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HI6026 Audit, Assurance And Compliance For Sustainable Sales In Food

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Question:

Recognizing the nature of the company, what’s the company’s market overview? Who (if anyone) regulates the client? What’s the company’s business strategy? Computation of income statement and balance sheet ratio, and Development of common-size financial statements and focus on relevant audit risk and potential steps to reduce risk

 

Answer:

Introduction

“Woolworths Group” is recognized as one of the leading Australian data manufacturer with its operations in both New Zealand and Australia. The company is known for being the second largest in terms of its revenue ranking next to “Perth-based retail-focused conglomerate Wesfarmers”. The group is further identified for being the largest retail player in terms of “liquor retailer, hotel and gaming poker machine operator in Australia”. “Woolworths Group” is often recognized as 19th largest retailer globally. The most prioritized strategy is considered with focusing on a diverse customer base, along with “store led culture and team”. The main priorities of the company include generation of sustainable sales in food, enhancing the drinks business for providing greater convenience, value to the customers along with empowering the overall “portfolio of the business to pursue strategies for delivering shareholder value”. It needs to be further discerned that the objective of the company is considered with becoming a leading retailer by adopting “systems excellence and end to end process approach” (Woolworthsgroup.com.au. 2018).

The important discussions of the study aim to address the impacts of “ASX Corporate Governance Principles for Woolworths Group”. The relevant scope of discussion has considered the audit risk and various types of potential initiatives which can be applied to reduce such risks. The last part of the study has calculated the balance sheet ratios and evaluated income statement for the last two years. 

 

Implementation of ASX CGC principles

“Woolworths Group” has prioritized corporate governance with prime importance which has significantly contributed to create value to long-term shareholders. The group for the strives to “act ethically and responsibly at all times”. The main functions of “Woolworths Group” CG is seen to be in compliance with “ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (ASX Principles)”. The duty of the board is observed in terms of presenting and acting in terms of the interest of the shareholders. The company is further seen to be responsible and accountable for formal “delegation of authority to the CEO”. Some of the other responsibilities of the board has been recognized with “financial oversight, effectiveness of risk management framework, financial reporting, performance evaluation, performing regulatory function, social responsibility, material transactions and corporate governance”. The overall review of the performance of the board is considered with several external factors (Woolworthsgroup.com.au. 2018).

As discussed by the chairman the feedback is received by the individual directors of the company. It is further discerned that individual senior executives and the CEO has maintained a written contract with the group. This contract has presented the “terms and conditions of his/her appointment inclusive of the remuneration entitlements and performance requirements”. The significance of the relationship between management performance and remuneration assessment is clearly depicted with companies approach of performance management. The depictions made from the “reporting period of 2017”, it needs to be understood that “the Board reviews the performance and approves the remuneration for the CEO and Group Executive Committee members” and “people performance committee reviews”. In addition to this, the performance of the group executives along with the CEO is also reported in the remuneration entitlements. It needs to be understood that the directors are not involved in any decision taking which may imply “conflict of interest or material personal interest”. In such cases, the incidences of conflict of interest is immediately informed the company. The board, do that along with the individual directors are free to exercise their powers and responsibility on the matters which are solely reserved to the board. In addition to this, the committee charters on the board are reviewed thoroughly during the reporting period and such charters are also included in the website of the company (Woolworthsgroup.com.au. 2018).

As for the relevant information the company secretaries are seen to be directly accountable to the board via chairman on all matters concerning proper functioning. The full board committees supporting the exercising responsibilities and recommendation are depicted with the “nomination committee, Audit, Risk Management and Compliance Committee (ARMCC), People Performance Committee and sustainability committee”. In addition to this, the directors are seen to receive a letter of appointment which has been able to set the company’s expectation, duties along with several terms and conditions for appointment. It is understood that the direct induction program has included site visits, meetings with the CEO, companies edited and senior management on matters of board practices and procedures (Woolworthsgroup.com.au. 2018). 

