preparing a financial statement. Also,there are those areas of an audit that require outside expertise suchas in the internal revenue service regulations. The expert may alsobe required to prevent the occurrence of frauds and enhance thecredibility of the company financial reports. There will be relianceto the internal auditor to improve organization internal control.Upon completion of the auditing process, I expect issuance of fourforms of audit report namely qualified opinion, unqualified opinion,declaimer of opinion and adverse opinion. A qualified opinion meansthe financial reports that have not been misrepresented but have notbeen prepared in agreement with Generally Accepted AccountingPrinciples (GAAP). On the other hand, an unqualified opinion is wherefinancial reports have been developed per GAAP. Declaimer of opinionis where the auditor was not able to complete audit report asrequired. Conclusively, adverse opinion is where the financialstatements violated all the principles of GAAP (Feizizadeh, 2012).
Benjamin,C. T. (2016). Defining a Fashion Industry Value Stream in a SmallIsland Developing State. InternationalJournal of Supply Chain Management,5(1),68-74.
Feizizadeh,A. (2012). Strengthening internal audit effectiveness. IndianJournal of Science and Technology,5(5),2777-2778.
Soltani,B. (2014). The anatomy of corporate fraud: A comparative analysis ofhigh profile American and European corporate scandals. Journalof Business Ethics,120(2),251-274.
UnitedStates Security Exchange Commission. (2014).AscenaRetail Group, Inc...Retrieved :<https://www.sec.gov/Archives/edgar/data/1498301/000149830114000039/asna10-k7262014.htm>
Weber,J., & Wasieleski, D. M. (2013). Corporate ethics and complianceprograms: A report, analysis and critique. Journalof Business Ethics,112(4),609-626.
AscenaRetail Group Inc Income Statement
Appendix1.2Ascena Retail Group Inc Balance