You are a graduate working for W&S Partners, an Australian accounting firm with offices located in each of the major cities. W&S Partners has just won the 31 December 2016 statutory audit for Cloud 9 Pty Ltd (Cloud 9). The audit team assigned to this client is:

• Partner, Jo Wadley

• Audit Manager, Sharon Gallagher

• Audit Seniors, Josh Thomas and Suzie Pickering

• IT Audit Manager, Mark Batten • Graduates, Ian Harper and you.

As a part of the risk assessment phase for the new audit, the audit team needs to gain an understanding of Cloud 9’s structure and its business environment. By understanding the client’s business, the audit team can identify potential risks that may have a significant effect on the financial report. This will assist the team complete the audit.

Required Answer the following questions based on the additional information about Cloud 9 presented in the appendix to this text and the current and earlier chapters. You should also consider your answer to the case study questions in earlier chapters where relevant.

Your task is to research the retail and wholesale footwear industries and report back to the audit team. Your report will form part of the overall understanding of Cloud 9’s structure and its environment.

You should concentrate your research on providing findings from those areas that have a financial reporting impact and are considered probable given Cloud 9’s operations. In conducting your research, you should consider the following key market forces, as they relate to Cloud 9’s operations.

General and industry-specific economic trends and conditions (a) What is the current condition of the economy?

(b) Is the business affected by developments in other countries, foreign currency fluctuations or other global forces?

(c) If the industry is labour intensive, are there unusual or unique labour relations issues?

(d) How does the company’s growth and overall financial performance compare with the industry, and what are the reasons for any significant differences?

(e) What is the volume and type of transactions in the business?

(f) Are the client’s operations centralised or decentralised?

(g) Is the client’s business cyclical in nature or influenced by seasonal fluctuations in the market?

(h) What is the susceptibility to fraud/theft? (Is the product something that can easily be stolen and has a sale market?)

Competitive environment (i) What products does the client sell, and have there been significant changes with respect to:

i. major products or brands?

ii. selling strategies?

iii. sales/gross margin by product?

(j) Who are the client’s major competitors, and what share of the market does each hold?

(k) Is there significant differentiation between the client’s and competitors’ merchandise?

(l) What is the effect on the client of potential new entrants into the market? Are there any significant barriers to entering the market?

Product information (m) Is there a specific lifecycle for the product?

(n) Is the product dependent on trends or styles?

Customer information (o) Are there specific customers on whom the client is highly dependent?

(p) What is the overall profile of the client’s customers? Have there been significant fluctuations in the client’s customer base?

Supplier information (q) Who are the key suppliers?

(r) Are the materials subject to significant price movements or influenced by external market forces?

Technological advances and the effect of the internet (s) How does the industry use technology?

(t) What technological trends are impacting the industry?

Laws and regulatory requirements (u) Are the client’s operations affected significantly by local or foreign legislation?

(v) What new laws and regulations recently enacted (or pending) may have significant effects on the company?