HA3032 Auditing | Holmes Institute Assignment

Added on -2020-02-19

| HA3032| 24 pages| 5059 words| 64 views

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1AuditIdentifying and Assessing the Risks of Material Misstatement through Understanding the Entity and ItsEnvironment
2AuditExecutive SummaryWoolworths Limited is a leading retail organization in Australia with extensive interest throughout New Zealand and Australia. Its business operations include activities like general merchandise, food, liquor, petrol and electronic goods. The diversity in the geographical location and environment of Australia provides many advantages for the industry.Woolworth’s market share has declined from a peak of $34.4billion in the year in comparison to September 2014. The biggest threat to Woolworths isthe growth of cut-price supermarkets such as Aldi. The large business in Australia and New Zealand has attained growth due to the Australia – New Zealand Closer Economic Relations Trade Agreement (ANZCERTA). Woolworths has a financial stability which can be developed from ratio analysis. Woolworths is one of the largest retail industries in the country and focus on the retention of customers.
3AuditContentsIntroduction...........................................................................................................................................................5Part 1 –Understanding Nature of the entity..........................................................................................................5Part 2 -Understanding the Industry.......................................................................................................................6a) Industry size...................................................................................................................................................6b) Industry growth.............................................................................................................................................6c) Industry supply chain.....................................................................................................................................6d) Major players................................................................................................................................................7e) Market shares of Industry players.................................................................................................................7f) Critical success factors....................................................................................................................................7g) Major threats.................................................................................................................................................7Part 3 –Understanding the legal environment......................................................................................................8Part 4 – Understanding external environmental factors.......................................................................................9a) PEST analysis..................................................................................................................................................9b) SWOT analysis.............................................................................................................................................10c) Porter’s five forces analysis..........................................................................................................................11d) Other external factors affecting the entity that you may consider include the general economic conditions, interest rates and availability of financing, and inflation or currency revaluation........................12Part 5 –Understand objectives, strategies and Assessing Business Risks.............................................................12a) Industry developments................................................................................................................................12b) New products and services..........................................................................................................................12c) Expansion of the business............................................................................................................................13d) New accounting requirements....................................................................................................................13e) Regulatory requirements.............................................................................................................................13f) Current and prospective financing requirements.........................................................................................13g) Use of IT.......................................................................................................................................................14h) The effects of implementing a strategy.......................................................................................................14Part 6 –Performing Analytical Procedures to understand Entity’s Performance.................................................14Analysis of Liquidity Ratio................................................................................................................................14Analysis of Profitability Ratio(Fridson and Alvarez, 2011)..............................................................................15Analysis of Efficiency Ratio..............................................................................................................................15Analysis of Capital Structure ratio (Daly, 2011)...............................................................................................16Analysis of Market Performance ratio.............................................................................................................17
4AuditPart 7 –Understand management and Governance............................................................................................17a) Communication and enforcement of integrity and ethical values...............................................................17b) Commitment to competence......................................................................................................................17c) Participation by those charged with governance.........................................................................................18d) Management’s philosophy and operating style..........................................................................................18e) Organizational structure..............................................................................................................................19f) Assignment of authority and responsibility..................................................................................................19g) Human resource policies and practices.......................................................................................................19Conclusion...........................................................................................................................................................20References:..........................................................................................................................................................21Appendices:.........................................................................................................................................................24
5AuditIntroductionThis assignment helps in understanding nature and industry of Woolworths. The organization businessoperations can be divided into major five segments and they are Supermarkets, General Merchandise,Hotels, Consumer Electronics and Wholesale. Pest, SWOT and Porter’s five forces analysis is carriedin order to develop an understanding about Woolworths. Woolworth’s objectives, strategies andBusiness Risks are also assessed in the organization. Ratio analysis is also undertaken to develop anunderstanding on the financial stability of the organization. The discussion on management andgovernance of the organization is also undertaken.Part 1 –Understanding Nature of the entity Woolworths Limited is a leading retail organization in Australia with extensive interest throughoutNew Zealand and Australia. Its business operations include activities like general merchandise, food,liquor, petrol and electronic goods. Woolworths carries its business operations through retailing, chainstore operations and also through hotel and other entertainment options. The organization businessoperations can be divided into major five segments and they are Supermarkets, General Merchandise,Hotels, Consumer Electronics and Wholesale. Woolworth’s business operations have set standardswhich directly have impact upon stakeholders, customers and various supply chain management.Woolworth’s business operations are recognizing for their quality goods and services in the world.Woolworths has remained at top position or near the position of top since the past years. The organization has opened various supermarkets in order to expand its business operations andattract new customers. Woolworths currently sets its capital structure for enhancing shareholder valuethrough optimizing its weighted average cost of capital while retaining flexibility to pursue growth andundertake capital management initiatives. Woolworths has targeted, achieved and maintained its strongcredit ratings. Woolworths has historically accessed a diverse range of debt funding sources, including
6Auditbank facilities (and this is all included in the financial reporting. The organization follows all thestandards in the financial reporting and all the investing and financing activities of the organization arestated in the cash flow statements with the notes as required (Alexander et. al., 2010). All the capitalexpenditure of the organization is shown in the investing activities of the organization.Part 2 -Understanding the Industry a) Industry size The food industry in Australia is complex. The diversity in the geographical location and environmentof Australia provides many advantages for the industry.The country has developed new technologiesin order to modernize breeding programs and management of farm. The food industry has 15% ofAustralia’s total employment. The food industry also contributes majorly in gross domestic product(GDP). Supermarkets and grocery stores have a growth rate at 62%.The retail sector of the country isthe second major sector which provides employment to 400 000 employees in 2010 – 2011b) Industry growth Woolworths registered an underlying net profit of $1.42 billion in 2016/17. Instead of difficultconditions South Africa and Australia, The business of Woolworths remain ahead in comparison to itscompetitors. Woolworth’s sales have increased by 8.6% throughout the period. The lower foodinflation in the country leads the Woolworths towards increase in volume growth as they focus onquality. c) Industry supply chain To manage its supply chain, Woolworths largest retailer of the country, has chosen TradeStone’sMerchandise Lifecycle Management platform in order to manage its supply chain. Woolworths workscollaboratively in all the departments in order to get a single product development system. This will

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