Discuss about the Auditing of Woolworths Group Limited.
Woolworths Group Limited is a major retailer company operating its business in Australia. It is ranked second largest in Australia in terms of revenue, after Wesfarmers. The company servers in the areas include Australia, India and New Zealand. It reported a loss of $1.235 billion in 2016. Woolworths is publicly listed on the ASX and has ticker symbol WOW.AX. The company totally compliance with the Corporate Governance Principles laid down Australian Securities Exchange (Woolworthsgroup.com.au. 2017).
Corporate Governance set down the rules, regulations, processes and systems through which authorities are controlled and exercised within a corporation. It lay down some principles which are required to be complied by every ASX listed company. However, there are several impacts also, if the principles are not complied with and are not followed (Shinewing.com.au. 2015). They are as follows:
Apart from the above implications, Woolworth’s Corporate governance statement clearly reflects that the company’s key corporate governance policies and practices during the year 2017. It is said in the report that, Woolworth has followed each of the recommendations of the ASX Principles and Recommendations. The eight ASX principles applied by Woolworth are as follows:
The role of board of directors is been clearly represented in the governance statement of Woolworths Group Limited. The role includes serving the shareholders in their interest, accountable to them for the strategic direction taken to increase their value and implementing the approved strategy and delegating it to the management through CEO. Along with the role, responsibilities of Woolworth’s board of directors is also clearly mentioned in the statement. The statement represents the following responsibilities of company’s board of directors. It includes:
All the above listed duties are duly followed by Woolworths’ board of directors and are clearly mentioned in firm’s corporate governance statement (Woolworthsgroup.com.au. 2018).
Board structure
There are majority of non-executive directors in Woolworth’s board, who pursue competent skills to fulfill all their responsibilities with due knowledge and experience.
Skills and composition of Board
Woolworth’s directors has wide range of different skills, backgrounds and experiences which are important for taking crucial decisions for the company and making the governance effective. The board is capable of regularly reviewing the current and desired skills and capability of the directors along with their experience. The key skills and experience include:
The core values and code of conduct followed by Woolworth defines the standards of behavior expected by the people. The group’s core values include:
The code of conduct of the company is applied to all directors, employees and management of Woolworths in order to act and work ethically and responsibly. The code of conduct ensures that honesty, integrity and fair dealing is prevailing in the company by its people. Woolworth also complies with its corporate responsibility by following the related strategy.
An audit and risk management committee is framed, whose chairman is Michael Ullmer. The committee comprises of minimum three directors and majorly independent. It is responsible for safeguarding the integrity of financial reporting. The committee overview and review the quality and effectiveness of the external audit. It also checks the issues related to financial reporting and assess the appropriateness of accounting policies (Woolworthsgroup.com.au. 2018).
Woolworth has made a process which allows the company to provide shareholders with timely and balance disclosures. It enable them to give the relevant information as and when required. Woolworth has continuous disclosure policy which aims at complying with the disclosure regulatory requirements, clarifying the accountability of senior executives and promoting the investors’ confidence.
The shareholders and security holders are given all the information through the official website of the group. The website displays the ASX announcement, financial and CSR reports, dividend and share price history and other data important to shareholders. The Company’s ASX announcements and related reports can also be seen on its official website.
Woolworth also has investor relations program that focuses on effective communication with investors, analysts, media and proxy advisors.
Being complex group of business, Woolworth is exposed to various financial, strategic, operational and compliance risk. It has a risk committee which recognizes and manages all the types of risk associated with the company. It has a framework for the same which deals with managing material risks of conducting business.
Woolworth Group has a committee named as people performance, which is responsible for the issues related to Company’s remuneration policies. It review them to ensure that it is competitive and designed to attract, and retain employees (Woolworthsgroup.com.au. 2018).
Woolworth Limited is a major Australian retailer, originated in 1924 in Sydney. The company mainly focuses on the minimization of prices and increasing the quality of the products. The group has employed many strategies to achieve its set targets and is now putting more efforts to maintain customer satisfaction, in order to achieve growth and revenue in future. Woolworth has a variety of products and also its position helps the business to gain future growth. Along with this, their supply chain management is also really good (Reuters.com. 2018).
As per the Deloitte report, Australian retail market has experienced new entries in the market such as American retailer, The TJX Companies Inc., UK department stores John Lewis and Debenhams and French leisure good retailer Décathlon. This is due to the strong economic conditions of Australia and higher demand for international brands. The report also said that the only two retailers in Australia that appeared in top 250 global retailers list are Wesfarmers and Woolworths. However, the Australian retailer are fighting back with the investments in concept, store design and flagship stores. Therefore, Woolworth is trying to attract customers by providing them in store services and also enhancing their online shopping experience. This will help the company to compete with the new competitors (Deloitte Australia. 2017).
The business strategy of the group is pretty simple. The company is focused on satisfying its customers to a great extent. In order to achieve this goal, the group has establish a BIG W team that will execute the new business strategy. The team is focused on upgrading the trust of the consumer on price and delivering right and good quality products. BIG W follows a simple strategy to achieve the predetermined goals. It deals with reduction of cost, improvement of the process, development of single team which will work in an integrated manner and update of product offerings. In addition to this, development of cohesive brand and refreshing the stores are the strategies followed by Woolworths.
