Analysis Of Woolworths Financial Position And Auditing Practices

Overview of Woolworths Business Operations and Investing Activities

The issue that has been presented in the question refers to the fact that a single listed corporation has been chosen for the purpose of the study (Alles, Kogan and Vasarhelyi 2018). The books of accounts of the listed corporation has been analyzed for the purpose of understanding and designing an audit program for the chosen corporation. This means that the nature of the entity along with the business operations that has been conducted by the business entity, the respective investments and the investment related activities, activities related to financing and the aspect of financing and the financial reporting practices have been analyzed in this particular study. This means that the primary purpose of this particular study is to analyze and understand the financial particulars of a particular corporate entity along with the conducting of the auditing practices in regards to the working of the company. Moreover, the procedure for determining the amount of materiality that has been computed by the auditor has also been included in this particular study (Stewart and Shamdasani 2014).

The particular corporate entity that has been chosen for the purpose of the study is the company named Woolworths. Woolworths is a major player in the supermarket industry in Australia and has been chosen for the purpose of auditing in this particular study (Chan and Vasarhelyi 2018).

The chosen corporate entity of Woolworths has been one of the leading companies in the particular sector of supermarket. This means that the supermarket industry in the country of Australia has been the one of largest and the popular industries. Woolworths has been one of the leading players of the same. The height and the position the corporate entity has reached today ahs resulted in a respectable repute or popularity of the goodwill of the firm. It must be noted here that the supermarket industry in Australia has been threatened by the entry of the new competitors in the market like ALDI. This means that the only reason that the new companies are getting the space to penetrate the market is that they are being able to attract the attention of the customers on the basis of the fact that the new competitor firms are being able to provide the consumers with a new range of products like the private label products. The popularity that has been enjoyed by the private label products has been humongous and has been utilized specifically by the new market entrants for the purpose of convincing the customers and expanding their customer base. The particular report that has been published by the IBIS World’s Supermarkets and Grocery Stores in Australia has been that the supermarket industry in Australia has been increasingly competitive in nature. The companies that have been dealing in the similar industry have utilized strategies like the implementation of the particular strategies in regards to discounting that have been aggressive in nature. It must be noted here that the pricing policy has been aimed towards the product pricing methods or techniques. Furthermore, it can be reliably stated here that an additional factor in regards to the nature of the industry has been that the industry has been concentrated in nature. This can be further supported by the fact that the four of the largest dealers that have been dealing in this particular market account for almost 80 percent of the entire revenue that has been acquired by this particular industry. It must be further noted here that the corporate entities of Wesfarmers and Woolworths capture about 60 percent of the entire supermarket industry in Australia (Ridley-Duff. and Bull 2015).

Analysis of Woolworths Financial Reporting Practices and Financial Position

However, it must be noted here that the industry has been particularly threatening for the old dwellers in the market. This means that the entry of the new participants in the market will lead to the increase in the demand and the revenue that has been acquired by the industry accounting statements they are offering the product that is demanded by the consumers. There is the particular reason behind the reduction in the negative response that is given by the consumers of the products and the enhancing of the positive response that has been presented by the customers and has been recorded in the month of April. Therefore, it is the primary duty of the chosen corporate entity to increase the production in the private label products. This should be incorporated for the purpose of capturing the lion share of the market and be one of the leading listed companies in Australia (Hargie 2016).

The business operations of the corporate entity has been accounting statements follows:

• The major operations of the business has been focused towards providing the utmost priority to the customers of the firm. The business entity has itself developed a culture inside the corporate body that has been driven by the customers of the firm (Collins 2017).
• Moreover, the firm has been engaging in the primary process of a customer led culture by providing the care in regards to the safety performance of the employees and the other customers of the firm. The team has been engaging in the construction of the incentive plans that have been aimed towards the enhancement of the employee motivation and morale.
• The second business operation has been that the management of the firm has been continuously engaged in the generation of the sustainable performance in food. This means that the management of the corporate entity has been trying to develop strategies for the purpose of ensuring the optimum amount of returns from the sale of the food items that has been manufactured by the firm (Waldman and Jensen 2016).
• Another primary aim or business operation by the firm has been that the management of the corporate entity has performed towards the evolving of the drink business of the corporate entity. It has been reported by the management of the firm that the initiative has resulted in the increase of the sales of the drinks in the financial year of 2017.

