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<p>Jolie Co sells clothing, with a strategy of selling high fashion items under the JLC brand name. New ranges of clothes are introduced to stores every eight weeks</p>
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<p>The company relies on a team of highly skilled designers to develop new fashion ranges.</p>
<p>The designers must be able to anticipate and quickly respond to changes in consumer preferences.</p>
<p>There is a high staff turnover in the design team</p>
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<p>Most sales are made in-store, but there is also a very popular catalogue, from which customers can place an order on-line, or over the phone.</p>
<p>The company has recently upgraded the computer system and improved the website, at significant cost, in order to integrate the website sales directly into the general ledger, and to provide an easier interface for customers to use when ordering and entering their credit card details.</p>
<p>The new on-line sales system has allowed overseas sales for the first time</p>
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<p>The system for phone ordering has recently been outsourced.</p>
<p>The contract for outsourcing went out to tender and Jolie Co awarded the contract to the company offering the least cost.</p>
<p>The company providing the service uses an overseas phone call centre where staff costs are very low</p>
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<p>Jolie Co has recently joined the Ethical Trading Initiative.</p>
<p>This is a ‘fair-trade’ initiative, which means that any products bearing the JLC brand name must have been produced in a manner which is clean and safe for employees, and minimises the environmental impact of the manufacturing process.</p>
<p>A significant advertising campaign promoting Jolie Co’s involvement with this initiative has recently taken place</p>
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<p>The JLC brand name was purchased a number of years ago and is recognised at cost as an intangible asset, which is not amortised.</p>
<p>The brand represents 12% of the total assets recognised on the statement of financial position</p>
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<p>The company owns numerous distribution centres, some of which operate close to residential areas.</p>
<p>A licence to operate the distribution centres is issued by each local government authority in which a centre is located. One of the conditions of the licence is that deliveries must only take place between 8 am and 6 pm.</p>
<p>The authority also monitors the noise level of each centre, and can revoke the operating licence if a certain noise limit is breached.</p>
<p>Two licences were revoked for a period of three months during the year</p>
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<p>To help your business understanding, Mo Pitt has e-mailed to you extracts from the draft statement of comprehensive income, and the relevant comparative figures, which are shown below:</P>
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<tr>
<td>Year ending 30 November</td>
<td>2010</td>
<td>2011</td>
</tr>
<tr>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td>Revenue:</td>
</tr>
<tr>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td>Retail outlets </td>
<td>1,030</td>
<td>1,140</td>
</tr>
<tr>
<td>Phone and on-line sales </td>
<td>425</td>
<td>395</td>
</tr>
<tr>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td>Operating profit</td>
<td>245</td>
<td>275</td>
</tr>
<tr>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td>Finance costs </td>
<td>(25 ) </td>
<td>(22 )</td>
</tr>
<tr>
<td>Profit before tax </td>
<td>220</td>
<td>253</td>
</tr>
<tr>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td>Number of stores </td>
<td>210</td>
<td>208</td>
</tr>
<tr>
<td>Average revenue per store</td>
<td>$4·905 million</td>
<td>$5·77 million</td>
</tr>
<tr>
<td>Number of phone orders </td>
<td>680,000</td>
<td>790,000</td>
</tr>
<tr>
<td>Number of on-line orders </td>
<td>1,020,000</td>
<td>526,667</td>
</tr>
<tr>
<td>Average spend per order</td>
<td>$250</td>
<td>$300</td>
</tr>
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<p><b>Required</b></p>
<p>a) Prepare briefing notes to be used at a planning meeting with your audit team, in which you evaluate the business risks facing Jolie Co to be considered when planning the final audit for the year ended 30 November 2010. (15 marks)</p>
<p><em>Professional marks will be awarded in part (a) for the format of the answer and the clarity of the evaluation. (2 marks) </em></p>
<p><b>(b)</b> Using the information provided, identify and explain FIVE financial statement risks. (10 marks)</p>
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<p>In November 2005 Beeski purchased Xstatic Co, a competitor group of companies.</p>
<p>Significant revenue, cost and capital expenditure synergies are expected as the operations of Beeski and Xstatic are being combined into one group of companies</p>
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<p>The following financial and operating information consolidates the results of the enlarged Beeski group:</p>
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<td></td>
<td>2006 (Estimate)</td>
<td>2005 (Actual)</td>
</tr>
<tr>
<td>Revenue</td>
<td>6,827</td>
<td>4,404</td>
</tr>
<tr>
<td>Cost of sales</td>
<td>-3,109</td>
<td>-1,991</td>
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<tr>
<td>Distribution costs and administrative expenses</td>
<td>-2,866</td>
<td>-2,866</td>
</tr>
<tr>
<td>Research and development costs</td>
<td>-25</td>
<td>-22</td>
</tr>
<tr>
<td>Depreciation and amortisation</td>
<td>-927</td>
<td>-661</td>
</tr>
<tr>
<td>Interest expense</td>
<td>-266</td>
<td>-266</td>
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<tr>
<td>Loss before taxation</td>
<td>-366</td>
<td>-172</td>
</tr>
<tr>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td>Customers</td>
<td>14·9m</td>
<td>14·9m</td>
</tr>
<tr>
<td>Average revenue per customer (ARPC)</td>
<td>$437</td>
<td>$556</td>
</tr>
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<p>In August 2006 Beeski purchased MTbox Co, a large cable communications provider in India, where your firm has no representation.</p>
<p>The financial statements of MTbox for the year ending 30 September 2006 will continue to be audited by a local firm of Chartered Certified Accountants.</p>
<p>MTbox’s activities have not been reflected in the above estimated results of the group.</p>
<p>Beeski is committed to introducing its corporate image into India</p>
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<p>In order to sustain growth, significant costs are expected to be incurred as operations are expanded, networks upgraded and new products and services introduced</p>
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<p><b>Required</b></p>
<p>Identify and describe the principal business risks for the Beeski group. (9 marks</p>
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