Woolworths Corporate Governance Analysis

This assignment delves into Woolworths Limited's corporate governance structure, drawing insights from their 2017 annual report. It examines the board composition, commitment to environmental sustainability, and the effectiveness of the audit committee. The analysis also explores the roles and responsibilities of the audit committee and its impact on stakeholders, including auditors, society, and the organization itself.

Running head: AUDITING AND ASSURANCE
Auditing and Assurance
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1AUDITING AND ASSURANCE
Table of Contents
Answer to Question 1:.....................................................................................................................2
Answer to Question 2:.....................................................................................................................5
Part A:..........................................................................................................................................5
Part B:..........................................................................................................................................6
Answer to Question 3:...................................................................................................................11
Part A:........................................................................................................................................11
Part B:........................................................................................................................................11
Part C:........................................................................................................................................12
References:....................................................................................................................................13

2AUDITING AND ASSURANCE
Answer to Question 1:
Inherent risk Justification Assertions and ledger
accounts impacted
Audit
procedure/task
Joint venture
arrangements
Woolworths
Limited is involved
in various joint
ventures and it is
inherent in the retail
industry to
minimise the risk
related to
operational failure.
There could be
material impact on
the organisation in
case of insolvency
of joint venture
agreement. Such
failure could
increase the
expenses for
Woolworths, as
they have to bear
Assertions:
 Valuation
 Obligations and
rights
 Existence
Ledger accounts impacted:
 Asset impairment
 Non-current assets,
especially plant and
equipment
 Accumulated
depreciation
Woolworths is
involved in
collaboration to
work with its
partners of joint
venture for
minimising the
disarrangement risk
in activities of joint
venture. If the risk
management process
is implemented, it
would ensure the
success of joint
ventures and
strategic objectives.
This is because it
would help in
analysing the risk
exposure, which

3AUDITING AND ASSURANCE
the burden of
expenses and
liabilities in joint
venture (Byrnes et
al., 2015).
could be monitored
effectively.
Financial risk Woolworths is
exposed to foreign
currency risk,
which is due to the
sale of goods and
borrowings in
foreign currencies.
The credit risk
signifies possible
financial loss; in
case, the
counterparts do not
perform as expected
from investing in
cash and cash
equivalents,
deposits and
derivative financial
Assertions:
 Accuracy
 Occurrence
 Completeness
Ledger accounts impacted:
 Revenue
 Purchase/expense
 Transaction reserve
of foreign exchange
The long-term risk
management
strategy of
Woolworths is to
ensure that the
organisation could
finance its
stakeholder
objectives as well as
corporate objectives.
The central treasury
department carries
out the financial risk
management
governed under the
policies of the
board. The policies
include the risk

4AUDITING AND ASSURANCE
instruments. The
ability of assuring
funding might be
affected negatively
due to the financial
market
inconsistency.
management
framework that
takes into account
various risks like
foreign exchange,
credit, rate of
interest, derivative
and non-derivative
financial
instruments along
with liquidity
management.
Oil and gas price
volatility
A subsidiary of
Woolworths
depends on sale of
petrol and gas to
different buyers
under short-term
and long-term
contracts. The
availability of oil-
associated pricing
denotes fall in oil
Assertion:
 Allocation and
valuation
Ledger accounts impacted:
 Contingency account
 Hedging contract
 Expense account
 Revenue account
The price of oil in
2016 has seen
Woolworths in
continuing to handle
risks associated with
functioning
environment of
lower oil price. The
advancements in
2016 constitute of
strategic review,

5AUDITING AND ASSURANCE
price, which would
influence the
revenue of the
organisation. The
oil prices change
due to various
factors that the
organisation is not
able to control.
sale of asset interest,
placement of private
equity, existing
focus of the
operational
efficiencies and cost
of production.
Answer to Question 2:
Part A:
Financial ratios Formula 2016 2017 Difference High or
low risk
Liquidity ratios:
Current ratio Current assets/
Current
liabilities
0.83 0.79 (0.04) High
Quick ratio (Current assets –
Inventories)/
Current
liabilities
0.32 0.33 0.01 High

6AUDITING AND ASSURANCE
Profitability ratio:
Return on equity Net income/
Total equity
-14.58% 16.10% 30.68% Low
Solvency ratio:
Debt-to-equity ratio Non-current
liabilities/ Total
equity
25.70% 19.92% (5.77%) Low
Part B:
Analytical review-
Area of
concern/comfort
identified
Justification Assertion and ledger
accounts impacted
Audit
procedure/task

7AUDITING AND ASSURANCE
Current ratio and
quick ratio
According to the
above table, it could
be cited that the
current ratio of
Woolworths Limited
has fallen from 0.83
in 2016 to 0.79 in
2017. The ideal
current ratio is
considered as 2
(Farewell & Pinsker,
2015). In this case,
the ratio is well
below the industrial
standard, which
denotes that
Woolworths is
struggling to
discharge its short-
term obligations
with the existing
asset base. On the
other hand, the quick
Ledger accounts:
 Accounts
receivable
 Cash and cash
equivalents
 Prepaid expense
 Inventory
 Marketable
securities
 Accounts
payable
 Income tax
payable
 Payroll tax
payable
 Interest payable
 Accrued expense
Assertions:
 Completeness
 Valuation
 Obligations and
rights
 Existence
 Identifying
inventory in
the statement
of financial
position at the
end of the year
 Each unit of
inventory
needs to
correspond
with the
amount
depicted and
recorded in the
financial
statement of
the
organisation.
In addition,
the assets and
inventory that
the third party
holds on

8AUDITING AND ASSURANCE
ratio is a superior
measure of liquidity,
since it excludes the
inventory amount
(Knechel & Salterio,
2016). The ideal
quick ratio is
considered as 1. In
this case, the ratio is
below the stated
standard, which
signifies that
Woolworths Limited
is struggling in
terms of liquidity
position.
behalf of the
audit firm in
the inventory
balance needs
to be included.
 The audit firm
is involved in
owning and
controlling the
inventory
realised in the
balance sheet
statement.
Any inventory
that the audit
firm holds on
account of
another firm
has not been
realised as
portion of
inventory of
the audit team.

9AUDITING AND ASSURANCE
 Inventory is
realised at
lower of net
recognisable
value and cost.
 Physical
investigation
of the
existence of
intangible
assets is to be
made.
Return on equity This ratio provides
an understanding
regarding the net
income as a
percentage of the
overall equity
(Leung et al.,
2014). In case of
Woolworths
Limited, the return
on equity has
Ledger accounts:
 Expenses
 Sales
 Total assets
Assertions:
 Completeness
 Occurrence
 Cut off
 Accuracy
 Classification
 The income
section needs
to be checked
for assuring
that the overall
revenue
amount is
identical to the
sum of the
lines of
income.