The investing activities that have been carried out by the firm has been accounting statements follows:

• It has been mentioned in the annual report of the corporate entity that the company has experienced an increase in the incurred the cost of doing business for the purpose of increase in the investment projects of the firm (Leung et al. 2014). To be precise the corporate entity has increased the investment in the Australian and the New Zealand Food. The investment has been done specifically in the offers that have been provided to the customers and higher team performance based bonuses. The new ventures that have been planned by the corporate entity like the Big W is another business venture that has been planned by Woolworths and has resulted in the optimum amount of investments.
• The financing activities that have been carried out by the firm refers to the maturities that have occurred within the financial year of 2017. This means that the five year period within which the amount of A$700 million Woolworths Notes II ended in the financial year of 2016. The particular amount of A$381 million did mature in the financial year of 2017. There have been similar instances of the financing activities that took place in the firm (Knechel and Salterio 2016).

Next, the financial reporting practices that have been disclosed by the corporate entity in the annual report can be summarized accounting statements follows:

• It must be noted here that the corporate entities in Australia particularly the companies that have been listed on the stock exchange of the corporate entity prepares its financial statements on the basis of the accounting guidelines that have been established by the accounting regulatory body in Australia that is Australian Accounting Standards Board. It must be further noted here that the accounting body has adopted the guidelines from the International Financial Reporting Standards (Junior, Best and Cotter 2014).
• Furthermore, the particular accounting standards that have been adhered to while preparing the accounting statements in the financial report of the corporate entity has been mentioned in the notes to the accounting disclosures of the company. The accounting standards can be listed down as the AASB 9, which defines the treatment of the financial instruments. The other accounting standards are the AASB 133 that defines the accounting treatment in regards to the earnings per share of the corporate entities. The particular accounting standard of AASB 5 has also been utilized in the preparation of the accounting statement of the corporate entity. It must be noted here that the accounting standard of AASB 5 defines the treatment for the non-current assets of the company (Cohen  and Simnett 2014).
• It has  been mentioned in the annual report of the corporate entity that the accounting standards that have been newly introduced or amended will be incorporated by the corporate entity on a later date
• Furthermore, the particular accounting standard of AASB 107 has resulted in the management of the firms preparing the annual report or the financial statements of the companies by resulting in the providence of the optimum amount of disclosures in the annual report of the firm. This means that the stakeholders and the other investors of the firm will be able to obtain the required amount of financial information, which will help him in taking the potential economic decisions.

The analysis of the financial position of the corporate entity can be carried out with the help of the balance sheet and other financial statements that has been prepared by the management of the firm. The balance sheet of the company can be found in the picture below:

The statement of the financial position or the balance sheet that has been prepared by the corporate entity of Woolworths reveals the fact that the amount of receivables have been decreasing over the period of last three two years. Moreover, the net assets that have been employed by the firm have been observed to increase in the current financial year. The total net assets of the firm that has been employed have also decreased. This means that the current financial position of the company has not been accounting statements estimated or expected. This is primarily due to the fact that the new firms have been penetrating the market with the help of new products. Sincere thought should be given by the management of the company in regards to the current financial position of the company. In addition to this, the purpose of understanding the financial performance or the position of the corporate entity can be fulfilled with the help of the significant ratios which will further indicate the financial position of the company (Becker, Stead and Stead 2016). These ratios have been computed accounting statements follows:

	Woolworths
Asset turnover ratio	Sales	Total Assets	Ratios
Sales/Total Assets	55475	22915.8	2.420819
Return on equity	Net Profit	Equity
Net Profit/ Equity	1593.4	9526	0.167269
Current Ratio	Current assets	Current Liabilities
Current Assets/ Current Liabilities	6994.2	8824.2	0.792616
Gross Operating Margin	Sales	Gross Profit
Net Sales/Gross Profit	55475	12912.3	4.296291
Debt ratio	Total Liabilities	Total assets
total liabilities/total assets	11387.7	19549	0.582521

Discussion of the Supermarket Industry in Australia

The ratios that have been computed reveal the fact that the corporate entity has been enjoying a good phase in regards to the financial performance of the company. The Asset turnover ratio has been optimum reflecting the fact that the firm has been able to ensure the optimum utilization of the assets of the firm. The return on equity reveals the fact that the firm has not been optimally utilizing the capital that has been obtained from the equity shareholders of the firm. The current ratio of the firm has been particularly correct. This means that the management of the firm will be able to repay the short- term debt or the current debt of the firm with the help of the current assets of the corporate entity. The gross margin ratio of Woolworths has been optimum reflecting no reason of concern. This means that the profitability of the firm has been proper. The debt ratio on the other hand reveals the fact that the firm has been maintaining a balance in regards to the debt that has been obtained from the third party investors of the firm and the capital that has been obtained from the equity of the shareholders of the firm.