 

Risk Assessment

“Woolworths Group” is identified as an intricate business entity which is susceptible to several risks such as “strategic, financial, operational and compliance”. The risk dimensions are seen to be inherent in the online business and retail including “food, liquor, petrol, general merchandise” as well as “accommodation, bar, dining and gambling operations”. The different types of enterprise risk management framework of the group and corporate governance structure has provided adequate support for handling the risks in conducting business. The various dimensions of the risk management framework have included the standards which are following “ASX Corporate Governance Principles and Recommendations and the Australian/New Zealand standard AS/NZS ISO 31000:2009 Risk management – principles and guidelines”. It has been further discerned that the risk management policy has been able to reflect on the overall philosophy of groups approach towards risk management and setting out important roles and responsibility in “identifying, monitoring and reporting” of the risk areas affecting the operational plan and strategic objectives (Woolworthsgroup.com.au. 2018).

“Woolworths Group” assistance for the risk management and opportunities for the overall risk management framework is conducted by ARMCC during the reporting period. Some of the main material business risks include “economic, environmental and social sustainability risks”. In addition to this, the redecorating environment and the strategic risks is seen to be competition driven with the technology disruption, changing customer expectation, new entrants along with several types of other Internet on external risk factors. The failure to successfully respond to these factors and competitors have adversely affected the performance and market share of the business. Financial risks are further seen with lack of availability of the funds and management of capital required for the groups operation and growth (Ya-Mei, G.U.A.N. and Xiang 2017). It needs to be discerned that the failure of the company to turn around the general merchandise in the previous year may negatively impact the profit of the business. Based on the policy of the group various types of operational events are exposed to the risk factors such as “product safety standards, information technology, security asset, data breaches and business disruptions” caused by cyber-attacks. The different types of operational risks are further evaluated inefficiency in meeting the “product safety standards, security asset, business disruption and unforeseen weather conditions”. Additionally, the different types of industrial disputes caused by interruptions in the supply chain may also need to several failures of distribution process. The most noted compliance issues are taken into account with “applicable laws, regulations and contractual arrangements” which are largely exposed regulatory or legislative changes”. In case of breach or any instance of changes in the contract may lead to adverse result on groups reputation and profitability including various types of other penalties (Woolworthsgroup.com.au. 2018). 

 

Computation of income statement and balance sheet ratio, and Development of common-size financial statements 

The predictions of the income statement have shown that both profit and revenue of the company have significantly improved in 2017 compared to the previous year. This is noted with a total revenue of “55475 in 2017 and 53473 in 2016”. Moreover, the significant improvement in profit has been evident with “$ 726.3 in 2016 to $ 1422.1 in 2017”.

Comparison of Consolidated Income Statements

Particulars

Woolworths Group 2017

Woolworths Group 2016

Percentage of the total income

Revenues

55475

53473

104%

Profit for the Period

1422.1

726.3

196%

 

 

 

 

Comparison of Statement of Financial Position

Particulars

Newcrest Mining 2017

Newcrest Mining 2016

Percentage of the total income

Total Assets

22915.8

23502.2

98%

Capital Expenditure

1840.5

1797.5

102%

The predictions on “profitability analysis ratio” has been able to state that the overall net profit margin has bumped up from “1.36% in 2016 to 2.56% in 2017”. Additionally, “return on equity” has significantly improved from 58.8% in 2016 to 92.74% in 2017. Some of the various types of other positive indications in the report is seen with increasing “return on assets” which is evident with “ROA of 3.09 in 2016 and 6.21 in 2017”.

Profitability Ratio Analysis: -

 

Woolworths Group

Particulars

2017

2016

 

 

 

Revenue (A)

55475

53473

Net Profit/Loss after Tax (D)

1422.1

726.3

Ordinary Equity(H)

1533.5

-1234.8

Total Assets (G)

22915.8

23502.2

 

 

 

Net Profit Margin (D/A)

2.56%

1.36%

Return on Equity (A/H))

92.74%

-58.82%

Return on Assets (G/D)

6.21%

3.09%

Some of the significant assessments on “efficiency ratio analysis” have implied that the stock clearance has significantly increased compared to the previous year which is evident with “inventory turnover ratio of 9.74”. In addition to this, the total asset ratio has also improved from “2.28 in 2016 to 2.4 in 2017”. 

