Auditing
Q2: Accounting issues
In 2001, Harris Scarfe's suppliers and customers, and even a large number of the company’s staff, were shocked when the thriving business was suddenly faced with cash-flow problems. The company made headlines in South Australia when concerned suppliers, from whom Harris Scarfe had purchased large amounts of stock on credit, entered the flagship store in Rundle Mall, and began retrieving their stock directly from the shelves, before shocked staff and customers.
The company soon entered voluntary receivership, and its shares were withdrawn from the Australian Stock Exchange. Examination of the company’s books revealed that assets had been re-valued well above market value in an effort to conceal its spiralling losses. This practice had left the company with multimillion-dollar debts.
The retailer Harris Scarfe had operated for 150 years before it was placed into voluntary administration by the directors on 2 April 2001, after discovering irregularities dating back six years. In their report to creditors, the administrators highlighted that the systematic overstatement of profit had been funded by increased debt, both to the bank and the creditors (Peacock 2001). After investigations by ASIC and official examinations by the company’s receivers and managers, ASIC alleged the chief financial officer, who has since been jailed, had altered Harris Scarfe’s accounts to inflate the company’s profits and had created a false picture that Harris Scarfe was in good financial health, permitting it to trade when it was virtually insolvent.
A suit has been filed against Harris Scarfe’s auditors by the ANZ Bank, seeking recovery of at least $70 million and alleging the auditors had been negligent because they failed to uncover the accounting discrepancies and irregular entries in the accounts. Also, the former chairman of Harris Scarfe has been charged with a number of offences relating to failure to act honestly, dissemination of false information, and
In 2001, Harris Scarfe's suppliers and customers, and even a large number of the company’s staff, were shocked when the thriving business was suddenly faced with cash-flow problems. The company made headlines in South Australia when concerned suppliers, from whom Harris Scarfe had purchased large amounts of stock on credit, entered the flagship store in Rundle Mall, and began retrieving their stock directly from the shelves, before shocked staff and customers.
The company soon entered voluntary receivership, and its shares were withdrawn from the Australian Stock Exchange. Examination of the company’s books revealed that assets had been re-valued well above market value in an effort to conceal its spiralling losses. This practice had left the company with multimillion-dollar debts.
The retailer Harris Scarfe had operated for 150 years before it was placed into voluntary administration by the directors on 2 April 2001, after discovering irregularities dating back six years. In their report to creditors, the administrators highlighted that the systematic overstatement of profit had been funded by increased debt, both to the bank and the creditors (Peacock 2001). After investigations by ASIC and official examinations by the company’s receivers and managers, ASIC alleged the chief financial officer, who has since been jailed, had altered Harris Scarfe’s accounts to inflate the company’s profits and had created a false picture that Harris Scarfe was in good financial health, permitting it to trade when it was virtually insolvent.
A suit has been filed against Harris Scarfe’s auditors by the ANZ Bank, seeking recovery of at least $70 million and alleging the auditors had been negligent because they failed to uncover the accounting discrepancies and irregular entries in the accounts. Also, the former chairman of Harris Scarfe has been charged with a number of offences relating to failure to act honestly, dissemination of false information, and