The primary purpose of this briefing is to cover the schedule and audit risks for Diageo Plc. It focuses on a structured outline of key points based on best practices and international standards in auditing.
The audit schedule for Diageo Plc, which is to end on June 30, 2025, is fairly divided into three phases of the audit cycle, planning, interim, and finalisation. This ensures that the deadline is met with a guaranteed high-quality final report by minimising some risks that come along in the audit process.
Accordingly, the audit process for Diageo is divided into three distinct phases, Planning, Interim, and Final. The Planning Phase take place between May and July 2025 and may last about 3 to 4 weeks, depending on the intricacy of the business. During this phase, preliminary identification of risks, process mapping, and regulatory analysis shall take place (Diageo, 2024). Among the expected milestones during this phase are management meetings, review of relevant documents, and laying a good foundation for the testing and validation phases that follow.
The Interim Phase is from September to November 2025, a temporary period of 2 to 4 weeks. This is a time for substantive and control testing of the operation and transactions during the third quarter of the year. This is a crucial phase in order to ascertain how effective internal controls are or if there are mistakes that have to be reviewed and changed before the final phase (Aobdia et al., 2024). Activities in this phase comprise performing analytical procedures and compliance checks with the view to ascertaining the accuracy of Diageo’s financial practices.
The Final Phase approximately take 4 to 6 weeks. This phase comprises an overall review of the financial statements, final adjustments, and findings documented (Christensen et al., 2021). This phase should see the completion of the audit report, signing off at the latest by the end of March 2026 to make sure that Diageo meets the requirements of the stock market reporting and allows for timely public disclosure of the financial statements.
Diageo Plc faces certain risks of the very nature of its sector, regulatory environment, process, and organisation. Competition in this sector is high, with frequent changes in consumer demand, and increasingly poses a risk to inventory management (Hoogers et al., 2023). Due to the nature of its high volume and seasonality, there would be more risks of overvalued inventory, potential for obsolescence, and overstatement of inventory as pushed by variability in demand. Apart from that, the international nature of Diageo’s business operations exposes it to fluctuations in both foreign exchange and interest rates; such fluctuations might affect accounting balances for items such as foreign sales and financial liabilities, making these factors integral in terms of risk, and probably having an impact on going concern disclosures. The same activities in multiple countries expose the company to various and complex regulatory environments, particularly for legislation related to alcoholic beverages. This increases the likelihood of legal and compliance issues that could lead to fines or provisions on account of non-compliance (Financial Reporting Council, 2020). All these factors suggest that managing inherent risks is highly essential within the Diageo global business context.
High personnel turnover, especially in significant positions, may affect internal controls, while the time pressure during yearend closing may result in errors or misstatements in the financial statements. Furthermore, local management is not appropriately segregating the duties, particularly in the treasury operations and inventory control areas, which also provides additional control risks (Financial Reporting Council, 2022b). This risk is even higher since there is no experienced finance director to oversee the preparation of financial statements, which in all likelihood would lead to undetected material misstatements. Such problems poignantly underscore the need for proper staffing and segregation of duties and the importance of experienced oversight in maintaining the integrity of financial reporting.
The audit team may be subject to pressure to perform the work within short time constraints, thereby increasing testing failures and discrepancies not being detected, particularly for work entrusted to junior auditors requiring substantial judgment. This could seriously affect the substance and authenticity of the audit work performed. Additionally, if Diageo is a first-time client for the audit team, the additional unease of unfamiliarity with the client’s systems and processes may be added. That unfamiliarity would increase the risk of error and, therefore, the need for more thorough validation checks (Financial Reporting Council, 2022a). Added to this is the possibility of misstatement of opening balances.
In a nutshell, this briefing for the audit partner should emphasise inherent and control risks. In the same way, communication about the audit timeline and progress should be delivered to stakeholders.
Aobdia, D., Choudhary, P. and Newberger, N., 2024. The economics of audit production: What matters for audit quality? An empirical analysis of the role of midlevel managers within the audit firm. The Accounting Review, 99(2), pp.1-29.
Christensen, B.E., Newton, N.J. and Wilkins, M.S., 2021. Archival evidence on the audit process: Determinants and consequences of interim effort. Contemporary Accounting Research, 38(2), pp.942-973.
Diageo, 2024. Annual Report. https://www.diageo.com/en/investors/results-reports-and-events/annual-report-2024
Financial Reporting Council. 2020. ISA (UK) 315 (REVISED JULY 2020): Identifying and Assessing the Risks of Material Misstatement. Available at: https://media.frc.org.uk/documents/ISA_UK_315_Jul_2020.pdf (Accessed: 25 May 2024).
Financial Reporting Council. 2022a. INTERNATIONAL STANDARD ON AUDITING (UK) 300 (REVISED JUNE 2016) (Updated May 2022) Planning an Audit of Financial Statements. Available at: https://media.frc.org.uk/documents/ISA_UK_300_Updated_May_2022.pdf (Accessed: 6 November 2024).
Financial Reporting Council. 2022b. INTERNATIONAL STANDARD ON AUDITING (UK) 320 (REVISED JUNE 2016) (Updated May 2022) Materiality in Planning and Performing an Audit. https://media.frc.org.uk/documents/ISA_UK_320_Updated_May_2022.pdf (Accessed: 6 November 2024).
Hoogers, H., Alessandro, M., Myers, J., Grimm, A. and Gates, H., 2023. Diageo Strategic Audit: A Deep Dive into the Management Strategies of Diageo.
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