Efficiency Ratios Analysis

 

Woolworths Group

Particulars

2017

2016

 

 

 

Cost of Goods Sold(A)

39739.7

38538.6

Inventory (H)

4080.4

4558.5

Revenue (A)

55475

53473

Total Assets (G)

22915.8

23502.2

 

 

 

Inventory Turnover Ratio (A/H))

9.74

8.45

Total Asset Turnover Ratio (A/G)

2.42

2.28

The various types of evaluation on short-term liquidity has been performed with the depiction off quick ratio and current ratio. Based on the significant evaluation the current ratio has dropped from “0.83 2016 to 0.79 in 2017”. This decreasing trend of short-term liquidity indicator has implied that Woolworths Group has been not able to maintain a sufficient amount of liquid cash for supervising day to day business transactions. 

Short-Term Liquidity Ratio Analysis: -

 

Woolworths Group

 

2017

2016

 

 

 

Total Current Assets (A)

6994.2

7427

Receivables (D)

744.7

763.9

Cash and equivalents (B)

909.4

948.1

Total Current Liabilities (F)

8824.2

8992.7

 

 

 

Current Ratio (A/F)

0.79

0.83

Quick Ratio [(B+D)/F)

0.19

0.19

The various types of discussions on debt ratio evaluation have implied that Woolworth Group has been successful in minimizing the overall “debt obligation from 2016 to 2017”. That trend is seen with “debt equity ratio of 8.57 in 2017” and -11.92 in 2016. Furthermore, “debt to total assets ratio” have shown significant improvement from “0.63 in 2016 to 0.57 in 2017”. 

Debt Equity Ratio

 

Woolworths Group

 

2017

2016

 

 

 

Total Liabilities (A)

13039.7

14720.3

Total Assets (B)

22915.8

23502.2

Total Equity (C )

1533.5

-1234.8

Debt-to-total Assets Ratio (A/B)

0.57

0.63

Debt to Equity Ratio (A/C)

8.50

-11.92

Potential steps to reduce risk

 “Woolworths Group” is seen to take various types of approvals from board in order to ensure customer first culture and investment growth enablers in order to mitigate the various types of strategic risks. The investment growth enablers have been depicted with store “network, digital channels and other technologies”. “Woolworths Group” is further strived to establish the greatest types of delivery offices which has promoted the transformation initiatives. As per the present strategies the company has combined the “Digital, Loyalty and Data businesses into WooliesX” and focused on linking it with the customer strategy (YANG 2017). In addition to this, the various forms of “short-term and long-term incentive plans” are designed to be aligned with the initial strategy taken by the customer. The “corporate social responsibility” strategy is recognized with the aim of improving sustainability and bringing about environmental reforms of the business operations (Crowley, M., 2016).

The initiatives of risk mitigation in terms of financial perspectives is taken into account with prior approval from treasury policies required for managing the financial risks related to the group. The important nature of the initiatives taken for various types of risk mitigation is recognized with “group’s financial risks, including liquidity, interest rate and foreign currency risks”. Woolworth is for the depicted with a turnaround plan which is approved by the board and applicable to the general merchandise which are monitored on a regular basis for anticipating sale of petrol, which would further enhance the capital position (Griffiths 2016).

The company had established established “policies, training, standards and business operation along with safety of health and wellbeing, food and product safety” being the most noted standards”. The important nature of the investments is seen in operational capability across “cyber security, processes and technology”. It needs to be noted that the company has taken several measures for improving the “Business Resilience Framework” which is required for managing the operational incidents and preventing business disruptions. Some of the main policies of the group has included “legal, regulatory compliance and internal protocols”. The training regime under the “Woolworths Group Code of Conduct” is recognized with creating alertness of “legal, regulatory and internal policy requirements” (Luiz 2016).

The elimination of the auditing risk is done by the external auditor the group- “Deloitte Touche Tohmatsu”. ARMCC is identified to make the important recommendations for “selection, appointment, re-appointment or replacement” of the external auditor. The different types of internal auditing services are for the same to be responsible for performing “internal audit function (Group Internal Audit)” which is supervised by “Risk and Assurance team”. These regulatory frameworks ensure that give assurance services and independence is brought in relation to “internal control, risk management framework and corporate governance of Woolworths Group”. The significant nature of the Internet audit functions has been seen with in accordance of “internal audit plan” which are formulated by using risk-based approach approved annually by the ARMCC (Bryce, Ali and Mather 2015). 

