Reject Shop -- Recent Events (January 1st,

Reject Shop -- Recent Events (January 1st, 2010 -- March 31st, 2011)

EVENT 1: Publication Date: February 16th 2011 -- Impact of floods on sales

The Reject Shop issued a statement declaring uncertainty regarding the aggregate cost of the floods and whether 100% of costs are reimbursable by insurance coverage and indemnity. The company's operations in Victoria and in Queensland Australia have been adversely effected. With working capital at a premium, according to the Reject Shop, the impact of the floods on sales will increase pressure on the available working capital. (Asia Post, 2011)

Impact on the Audit

The auditing staff will be assessing whether the Reject Shop can improve performance in response to the flooding catastrophe, determine whether company is accurately representing their financial performance as a function of the affected region, and whether they are following the IFRS reporting standards.

The auditors will need to focus on the impact of the floods on the financial performance of the company. Assessment of damages relating from the storm requires a field visit to identify the structural damages from the flooding event and the physical inventory at the affected locations. Auditors can determine the physical inventory level and estimate the variance in sales from the flood, and forecast the affect the flood will have on future sales, within a given variance.

The auditors must also investigate whether the Reject Shop (ASX:TRS) indeed were able to hedge against potential weather disasters against profits such as rises in interest rates, or unseasonably cool weather hampering summer clothing sales. (Asia Pulse, 2010) By investigating the financial management of the company's activities, the auditors can determine whether the Reject Shop is managing the company's operations in the best interest of the stakeholder.