Income statement ratios
Gross Profit margin |
Gross profit /Net sales |
29% |
Net profit margin |
Net profit / net sales |
3% |
Operating profit margin |
Operating profit / Net sales |
-16% |
Earnings per share |
Net income / Number of outstanding shares |
1.19 |
Return on Equity |
Net income / shareholders’ equity |
16% |
(Financials.morningstar.com. 2018).
Current ratio |
Current Assets / Current liabilities |
0.79 |
Quick ratio |
Quick Assets / Current liabilities |
0.29 |
Debt-equity ratio |
Debt / Equity |
32% |
Days Sales Outstanding |
(Receivables / Revenue) x 365 |
3 days |
Days Inventory Outstanding |
(Inventory / COGS) x 365 |
37 days |
Days Payable Outstanding |
(Accounts Payable / COGS) x 365 |
47 days |
Cash Conversion Cycle |
DIO + DSO – DPO |
-6.38627 |
Receivables Turnover |
Revenue / Average Accounts Receivables |
32.98 |
Inventory Turnover |
COGS / Average of Inventory |
2.30 |
(Financials.morningstar.com. 2018).
Inherent risk, detection risk and control risk are the three basic audit risk that prevails in an organization. Woolworth is mainly exposed to inherent risk due to the less cash balance and reduced profit. This situation mainly arises due to the error or omission in a financial statement because of some factors. Woolworth has a negative cash conversion cycle and has a NPR of 3% only. Also the company has negative operating profit and high payable and inventory days in the year ending 2017. Overall. The position of the company has degraded in last year due to the inherent audit risk associated with it. Also being a multinational company, the various environmental and external factors increases the group’s inherent risk (Loughran, 2010).
There are several ways to reduce these risk. One of the way to reduce it is to bring harmonization in the auditing and accounting standards followed by the company. Another is that Woolworth can improve and enhance its internal control system by critically reviewing the roles of its Audit and Risk Management committee. Inherent risk is basically founded in the financial statements, so it is necessary for the company to hire qualified accountant in order to avoid such risk.
Disclosing the proper notes to statements is another way by which a company can minimize such risk. If the notes are properly disclosed, auditor can easily review the transactions made in different accounts. Woolworth can also recheck its double entry system to make sure that no omission or error is there (Knechel and Salterio, 2016).
Conclusion
The above report concludes that Woolworth Group Limited completely complies with the ASX Corporate Governance principles. Its statement on corporate governance listed the details of its board of directors and its compilation with the ASX eight CGC principles. The report also find out that having such a complex structure, Woolworth is exposed to the inherent risk, which is a type of audit risk. The risk is been assessed by calculating the relevant ratios and common size statements. Ways of minimizing or reducing it are also explained in the later part of the report.
References
Asx.com.au. (2014). Corporate Governance Principles and Recommendations. [Online] Available at: https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-recommendations-3rd-edn.pdf [Accessed 29 April 2018].
Deloitte Australia. (2017). 2017 set to be ‘fascinating’ year for Australian retail | Deloitte Australia | Global Powers of Retailing 2017. [Online] Available at: https://www2.deloitte.com/au/en/pages/media-releases/articles/2017-set-to-be-fascinating-year-for-australian-retail-240117.html# [Accessed 29 April 2018].
Financials.morningstar.com. (2018). Balance Sheet for Woolworths Group Ltd (WOLWF) [Online] Available at: https://financials.morningstar.com/balance-sheet/bs.html?t=WOLWF®ion=usa&culture=en-US [Accessed 29 April 2018].
Financials.morningstar.com. (2018). Income Statement for Woolworths Group Ltd (WOLWF) [Online] Available at: https://financials.morningstar.com/income-statement/is.html?t=WOLWF®ion=usa&culture=en-US [Accessed 29 April 2018].
Knechel, W.R. and Salterio, S.E. (2016). Auditing: Assurance and risk. 4th ed. Routledge.
Loughran, M. (2010). Auditing for dummies. Indiana: John Wiley & Sons.
Reuters.com. (2018). Woolworths Group Ltd (WOW.AX). [Online] Available at: https://www.reuters.com/finance/stocks/overview/WOW.AX [Accessed 29 April 2018].
Shinewing.com.au. (2015). ASX Corporate Governance Principles and Recommendations. [Online] Available at: https://www.shinewing.com.au/thinkbig/read/asx-corporate-governance-principles-and-recommendations/ [Accessed 29 April 2018].
Woolworthsgroup.com.au. (2017). Annual Report. [Online] Available at: https://www.woolworthsgroup.com.au/icms_docs/188795_annual-report-2017.pdf [Accessed 29 April 2018].
Woolworthsgroup.com.au. (2018). CORPORATE GOVERNANCE. [Online] Available at: https://www.woolworthsgroup.com.au/content/Document/Woolworths%20Group%202017%20-%20Corporate%20Governance%20Statement.pdf [Accessed 29 April 2018].
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