 

Conclusion

The main findings on Implementation of ASX CGC principles have implied “Woolworths Group” has prioritized corporate governance with prime importance which has significantly contributed to create value to long-term shareholders. The group for the strives to “act ethically and responsibly at all times”. The main functions of “Woolworths Group” CG is seen to follow “ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (ASX Principles)”. The significant areas of risk assessment are seen to be inherent in the online business and retail including “food, liquor, petrol, general merchandise” as well as “accommodation, bar, dining and gambling operations”. The strategic risks is seen to be competition driven with the technology disruption, changing customer expectation, new entrants along with several types of other Internet on external risk factors. The failure to successfully respond to these factors and competitors have adversely affected the performance and market share of the business. Financial risks are further seen with lack of availability of the funds and management of capital required for the groups operation and growth. Significant findings on the financial ratios have revealed in terms of income statement the company has significantly improved the profit and revenue which is evident with total revenue of “55475 in 2017 and 53473 in 2016” and total profit of “$ 726.3 in 2016 to $ 1422.1 in 2017”. However, the short-term liquidity analysis has illustrated decreasing trend of short-term liquidity indicator has implied that Woolworths Group has been not able to maintain a sufficient amount of liquid cash for supervising day to day business transactions. Potential steps to reduce risk is seen to be evident with customer first culture and investment growth enablers to mitigate the various types of strategic risks. The initiatives of risk mitigation in terms of financial perspectives is considered with prior approval from treasury policies required for managing the financial risks related to the group. The important nature of the initiatives taken for various types of risk mitigation is recognized with “group’s financial risks, including liquidity, interest rate and foreign currency risks”. 

 

References 

Bryce, M., Ali, M. J. and Mather, P. R. (2015) ‘Accounting quality in the pre-/post-IFRS adoption periods and the impact on audit committee effectiveness - Evidence from Australia’, Pacific Basin Finance Journal, 35, pp. 163–181. doi: 10.1016/j.pacfin.2014.12.002.

Crowley, M., 2016. Is the level of sustainability reporting an indicator of future value of a company? (Doctoral dissertation).

Griffiths, P., 2016. Risk-based auditing. Routledge.

Luiz, J., 2016. Woolworths South Africa.

Woolworthsgroup.com.au. (2018). [online] Available at: https://www.woolworthsgroup.com.au/content/Document/Woolworths%20Group%202017%20-%20Corporate%20Governance%20Statement.pdf [Accessed 22 Apr. 2018].

Woolworthsgroup.com.au. (2018). [online] Available at: https://www.woolworthsgroup.com.au/icms_docs/186036_woolworths-group-corporate-responsibility-strategy-2020.pdf [Accessed 22 Apr. 2018].

Woolworthsgroup.com.au. (2018). [online] Available at: https://www.woolworthsgroup.com.au/icms_docs/188795_annual-report-2017.pdf [Accessed 22 Apr. 2018].

Woolworthsgroup.com.au. (2018). Strategy and objectives - Woolworths Group. [online] Available at: https://www.woolworthsgroup.com.au/page/about-us/our-approach/strategy-and-objectives/ [Accessed 22 Apr. 2018].

Woolworthsgroup.com.au. (2018). The Woolworths Story - Woolworths Group. [online] Available at: https://www.woolworthsgroup.com.au/page/about-us/The_Woolworths_Story/How_We_Were_Founded/ [Accessed 22 Apr. 2018].

Ya-Mei, G.U.A.N. and Xiang, S.U.N., 2017. Research on the Identification, Evaluation and Response of Low Carbon Audit Risk of Resource-based Enterprises. DEStech Transactions on Economics, Business and Management, (iceme).

YANG, L.L., 2017. Risk-based Audit Model Construction Based on Big Data Age. DEStech Transactions on Engineering and Technology Research, (apop).

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