The balances that have been considered material refer to the account balances that represent no synchronicity. This means that the particular account balances that have been utilized refers to the fact that there have been a degree of discrepancy in regards to the account balances. This means that the balances of the selected accounts have been such that there has been suspicion of the accounts being understated or overstated (Bradbury, Raftery and Scott 2018). This can be further revealed with the help of the accounts that have been selected on the basis of the occurrence of materiality. The accounts have been accounting statements follows:

• Inventory Account
• Receivables
• Net assets that have been held for the purpose of sale
• Current Borrowings
• Cash and Cash Equivalent
• Assets held for sales
• Other financial liabilities
• Provisions
• Trade and other payables
• Other non current borrowings

Accounts	2017	2016	% change	Financial report assertions
Inventory Account	3386	3423	-0.37	There has been no mention of assertion in the financial report of the corporate entity. This means that there has been no accounting disclosure in regards to the discrepancy for the amounts of the inventory account. Therefore, the account might be subjected to fraudulent activities like material misstatement.
Receivables	2837	3040	-2.03	There has been no mention of assertion in the financial report of the corporate entity. This means that there has been no accounting disclosure in regards to the discrepancy for the amounts of the receivables account. Therefore, the account might be subjected to fraudulent activities like material misstatement.
Other Financial Assets	2627	2806	-1.79	It has been mentioned in the financial report assertion, the particular areas where the financial assets has been required and their particular amounts. This means that the financial assets that have been utilized in regards to the different financial components have been revealed. However, the reasons behind the financial components utilizing the assets have not been stated in the financial report of the corporate entity.
Current Borrowings	197	456	-2.59	The borrowings is another financial component, to which no proper financial disclosure has been provided in the accounting statements of the corporate entities.
Cash and Cash Equivalent	595	703	-1.08	In regards to the financial account of cash and cash equivalent, the financial report assertion that has been mentioned by the management of the firm reveals the cash flow statement which provided the needed explanation in regards to the amounts that have been mentioned in the account.
Assets held for sales	1222	897	3.25	There has been no mention of assertion in the financial report of the corporate entity. This means that there has been no accounting disclosure in regards to the discrepancy for the amounts of the inventory account. Therefore, the account might be subjected to the issue of material misstatement.
Other financial liabilities	313	120	1.93	Other financial liabilities are the financial components that have been utilized in the form of the different financial instruments. This has been properly disclosed in the accounting disclosures in the annual report of the corporate entity.
Provisions	1470	1873	-4.03	Proper disclosure have also been provided in regards to the accounting framework of the firm thus the issue of materiality is not a concern
Trade and other payables	6684	6626	0.58	There has been no mention of assertion in the financial report of the corporate entity. This means that there has been no accounting disclosure in regards to the discrepancy for the amounts of the trade and other payables account. Therefore, the account might be subjected to the issue of material misstatement.
Other non-current borrowings	2777	3870	-10.93	There has been no mention of assertion in the financial report of the corporate entity. This means that there has been no accounting disclosure in regards to the discrepancy for the amounts of the non-current borrowings account. Therefore, the account might be subjected to the issue of material misstatement.

The auditing framework refers to the particular framework that should be followed by the auditor for the purpose of analyzing the financial statements of the corporate entities. This means that the particular procedure that should be followed by an auditor for the purpose of determining the fact whether the financial statements that have been prepared by the management of the corporate entity reflects the true image of the corporate entity is carried out with the help of the auditing framework.

In regards to the selected accounts, the auditing framework that has been utilized for the purpose of the study is that the auditor should track the transactions in regards to the different accounts to the point of generation of the particular financial component. This means that the auditor should undertake the steps of sampling for the purpose of checking the integrity of the financial information that has been reflected in the accounting statements of the corporate entity. Moreover, the debtors and creditors of business along with the different stakeholders of the firm should also be interacted with. Next, the auditor should also take much initiative in the computation of the exact amount of permissible materiality in the books of accounts of the firm. This is the auditing framework that should be utilized for the purpose of analyzing the chosen materiality accounts (Farooq and de Villiers 2017).

Challenges Faced by Woolworths

Conclusion

The conclusion that can be arrived at from the above discussed literature reveals the fact that the chosen corporate entity has been involved in the proper preparation of the financial statements. Therefore, the auditing framework that has been prepared will help in the reflection of the true image of the firm that has been revealed in the financial report of the company.

References and Bibliography

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