Essays on Auditing of Dominos Pizza Enterprises Ltd Case Study

Tags: AuditFraud
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The paper "Auditing of Domino’ s Pizza Enterprises Ltd" is a good example of a finance and accounting case study.   The focus of this report is on the auditing of a selected article on a specific company’ s activities. The company in this report is Domino’ s Pizza Enterprises Ltd. Domino’ s is the biggest pizza chain within Australia and among the largest Pizza brand worldwide. However, the company has been facing various problems as reported by various media articles. The selected article is “ Domino's needs to stop hiding behind averages” , published on 17th February 2017.

Australian auditing standards will be applied to deconstruct the information provided in this article and audit the company. Australian auditing standards (AAS) sets up requirements on auditing. Discussion and Selection of the Media Article The article presents various issues in the company (Domino’ s) that need to be audited. The main concerns are the underpayment, non-payment of wages as well as overworking of the workers. In addition, the article clarifies that the company fails to pay for all hours worked for, underpaying penalties and also the company does not provide payslips for the workers.

There are also instances where workers, especially drivers are forced to use their own money to do the company’ deliveries and the company does not compensate them. This represents a defective compensation system by the company. The second main issue is the risk of financial statement fraud as portrayed by misrepresentation of the company’ s financial status. According to the article, Domino’ s is not only involved in fund hedging but also provides misleading information regarding its profitability. For example, in some of its financial records, the company claims that break-even for a store ranges between $15,000 and $21,000 a week in sales and average profit for a store ranges between $138,000 and $145,000 annually.

However, this is a misrepresentation. For example, Bathurst store was up for sale last year and documents indicated the store’ s operating profits was $216,118 annually. However, key figures had been left and after the inclusion of the figures, the alleged profit dropped to $13,651 annually. Average figures are also equally misleading according to the article. Nominated Key Account No. 1 Wages Expenses Expenses on wages and payment of the workers represent a key account for the company.

This is because this represents a fraud risk due to the defective compensation system in the company. This is evident in Domino especially with the commission based on the revenue that Domino uses to compensate its workers. Such form of compensation system creates a fraud risk known as bad debt expense. Consequently, any estimate that the company makes regarding the expenses on wages poses a fraud risk (Chan & Siu, 2010). Similarly, the article shows that at times employees are forced to work under circumstances likely to make them break the law, for example over speeding to do deliveries in order to be compensated and this presented a fraud risk. Australian Auditing Standards (ASA) Auditing Standard ASA 102 is one of the ASA applicable to the identified issue.

This standard stipulates that auditors should comply with ethical requirements when conducting an audit. The relevance of this standard to the issue is that the company might attempt to compromise or coarse the auditor to conceal information regarding wages expenses and the under-payments that workers face in the company.

As such, it is important for the auditor to be independent and comply with the ethical requirements that require an auditor to be independent, fair and just and uphold integrity during audit process (ASA, 2007).

References

Auditing and Assurance Standards Board (2007). Australian Auditing Standards (AAS., Melbourne: Auditing and Assurance Standards Board.

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Beattie V, Fearnley, S & Brandt, R. (2001). Behind Closed Doors: What Company Audit is Really About. New York: Palgrave.

Chan A & Siu K. (2010). The Mechanisms Underpinning Low Wages and Excessive Overtime in Chinese Export Factories. Journal of Critical Asian Studies. 42(2), p.167-190.

Ferguson A. (2017). Domino's needs to stop hiding behind averages. Sydney: The Sydney Morning Herald.

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