Auditing Whole Foods Market, Inc: Internal Control and Financial Statements

Auditing process of Whole Foods Market, Inc’s internal control over financial reporting

Whole Foods Market, Inc

The Board of Directors and Shareholders of Whole Foods Market, Inc.

We have audited Whole Foods Market, Inc.’s internal control over financial reporting as of September 25, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Whole Foods Market, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Controls over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit. 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The COSO criteria

In our opinion, Whole Foods Market, Inc. maintained, in all material respects, effective internal control over financial reporting as of September 25, 2016, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Whole Foods Market, Inc. as of September 25, 2016 and September 27, 2015, and the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended September 25, 2016 of Whole Foods Market, Inc. and our report dated November 18, 2016 expressed an unqualified opinion thereon. 

Part 1. Whole Foods’ Financial Statements

Answer the following questions using Whole Foods’ Annual Report for fiscal year 2016. Fiscal year 2016 ends on September 25, 2016. 

1. Give Whole Food’s Balance Sheet Equation at September 25, 2016 (in million dollars).

2. Using the t-account for Retained Earnings, how much dividends did Whole Foods declare between September 27, 2015 and September 25, 2016? To answer this question, follow the following steps:

a. What is Whole Food’s Retained Earnings in 2015 and 2016?

b. Is Retained Earnings a debit or a credit balance account?

c. Enter the Beginning Balance (BB) of 2016 and Ending Balance (EB) of 2016 (identified in 2.) in the t-account below. (Remember: Beginning Balance of 2016 = Ending Balance of 2015.) 

d. What is Whole Foods’ Net Income (NI) in 2016?

e. Remember that Dividends declared (in 2016) decrease Retained Earnings. Net Income (in 2016) increases Retained Earnings. Would you have to debit or credit Retained Earnings when dividends are declared? Similarly, do you have to debit or credit Retained Earnings to add Net Income?

f. Filling out the Retained Earnings t-account, what is Dividends declared (in million dollars)? (Hint. Take the BB and EB from c., NI from d, and the impact – credit, debit – we have identified in e) 

3. Report of Independent Registered Public Accounting Firm

a. What are auditors?

b. What did Whole Foods’ auditors conclude about Whole Foods’ Financial Statements in 2016?

c. Should external information users be concerned? Why or why not?

Part 2. Record Journal Entries

1. Purchased new equipment for $6,000 in cash.

2. Customers pay off $3,000 on account.

3. Received and immediately paid a utility bill of $400.

4. Paid employees for wages earned $6,000. 5. Additionally, still have to pay out $2,000 wage payments to employees.

6. Signed a $20,000 contract to build a new factory building for a customer.

7. Paid $6,000 in income taxes payable. 4

8. Prepaid $4,000 rent for office space used in the next month.

9. Customer paid us $10,000 for goods to be delivered in 45 days.