QUESTION

SCHOOL OF ACCOUNTING

ACCT 3708/18
Auditing and Assurance Services

Group assignment details

The assignment is to be based on Fairfax Media Limited (ASX code FXJ) and is to be
submitted at the commencement of your tutorial in Week 11, as per the Course Outline.

The aim of the group assignment is to test students’ ability to integrate skills learnt in
Auditing and Assurance Services to analyse a real company from the auditor’s perspective
and within the framework of auditing standards.  The successful completion of this
assignment requires extensive research on Fairfax Media’s internal and external
environments, operations, strategies and an analysis of the annual report including financial
information.

Students are expected to demonstrate their ability to critically evaluate various pieces of
information and apply analytical skills to critically evaluate potential audit risks.

An important aspect of the assignment will be to demonstrate your ability to present a
written report in a professional manner.

Required

You are a part of the team responsible for planning the Fairfax Media audit engagement for
2012.  You have been assigned to gather relevant background information and prepare a
report for a meeting with your audit partner and audit managers.  Your report must address
the following issues.

1. In relation to Fairfax Media, provide a description of the following:

• What are the principal sources of Fairfax Media’s revenue?
• What does Fairfax Media produce and how does it do so?
• What are its markets and who does it compete with?
• Which particular regulations affect its operations?

•  [4 marks]
ACCT3708 Auditing and Assurance Services
1

THE UNIVERSITY OF NEW SOUTH WALES
SCHOOL OF ACCOUNTING

2. A commonly used tool to assist in conducting strategic analysis decomposes the
client’s business environment into the following four spheres of influence –
Political
Economic
Social
Technical
Prepare a PEST analysis detailing the kinds of factors that may influence the
business of Fairfax Media. [4 marks]

3. For the most significant business segment, determine and explain five key audit
risks which would impact on the audit of Fairfax Media.  (Include the account
and assertion most affected by the risks identified). [5 marks]

4. Fairfax Media have embarked upon significant changes to their business model
to provide an on-line platform.  This is in response to the much anticipated
demise of ‘traditional media’ such as newspapers and magazines.  Describe some
of these changes and the impact these changes will have upon your audit plan.
[3 marks]

5. Your assignment should be presented in a format as if it were to be presented to

Length

a meeting of senior auditors at your accounting firm.  It should be succinct, and
use of tables is encouraged. [4 marks]
Maximum 10 pages (font size 12, 1½ line spacing, Times New Roman).

Margins on all sides at 2.5 cm minimum.

The ten page length includes the body of the assignment, footnotes and any appendices.  It
excludes the cover sheet, title page, executive summary (optional), and list of references.

Additional Information

1. This assignment is to be completed in groups of 4 or 5 students.  All students in a group
must be from the same tutorial.
2. You are required to submit a one page Assignment Status Report at the beginning of
Tutorial 9.  There are no marks for doing this but failure to submit or below standard
submissions will incur a penalty of 5 marks for the assignment.

ACCT3708 Auditing and Assurance Services
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Submission Details

1. A hardcopy of the assignment is to be submitted to your tutor at the beginning of the tutorial
in week 11. Any assignments received after this time will be considered late and subject to the
penalty described in the course outline. Last minute printing difficulties, computer failure or
transportation problems will not constitute an adequate excuse for lateness.

2. Please keep a copy of your work.

3. Each assignment must use an assignment cover sheet and all students must sign the declaration
on the front of the cover sheet.  A copy of this cover sheet is available on Blackboard. No
marks will be awarded to any student who does not sign the cover sheet.

4. Each assignment must have a title page, in addition to the cover sheet.  The title page should
clearly indicate the names of your team members and their student numbers, your tutor’s name
and the time and location of your tutorial. Failure to do so will incur a 5 mark penalty.

5. All assignments must be typed. Footnotes should be reserved for points of clarification. Marks
may be deducted for inappropriate use of footnotes and appendices.

