ASX Corporate Governance Principles for Wesfarmers

Risk assessment of the company has provided the assurance to the auditor that financial statements are prepared without any material misstatement and if any material misstatement is there than it can be easily tracked Conceptualization & Explanation of ASX Corporate Governance Principles by Wesfarmers Ltd The standard framework of governance provided by ASX and the extent of its compliance by Wesfarmers is discussed as follows: Solid Framework for Board and Management It is essential for a business corporation to define the roles and responsibilities of Board

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Audit and Assurance

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Executive Summary
Wesfarmers, a public listed entity in Australia on ASX, has complied with the ASX
Corporate governance principles as it has provided standard principles and recommendations to
the corporations that are listed on ASX. Wesfarmers is supermarket giant in Australia and
therefore it is important for the Company to develop a strong corporate governance framework
for ensuring its long-term growth and development. The company has to develop its corporate
governance framework as per the Council principles of ASX for ensuring that it all its business
activities are carried out in a responsible manner. Risk assessment of the company has provided
the assurance to the auditor that financial statements are prepared without any material
misstatement and if any material misstatement is there than it can be easily tracked

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Conceptualization & Explanation of ASX Corporate Governance Principles by
Wesfarmers Ltd
The standard framework of governance provided by ASX and the extent of its
compliance by Wesfarmers is discussed as follows:
Solid Framework for Board and Management
It is essential for a business corporation to define the roles and responsibilities of Board
and management personnel in its governance framework. Also, it needs to state all the relevant
information about the evaluation process used for assessing the performance of Board and
management. The corporate governance statement of Wesfarmers has discussed about the
various roles and responsibilities of Board in detail in its corporate governance statement (Groot,
2009). There is a separate Board Charter prepared by the company provided in its governance
framework to disclose the relevant information about the various roles and responsibilities of
Board. The management role is also discussed separately from the Board in the governance
statement. The performance assessment measures taken by board for evaluating the performance
of directors and executives is also provided in the statement in detail. Wesfarmers has followed
the ASX principle of ensuring the presence of a solid framework for Board and management
(2017 Corporate Governance Statement, 2017).
Board Should be property Structured for Adding Value
The Board should have a proper structure with the presence of an adequate size and the
team members having relevant skills, competencies and knowledge so that it is able to promote
the long-term growth of the company and creating value for the stakeholders (Mallin,2016).
There is a distinct heading in the company governance statement about the structure and
composition of Board to provide all the required information in relation to skills, experience and
competencies of its members. It also emphasizes on maintaining the independence of directors
and has also maintained a majority of non-executive directors in its Board composition as per the
ASX principle. The company has developed a Board skills matrix that provides all the relevant
information about the skills and experience of the Board members (2017 Corporate Governance
Statement, 2017).

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Ethical and responsible Business Operations
The business companies as per ASX principle also need to place high importance on
implementing the relevant ethical standards and policies to ensure that the activities are carried
out in an integrated manner (O'Brien, 2007). The main objective of the company is to create
value for the stakeholders and therefore it has established its unique Code of Conduct on the
basis of ethical values and standards of behavior that governs the behavior of people within the
workplace. Also, the regular review of the ethical policies and programs is conducted by the
Board to ensure that all its activities are conducted responsibility.
Integrated Corporate Reporting
There is also sufficient information in relation to examining the integrity
maintained by Wesfarmers in reporting of its financial information. This is maintained by the
company through establishing an Audit & Risk Committee for examining the effectiveness of its
audit process and risk management framework. This is essential for conducting an examination
of the internal control policies so that the corporate reporting is carried out as per the relevant
laws and regulations. The role of external auditor is very essential in the company for
maintaining integrity in the financial reporting process. The major focus area of the Audit & Risk
Committee is also disclosed in detail in the corporate governance statement of the company. The
ASX principle has been compiled by the company adequately by develop a solid framework for
examining the integrity in corporate reporting (2017 Corporate Governance Statement, 2017).
Timely Disclosure of Information
Wesfarmers has also developed and implemented a market disclosure policy as depicted
from its corporate governance statement. The policy specially aims to provide all the material
information to its stakeholders for facilitating their decision-making (Fleckner & Hopt, 2013).
The disclosure committee is established for over-viewing the functions of the policy and
ensuring that all required information is provided to the stakeholders on a timely basis. The
company complies with the ASX principle of making timely and balanced disclosure of
information by establishing the policy and committee for continuous disclosure.
Shareholders Rights

