Accounting Standards And Practices At Woolworths Limited

Theme 1: Woolworths Follows the Australian Accounting Standard

Discuss about the Structured Literature Review on Accounting Standards in Woolworths.

Woolworths Limited is considered amongst on the of the largest retailers in Australia and New Zealand with various retail and wholesale stores in the aforementioned regions. Woolworths Limited has several businesses which includes food, liquor and petrol retail outlets, hotels as well as home improvement stores. It also deals in property dealings. Australian Accounting Standards Board, (2016) elaborated that the organization, being an Australian firm, follows Australian Accounting Standard. These standards are issued by Australian Accounting Standard Board (AASB), an agency which is maintained and closely monitored by the Australian government. the Australian Accounting Standard Board contributes significantly to the progress of global financial reporting standards and enables the participation of the Australian community in order to comply with the global accounting standards.  Howieson (2017) stated that the Australian government has adopted the International Financial Reporting Standards (IFRS) while went on with some modifications which includes removal of a few options as well as addition of some of the disclosures. The Australian Accounting Standards also follows the compliance so as to comply with International Financial Reporting Standards (IFRS). The Australian Accounting standard also provides an option to adopt the ‘Reduced Disclosure Requirements’ (RDR) with a few exceptions.  

The common themes and finding from the articles “An investigation into the roles, characteristics, expectations and evaluation practices of audit committees” and “Harmonization of international accounting standards: Is it possible?” are mentioned and justifies below:

Theme 1: Woolworths Follows the Australian Accounting Standard

The article “Harmonization of international accounting standards: Is it possible?. Journal of Accounting Education” indicated that Woolworths Limited, which is a domiciled in Australia is considered under the category of ‘for-profit’ company. Hence, the figures present in the consolidated financial report of the company is generally is Australian Dollar AUD and the amount is being stated as per the law, in accordance with ASIC Corporations Legislative Instrument 2016/191. Martinov-Bennie, Soh and Tweedie (2015) stated that the historical cost basis is followed to prepare the Consolidated Financial Statement excluding the financial asset which is ascertained through fair value method. Moreover, the fair value method is also followed in calculating the income, derivatives as well as other financial liabilities as per the accounting policies. Furthermore, the consolidated Financial Statement of the company also follows the rules set by ‘Corporations Act 2001’ as well as Australian Accounting Standards and Interpretations. As mentioned above, Sutton (2014) elaborated that the Australian Accounting Standards maintains close parity with the International Financial Reporting Standards (IFRS) and complying with AASB ensures the compliance with IFRS. Hence, the report which is prepared by Woolworths Limited is according to IFRS.

Theme 2: Awareness of Change in Accounting Standards

The basis of consolidation is as per the standard set by the AASB, as the consolidated Financial Statement includes all the subsidiaries on which the company has control and may affect the same by accessing its powers but if its control ceases, then the particular subsidiary will be deconsolidated. Moreover, the intra-group balances and transactions are eliminated from any such consolidations. All the imperative component of the financial statement is in accordance to the Australian Accounting Standard.

Theme 2: Awareness of Change in Accounting Standards

The accountants and auditors of the Group are found to be well aware of the new and amended Accounting Standards and Interpretations that has been issue by the Australian Accounting Standards Board (AASB). Sutton (2014) elaborated that the amendments which has been recently included into the accounting standards are “Recognition of Deferred Tax Assets for Unrealized Losses, Disclosure Initiative, Sale or Contribution of Assets between an Investor and its Associate or Joint Venture, Revenue from Contracts with Customers and the relevant amending standards, Financial Instruments and the relevant amending standards, and Classification and Measurement of Share-based Payment Transactions.” Moreover, leasing as referred to AASB 16 and Insurance contract (AASB 17) are yet to be implemented.

Martinov-Bennie, Soh and Tweedie (2015) revealed that revenue from Contracts with Customers (AASB 15) refers to the recognition of revenue after the obligation is satisfied. Similarly, as per AASB 15, the company introduces new impairment method for assets and fair value method for debt instrument. The AASB 16, leases replaced that AASB 117 leases, where the leases are classified on their particular natures and treated accordingly. 

The different themes and finding from the four articles are mentioned and justifies below:

Theme 3: Harmonization between the AAS (Australian Accounting Standards) and the IAS (International Accounting Standards).

The article “Stakeholders’ interest in sustainability assurance process: An examination of assurance statements reported by Australian companies” focused on considering that there lie various differences among the two accounting standards but Australian Accounting Standards incorporated certain features through amendments in order to harmonize with International Accounting Standard. Bepari and Mollik (2016) stated that the concept of business combination finds its difference in AASB and IAS, but the Australian board has amended its rules as per the accounting standard AASB 3. A similar treatment is given to the format of cash flow statement wherein Australian board prefers direct method but in IAS, both direct and Indirect methods are permitted. However, the same does not impact the figures significantly and is accepted widely. Nevertheless, the real difference lies in preparation of consolidated financial statements wherein Australian entity requires to provide detailed reporting as the parent group is required to prepare consolidated statement. In IAS, the holding group is may not prepare consolidated statement. Bepari and Mollik (2016) stated that the same goes with reporting date wherein the parent company and subsidiary has to maintain same reporting date as per Australian Standard Board whereas it is not necessary for International Accounting Standards.

Theme 3: Harmonization between the AAS and the IAS

Theme 4: Management Step for the Reformation of the Corporate Reporting Framework.