6. Please note, elaborate binding and plastic covers are not necessary and will not result in
extra marks. Assignments that are not stapled or otherwise bound together may not be
accepted.

7. Late submissions will incur a 3 mark penalty for every day of late submission (including

weekends) unless permission is obtained from the lecturer-in-charge.
ACCT3708 Auditing and Assurance Services
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GROUP ASSIGNMENT WORK PLAN
By : Tutorial
Activity Deliverable

3 Finalise groups of 4 or 5. Hand in completed ‘Assignment
Group Allocation Form’ to your
tutor during Tutorial 3
5 Problem scoping, gather relevant
background information on the
assigned company, major competitors,
industry factors, etc. including detailed
analysis of the assigned company
latest annual report. Prepare detailed
timetable and member responsibilities
to ensure timely completion.
9 Assignment near completed. Identify
areas for further work and adjust
timetable/responsibility allocation to
ensure timely and high quality
delivery.
11 Completion of all Assignment
requirements.

Hand in one page status report
during Tutorial 9
Hand in assignment at the
beginning of Tutorial 11.
ACCT3708 Auditing and Assurance Services
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SOLUTION

1. Introduction

Fair Fax media is one of Australia’s oldest and largest media companies. The group has consolidated media operations in both Australia and New Zealand. Founded in 1951 the Fairfax group has been steadily expanding and exploring different forms of media. The group has diversified its operations as well as increased the scale of operations with a steady expansion from newspapers, websites and now also including tablet and smartphone applications.

The paper examines the external business environment for the Fairfax group as well the audit concerned which have arisen because of the increased diversification.

2. Fairfax Media Profile

2.1 Revenues

The Fairfax group has effectively evolved as a complete digital and traditional media company. The company’s portfolio comprises of revenue activities from traditional and new media sources. The revenue is generated from a mix of websites, online news websites and classified websites. The websites are diverse and cover a wide range of viewers. As they appeal to all groups interested in news and information, sport, entertainment, business, travel, lifestyle, technology, automotive, real estate, employment and dating.

The main sources of the groups revenue that have been analysed from the groups balance sheets over the years , The most of the revenue of the corporation has been produced from the regional Australian media reporting eventually followed by the other segments.

The revenue of the Fairfax Company can be seen from the following chart

Figure 1: Revenue of the FairFax 2011(Source: Annual Report 2011, accessed on 8/5/2012)

The revenues from the Australian regional media have continued to dominate the revenues of the Fair Fax group. This is because this is the oldest business of the Fair fax group on the other hand the online systems being relatively new have contributed considerable share to revenues that have been steadily increasing. The online revenue represent a growth opportunity for the business, the focus on this sector would eventually lead to an increase in the market share of the group.( Source: Annual Report 2011, accessed on 8/5/2012)

The Fairfax group has experienced relatively flat increase in the revenues over the past 5 years owning to the transition from traditional forms of media to newer forms. The revenues have particularly been flat with the introduction of the mobile phone and other smart applications and the increased cost of goods sold over the period. Moreover with the advent of the subprime crisis all businesses have been affected ,the business is also exposed to a certain degree of exchange rate risks as they invest in currency swaps as well as futures. Thus the exposure to the high risk exchange rate systems may have caused a decline in the revenues.

Figure 2: Revenues of Fairfax 2008-2011(Source: Annual Report Fairfax 2010 –accessed on 8/5/2012)

2.2 What Does the Fair Fax Group Produce

FairFax media founded in 1951 has gradually expanded its scale of operations over the past years. The company has moved gradually from a single newspaper to a consolidated media company group. Fairfax now has a brand portfolio comprising of newspapers website, tablet applications and other smartphone applications. The group also has operations in New Zealand where it is has holdings in online trading websites like Trade Me in New Zealand ,Trade Me Group Limited where the company has a 66% holding . The group also publishes metropolitan, agricultural, community newspapers and regional newspapers financials and consumer magazines.