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The corporate governance statement of Wesfarmers has provided information regarding
the various types of communicational channel adopted by the company for interacting with the
shareholders. This is provided under the section of investor engagement as per which the
company has developed a unique program of investor engagement to facilitate the discharge of
information to the shareholders. The online website of the company can also be visited by the
shareholders for gaining latest and updated information about its various activities that can
impact the process of securities. This governance policy is amide at providing full rights to the
shareholders for taking investment decisions (2017 Corporate Governance Statement, 2017).
Risk Management
The presence of an effective framework for managing the financial and non-financial risk
is very essential for a bossiness company according to the council principle and
recommendations (Bazley, Hancock & Robinson, 2014). Wesfarmers have complied with this
principle by providing adequate information about its framework for managing the financial and
non-financial risks. The framework effectiveness is also reviewed on a continuous basis by the
Board to ensure that all management controls are present to minimize the chances of occurrence
of ay uncertain condition. The roles and responsibility of the Board and the key management
personnel in relation to managing the business risks is provided in a spate table in its corporate
governance statement.
Fair and Responsible Remuneration
Board has developed a remuneration committee for deciding over the matters related to
remuneration of its executives and directors. The committee functions independently and on the
established ethical standards ad practices of the company. This is done to comply with the
council principle of providing fair remuneration to all the business leaders (2017 Corporate
Governance Statement, 2017).
Process of risk assessment as carried by the auditor in case of Wesfarmers Company
The analytical procedure provided by ASA 520 has stated the auditors to analyze the type
of financial and non-financial risk that can cause material misstatement in advance before

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conducting audit. The following are the risks that can impact the quality of information presented
to the auditors for reviewing:
It is the duty of auditor to perform risk assessment procedures in order to provide a solid
base for the identification and assessment of all the risks related to the material misstatement in
the financial statement of the company and all the assertions level. It is important to note here
that risk assessment procedures itself does not provide any material audit evidences on which
audit opinion can be given (Hay & Knechel, 2014). The main purpose to carry out the risk
assessment process is to check whether there is any material misstatement in the financial
statement, so that true and fair audit opinion can be given. There are many risk associated with
the financial statements of any company that makes very important for the auditor to carry out
the risk assessment process before every audit.. Risk assessment procedure includes three main
process and all these processes are need to perform every time risk assessment is carried
(Analytical Procedures, 2017). These three assessment steps are inquiries from the management,
analytical procedures and observations and inspection.
Risk assessment process
 Inquiries of management: In this process auditor has to make inquiries from the
management persons to know the basic information about the nature of the business and
other important aspects that can impact the audit process. Auditor obtained information
from the management and from those who are responsible for the financial reporting,
 Analytical Procedure: Analytical procedures are group of tasks that have been performed
as risk assessment procedure and can identify the aspects within the entity that auditor
does not even unaware. The procedure of risk assessment helps in assessing the risk of
the material misstatement that can serve the basis for the creating and implementing the
response for the risks that are identified.
 Observations and inspection: Under observation and inspection enquiries are made from
the management and other person. The information gathered from management and other
persons can be related to entity and it environment. Inspection and observation is carried
out for knowing the entity’s operation, to verify the documents records and internal
control manual and other important information that can assist in performing the audit
process.

