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You are an auditor with ABC and are currently planning the audit of Robertson store for the year ended 3 0 June 2 0 2
You are an auditor with ABC and are currently planning the audit of Robertson store for the year ended June Robertson store is a large proprietary company that operates a small chain of supermarkets. As part of your planning, you are in the process of gaining an understanding of Robertson store business and its related business risks.
Competition in the supermarket sector is very intense, with major supermarket chains aggressively purchasing smaller rivals and discounting goods below cost in order to gain market share. Robertson store has recently commenced legal action against a major supermarket chain for anticompetitive behaviour and predatory pricing.
Robertson store has had to offer valueadded services, such as free home delivery and loyalty rewards in order to compete. While these strategies have assisted in maintaining its customer base, its gross margins have dropped by In an effort to increase profits, it has recently added additional, highermargin products to its range, such as gourmet food. However, to date, these new products have achieved only limited sales volume.
Robertson store leases all of its premises and four of these leases are due to expire prior to the end of the current financial year. In two cases, the land on which the premises are situated has been rezoned as residential. While prior use legislation allows the premises to continue to be used as a supermarket, the lands value has increased significantly. As a result, the lessor is demanding a increase in rent.
Robertson store is also experiencing difficulties with one of its major suppliers, which has withdrawn its volume rebates and reduced payment terms from days to days.
a Identify five business risks for Robertson store that may lead to the risk of material misstatement in the financial report.
b For each business risk you identified in a describe how it may lead to the risk of material misstatement in the financial report.
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