20495_Debenhams_AR_151104

The scope of our audit and our areas of focus
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”).
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements.
In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting
estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits
we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of
bias by the directors that represented a risk of material misstatement due to fraud.
The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources
and effort, are identified as “areas of focus” in the table below. We have also set out how we tailored our audit to
address these specific areas in order to provide an opinion on the financial statements as a whole, and any comments
we make on the results of our procedures should be read in this context. This is not a complete list of all risks identified
by our audit.
Area of focus
Risk of fraud in revenue recognition in relation to
manual adjustments posted to revenue and the
cut-off of wholesale invoicing to franchises
See note 2 to the financial statements for the directors’
disclosures of the related revenue recognition accounting
policy and page 54 for the views of the Audit Committee.
The Group’s revenue relates to both retail trading and
trading with franchise partners.
Retail revenue comprises high volume, low value cash or
credit/debit card transactions where the principal risk of
fraud and manual error comes from the ability to
manipulate the results through posting manual journals
outside of the standard automated transaction flow and
therefore not subject to the main controls over revenue.
The Group uses manual journals to post accounting
adjustments including adjusting concessions sales so
as to remove the element of the sale that is due to the
concession partner; for deferral of revenue where sale of
goods online are not yet dispatched at the year end, and
adjustments for staff discounts and refund provisions.This
risk is applicable to Debenhams Retail plc, Debenhams
Retail (Ireland) Limited and Magasin du Nord as these are
the only reporting units which generate retail revenue.
Franchise revenue comprises revenue from the sale of
inventory to franchise partners for sale in overseas
franchise stores and franchise fees for the use of the
Debenhams brand by overseas franchise partners. The
principal risk of fraud and manual error in franchise
revenue comes from manual journals as noted above.
There is also a risk that management could materially
manipulate franchise revenue figures through forcing
sales or invoicing the franchises in the incorrect period
artificially inflating revenue for the current year. Franchise
sales are only recognised in Debenhams Retail plc.
How our audit addressed the area of focus
For both retail and franchise revenue we agreed material
manual journal entry adjustments made to revenue to
supporting documentation. Our work did not identify any
significant unexpected or unsupported adjustments.
In Magasin du Nord, the system design was such that,
rather than manually trace the journal entries to supporting
documentation, we were able to use data auditing
techniques to trace revenue transactions through the
expected transaction flow and to highlight unexpected
transactions needing further investigation. Our review
of transactions did not highlight any significant
unexpected items.
In addition, for franchise revenue, we tested a sample of
sales transactions back to supporting documentation such
as cash receipts or purchase orders and goods despatched
notes to ascertain the point at which the revenue should
be recorded and to make sure it is in the correct period.
Our testing noted that Debenhams is entitled to recognise
sales on despatch of the goods in line with the franchise
agreements, and all items tested had been despatched
in advance of the year end. We also obtained confirmation
of year end accounts receivable balances with no material
issues noted.
Strategic Report 1-37 Governance 38-58 Financial Statements XX-XX 86-153
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Debenhams Debenhams plc Annual plc Annual Report Report & Accounts & Accounts 2015 2015
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