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Application of the risk assessment process in Wesfarmers
Risk assessment process has been carried out in Wesfarmers by the auditor and following
information has been extracted from the management and through carrying out the analytical
procedure.
Nature of Company: The Company is publicly listed having its operations across the major parts
of the world such as the US and the UK. It has maintained a good governance structure for
carrying out its operations effectively in different parts of the world. The financial transactions
are carried out as per the AASB ad the Corporations Act 2001. There is a transaction between the
company and its associated entities disclosed a related party in its annual report.
Market Overview: It operates in several markets such as supermarkets, liquor, chemicals,,
fertilizers and others and therefore the business is subjected to large number of market
fluctuations. Besides, it has high competitive risk due to presence of other dominant retail
players in the market such as Woolworths.
Business Strategy: The strategy is to create value for the shareholders by driving its profitability
and growth in a continual manner. The strategy is aligned mission and vision which reduces
strategic risk in the company.
Analytical process: Analytical process has been performed through applying various financial
tools such as ratio analysis, trend analysis and variance analysis. Some of the important ratio that
has been calculated in respect of Wesfarmers Company are as follows:
Financial Data on Woolworth Group
Particulars 2016 2017
in $m in $m
Net profit $407.00 $2,873.00
Gross Profit $19,987.00 $21,656.00
Revenue $65,981.00 $68,444.00
Total Assets $40,783.00 $40,115.00
Long term Debts $5,671.00 $4,066.00
Shareholder's $22,949.00 $23,941.00

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Equity
Current Assets $9,684.00 $9,667.00
Current Liabilities $10,424.00 $10,417.00
Income Statement
Ratios Formula Interpretation
Net Profit Ratio
Net
Profit/Revenue 0.62% 4.20%
There has been
considerably increase
in the net profit ratio
that indicates there was
no risk related to the
profitability of the
company.
Gross Profit Ratio
Gross Profit/
Revenue 30.29% 31.64%
There has been
considerably increase
in the gross profit ratio
that indicates there was
no risk related to the
profitability of the
company.
Return on Assets
Net
Profit/Assets 1.00% 7.16%
Retrun on assets has
increased a lot in the
current year as
compared to previous
year.
Balance Sheet
Ratios

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Debt Equity Ratio Debt/Equity 0.25 0.17
Debt equity ratio has
been decrease in the
current year that means
capital structure of the
company has been
improved.
Total Assets
Turnover
Revenue/Total
Assets 1.62 1.71
Efficiecny to use the
total asset of the
company has been
increased in current
year.
Current Ratio
Current
Assets/Current
Liabilities 0.93 0.93
There was no change
in the current ratio.
Audit Risk & Strategies Adopted by Company for Overcoming Them
 Risk of Liquidity: The Company has high level of exposure to this type of risk as it has
incorporated high level of debt in its capital structure. The presence of a flexible capital
structure enables it to attain advantage of the new investment opportunities. Thus, there is
presence of a risk on the company to not generate enough cash fro meeting its financial
obligations. It has in place the policies for liquidity management which aims to achieve a
balance between its funding types and flexibility incorporated in the capital structure.
 Market Risk: The buying and selling of its products and service in foreign currency
induces a market risk because of changes in the foreign currency. It adopts the use of
sensitivity analysis to predict the changes in foreign currency for managing this type of
risk (Wesfarmers: Annual Report, 2017).

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References
2017 Corporate Governance Statement. (2017). Wesfarmers Ltd. Retrieved 3 Mary, 2018, from
http://www.wesfarmers.com.au/docs/default-source/corporate-governance/2017-
corporate-governance-statement.pdf?sfvrsn=2
Analytical Procedures. 2017. Retrieved 3 Mary, 2018, from
https://www.aicpa.org/Research/Standards/AuditAttest/DownloadableDocuments/AU-C-
00520.pdf
Bazley, M., Hancock, P. & Robinson, P. (2014). Contemporary Accounting PDF. Cengage
Learning Australia.
Fleckner, A.M. & Hopt, K.J. (2013). Comparative Corporate Governance: A Functional and
International Analysis. Cambridge University Press.
Groot, C.D. (2009). Corporate Governance as a Limited Legal Concept. Kluwer Law
International.
Hay, D. & Knechel, R. (2014). The Routledge Companion to Auditing. Routledge.
Mallin, C.A. (2016). Handbook on Corporate Governance in Financial Institutions. Edward
Elgar Publishing.
O'Brien, J. (2007). Private Equity, Corporate Governance and the Dynamics of Capital Market
Regulation. Imperial College Press.
Wesfarmers: Annual Report. (2017). Retrieved 3 May 4, 2018, from
https://www.wesfarmers.com.au/docs/default-source/default-document-library/2017-
annual-report.pdf?sfvrsn=0