The article “An investigation into the roles, characteristics, expectations and evaluation practices of audit committees” signified that Woolworths Limited follows an approach to improve the shareholder’s value and protect their funds. The board of directors are the governing body of the company who work for the value-creation for shareholders. Loyeung, Matolcsy, Weber and Wells (2016) revealed that the senior management of the organization develop as well as implement the strategies which they seem fit for the corporation. The risk is efficiently managed by them while remaining intact to their ethics and following compliance. Moreover, the board has created audit, risk management and compliance committee (ARMCC), which assists the management in maintaining framework of the company which includes the risk management as well as internal audit. Loyeung, Matolcsy, Weber and Wells (2016) added that the internal audit team is closely monitored by the board which performs its process while complying to the standards.

Analyzing the four articles indicated several managerial implications regarding the accounting standards use in Woolworths Company It has been gathered from evaluating the article “The cost of implementing new accounting standards: The case of IFRS adoption in Australia” that the company must focus on developing consolidated profit and loss along with income statements as per AASB 10. Australian Accounting Standards Board, (2016) elaborated further that this the balances along with transactions associated with the inter group along with unrealized profits and losses are avoided at the time of developing financial statements. The article “Harmonization of international accounting standards: Is it possible?” also indicated that Woolworths consolidated financial statements must be prepared based on the standards related with AASB, IFRS and Corporations Act 2001.

Brennan and Kirwan (2015) evidenced that the cash flows of the company must be prepared within financial statements through following AASB 16 along with the operating lease commitments that has been affirmed. These must include certain vita lease contracts that are legally binding and are present for a subsequent period. Hines, Masli, Mauldin and Peters (2015) indicated in the article that the audit, risk management along with compliance committee must be formulated in order to supervise the implementation of certain accounting principles in developing financial statements. The researchers in these articles also focused on explaining important managerial implications regarding harmonization of the accounting standards. Howieson (2017) stated that accounting standards harmonization will facilitate the Australian retail organizations such as Woolworths in attaining benefits of international transactions along with decreasing exchange expenses through offering highly perfect information. The companies can also focus on standardizing information to international economic policy makers, by enhancing financial markets information and through enhancing government responsibility (Ironkwe and  Ordu 2015). Another implication provided is observed in case of free trade. In such scenario, international accounting standards can facilitate in allowing nation’s tariffs and restraint process to be highly accurate for companies like Woolworths that is involved in trade. Investors and the managers of the Austrian retail company will be highly able to make all the valuable decisions.

Theme 4: Management Step for the Reformation of the Corporate Reporting Framework

From analyzing the previous researches explained within the chosen four articles it has been gathered that those researches have failed to elaborate that harmonization is a process for increasing the similarity between accounting methods practiced within the domestic nation. Considering the same, the future research will focus on evaluating the accounting method practiced within the retail companies in Australia that are harmonized in those practiced globally (Klettner, Clarke and Boersma 2014). Previous researches also have limitations in exploring whether the auditors of Woolworths are aware of the current amendments within accounting standards and policies within Australia. Addressing such gap, the future research will consider addressing the same through analyzing whether the cash flows are presented within the financial statements along with analyzing the role of compliance committee in reformation of corporate reporting structure of Woolworths.

References

Australian Accounting Standards Board, 2016. AASB 10 [online] Available from: https://www.aasb.gov.au/admin/file/content105/c9/AASB10_07-15_COMPdec15_01-18.pdf [Accessed 10^th April 2018].

Australian Accounting Standards Board, 2016. Framework for the Preparation and Presentation of Financial Statements [online] Available from: https://www.aasb.gov.au/admin/file/content105/c9/Framework_07-04_COMPjun14_07-14.pdf [Accessed 10^th April 2018].

Bepari, M.K. and Mollik, A.T., 2016. Stakeholders’ interest in sustainability assurance process: An examination of assurance statements reported by Australian companies. Managerial Auditing Journal, 31(6/7), pp.655-687.

Brennan, N.M. and Kirwan, C.F., 2015. Audit Committees: Practices, Practitioners and Praxis of Governance. Accounting, Auditing and Accountability Journal. 28(4), pp. 466-493.

Hines, C.S., Masli, A., Mauldin, E.G. and Peters, G.F., 2015. Board risk committees and audit pricing. Auditing: A Journal of Practice & Theory, 34(4), pp.59-84.

Howieson, B., 2017. The Phoenix Rises: The Australian Accounting Standards Board and IFRS Adoption. Journal of International Accounting Research, 16(2), pp.127-154.

Ironkwe, U. and  Ordu, P.A, 2015. The convergence of Accounting Standards to International Financial Reporting Standards (IFRs): Issues and Prospects in Nigeria. International Journal of Research in Business Studies and Management. 2(7), pp. 1-13.

Klettner, A., Clarke, T. and Boersma, M., 2014. The governance of corporate sustainability: Empirical insights into the development, leadership and implementation of responsible business strategy. Journal of Business Ethics, 122(1), pp.145-165.

Loyeung, A., Matolcsy, Z., Weber, J. and Wells, P., 2016. The cost of implementing new accounting standards: The case of IFRS adoption in Australia. Australian Journal of Management, 41(4), pp.611-632.

Martinov-Bennie, N., Soh, D.S. and Tweedie, D., 2015. An investigation into the roles, characteristics, expectations and evaluation practices of audit committees. Managerial Auditing Journal, 30(8/9), pp.727-755.

Sutton, V., 2014. Harmonization of international accounting standards: Is it possible?. Journal of Accounting Education, 11(1), pp.177-184.

Thijssens, T., Bollen, L. and Hassink, H., 2016. Managing sustainability reporting: many ways to publish exemplary reports. Journal of cleaner production, 136, pp.86-101.