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illisariskof overstatementduetosuch reasons as remuneration scheme, fierce competition and poor performance.
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• Slippingretailingperformance.Sales revenue witnessed a dramatic decrease by $149.04 million compared to that of last year. Harvey Norman blamed reasons like natural disaster in NZ and strong Australia dollars for the decrease. The significant decline in sales revenue will reduce the confidence of creditors, which may cause difficulties for Harvey Norman to raise funds. Therefore, it gives Harvey Norman a strong incentive to manipulate its revenue.Moreover, its annual report in FY2012 says the decrease of revenue was offset by the opening of the first store in Croatia and higher sales revenue in Slovenia. However, the sales revenue of Slovenia only increased by 3.47% which is not high enough to offset the decline. Additionally, the exchange rate of AUD to HRK (Australian Dollar to Croatian Kuna) presents an upward tendency (see Appendix B), depreciating the corresponding sales revenue when translating into Australia dollars. Therefore, it is possible for Harvey Norman to use these excuses to cover up its poor performance.
• Salescommission: According to Trade Leaks, sales staffs are paid 10% of the profit on every sale and $10 for every new customer who successfully signs up. It is likely that employees may falsify business records in order to get more money.
• Pressure from competitors: The increasing number of competitors will strongly affect the sales of Harvey Norman in the following years. For example, U.S. cookware and home accessories retailer Williams-Sonoma has already entered into Australian market. In addition, it is said that Harvey Norman remains the most expensive electrical goods retailer compared to its rivals.Confronting fierce competition would definitely add to Harvey Norman’s pressure. Hence, it might fabricate its revenue tomaintain the confidence of creditors, and to attract potential investors and customers.

There is a risk that the value of inventory is overstated due to obsolescence, therefore inventory needs to be revalued and recorded at the lower of cost and net realizable value.
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• The nature of the electronic products: Normally, electronic products updates very quickly. As a large electronic product retailer, Harvey Norman is likely to haveabundant electronic products in stock, which are easily outdated. Therefore, the company should revalue the stock on a timely basis and write down to proper value if necessary. 
• Decrease in sales: The sales revenue has experienced a significant decline of 9.6% compared with that of 2011. In light of the sluggish global economy and the decline in demand for electronic products, it is less likely Harvey Norman’s sale would soar in the near future. The decrease in sales will lead to the pile-up of various products, which consequently causes a serious problem of obsolescence.
• Decrease in inventory turnover: The inventory turnover has fallen from 3.77 to 3.42 during the last two years. (See Appendix C) It is a bad news for Harvey Norman because products tend to deteriorate as they sit in the warehouse. Furthermore, the 9.3% decrease in inventory turnover may indicate an overstocking issue or poor sales, both of which give rise to or even aggravate inventory pile up and obsolescence.
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