In Australian the brand portfolio of Fairfax comprises of the following publications:

• Sydney Morning Herald,
• The Age,
• The Australian Financial Review,
• The Canberra Times,
• The Sun-Herald and the Land.

In New Zealand include brand portfolio of the corporations include the following publications.

• The Dominion Post,
• The Press
• NZ House and Garden, New Zealand Fishing News and Cuisine.

The group effectively runs radio stations in both Australia and New Zealand as well.

Fairfax group has effectively made a transition from a traditional media company into company providing complete digital media solutions through online market places, websites, online advertising and other internet resources. The group employs a team of highly skilled employees which enable the designing and the working of the websites. A team of highly skilled journalists is also required run the newspapers and the publications, as well as generate the matter that would be published in them.

((www.fxj.com.au – accessed on 8/5/2012)

2.3 Competition

Being a corporation with diverse operations the Fair fax Group effectively competes in the sectors of Newspaper publishers, media, internet content providers, publishing, media publications and Internet publishing and broadcasting.  Thus the competition of the group is also far-fetched and many competitors namely the Times warner group, Fox news. The competitors also include the APN news media ltd , Austereo Group Ltd and News Corporation.( www.hoovers.com – accessed on 8/5/2012)

Figure 3: Revenue comparison APN and Fairfax (Source-bloomberg – accssed on 8/5/2012)

Comparing the 2011 revenues of the closet competitors  Fairfax is much ahead in the revenue comparisons .The high performance of fairfax is attributed to the consolidation of the corporation in the Australian and the New Zealand market as well as exploring other aources of revenues by designing mobile and smartphone applications .

2.4 Regulations

Being a media company, the company is faced by several rules and regulations that have been imposed by the government upon the media company groups. The media companies are covered by the Broadcasting Services Act (1972), the act though launched in 1972 it has been subject to several changes over a period of time. The media companies also have to approach the Australian Competition and Consumer Commission to seek other clearances but have been eventually covered by the Broadcasting Services Act. The act also approves the advertising and the content broadcasted over the different mediums, the content should not offend any stake holder group (SAMUEL ,2007). As the corporation has made a transition from a digital media to a company with wide IT operations, the corporation has to ensure compliance with IT policies of the Australian government. The IT policies and regulations are extremely sensitive and have to be followed to maintain stakeholders interest whether be it ensuring payment security using websites or broadcasting regulations and declartions on websites(Creech,2010).

3. References

• “Annual Report 2011.” www.fxj.com.au. N.p., n.d. Web. 8 May 2012. <http:/http://www.fxj.com.au/shareholders/Fairfax_AnnualReport_2011.pdf>.
• “Fairfax Media Limited (FXJ): Australasia’s leading media company.” Fairfax Media Limited (FXJ): Australasia’s leading media company. N.p., n.d. Web. 7 May 2012. http://www.fxj.com.au
• “Fairfax Media Limited Competitors | Competitive analysis from Hoover’s |             +61-2-9282-2833      .” Hoovers | Business solutions from Hoovers. N.p., n.d. Web. 7 May 2012. <http://www.hoovers.com/company/Fairfax_Media_Limited/hrfhsi-1-1nji3i-1njhu5.html>.
• Samuel, Graeme. “KEY COMPETITION ISSUES IN AUSTRALIA’S MEDIA AND BROADCASTING MARKETS.” UNSW Law Journal 30.1 (2007): 20-215. Print.
• Creech, Jason, and Matthew Alderman. IT policy compliance for dummies. Chichester, West Sussex: Wiley, 2010. Print.
• “APN Income Statement – APN News & Media Ltd – Bloomberg.” Bloomberg – Business, Financial & Economic News, Stock Quotes. N.p., n.d. Web. 8 May 2012. <http://www.bloomberg.com/quote/APN:AU/income-statement>.

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