Auditing theory and practice Assignment PDF

RUNNING HEAD: AUDITING THEORY AND PRACTICE
COMPLIANCE AND RISK MANAGEMENT

Auditing theory and practice 1
Executive summary
In this report, discussion on the audit compliance and risk assessment of the Australian
Major retail Woolworths Company has been analyzed. It is dealing with the Compliance to the
ASX CGC principals and audit risk assessment procedure which need to be assessed for the
better compliance in this report. In the starting of this report, Woolworth Company has been
taken to prepare the report on the CGC principals, audit risk assessment and financial
performance of company. After that inherent risk of the company has also been analyzed.

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Contents
Introduction.................................................................................................................................................3
ASX CGC Principles.......................................................................................................................................3
Lay solid foundations for management and oversight.................................................................................3
Structure the board to add value.................................................................................................................4
Act ethically and responsibly.......................................................................................................................4
Safeguard integrity in corporate reporting..................................................................................................4
Make timely and balanced disclosure..........................................................................................................5
Respect the rights of security holders.........................................................................................................5
Recognize and manage risk.........................................................................................................................5
Remunerate fairly and responsibly..............................................................................................................5
Risk Assessment...........................................................................................................................................5
Recognizing the nature................................................................................................................................5
Market overview.........................................................................................................................................5
Woolworth’s strategy..................................................................................................................................5
Computation of ratios..................................................................................................................................5
Income statement ratios.............................................................................................................................5
Balance sheet ratios.....................................................................................................................................6
Relevant audit risk.......................................................................................................................................6
Ways to reduce the risk...............................................................................................................................6

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Conclusion...................................................................................................................................................7
References...................................................................................................................................................8

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Introduction
With the ramified economic changes and complex busienss structure, each and every company
needs to prepare the strategic planning and comply with the CGC principals and auditing
standards to strengthen the reporting framework and reduce the inherent risk. In this report,
Woolworths Company has been taken. It is a Major retailer company which has been operating
in Australia. Woolworths is public listed company and complying with the legal and
international corporate governance and CGC principals and audit risk assessment has also been
undertake by company to strengthen the financial performance on international level
(Woolworthsgroup.com.au. 2017).
ASX CGC Principles
The ASX CGC principals and audit risk program accompanied with the several rules,
regulations, and system work program which is controlled and exercised within a corporation. It
lay down the principles which needs to be complied by the all the listed companies. . It lay down
some principles which are required to be complied by every ASX listed company. In the annual
report of the company, Woolworths needs to reveals the following facts.
 As per the ASX CGC principals and audit risk assurance program, all the roles and liabilities of
the directors and managers will be disclosed.
 Company needs to hire at least 1/3rd independent directors in the board of the directors
composition.
 All the ethical and legal compliance of ASX CGC principals and audit risk assessment assurance
program will be disclosed.
 All the integrity with the legal compliance and transparent busienss structure will be followed.
 Woolworths will timely disclose its material information on its Website or by legal notice to
stakeholders to avoid the possible insider trading.
 All the stakeholders will be having right to raise their concern in the General meeting.
 Timely review of the financial reporting of the company is done as per the ASX CGC principals
and audit risk assessment process.

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 Woolworth is liable to pay fair remuneration to its directors and must retain high quality
executives in the business according to the CGC principles (Asx.com.au. 2014).
All the key policies and legal compliance by the Woolworth would be disclosed in the financial
reporting in 2017..
There are several ASX CGC principals and audit risk assessment assurance program which are
applied on the Woolworths.
Lay solid foundations for management and oversight
All the roles and responsibilities of the directors and mangers of the Woolworths will be
disclosed in the governance statement of the Company. It includes their rights, responsibilities,
roles and strategic performance which company and all the key managerial persons needs to
comply.
The legal compliance statement comprised of the following information.
 Implemented strategic policies.
 Annual budget, financial performance and legal compliance work program of the Key
managerial person.
 Process of the individuals and directors work programs of the directors.
 Performance evaluation of the CEO and board of directors.
 Future program and strategic planning of the Key managerial person.
 Monitoring of the performance of the company and evaluating the future performance.
 Strategic alliance and forested data based on the trend.
These all the roles and responsibilities which needs to be complied by Board of directors of the
Woolworths will be shown in the corporate governance statement for making the financial
statement more transparent (Woolworthsgroup.com.au. 2018). These roles and responsibilities
will also be disclosed in the books of account of the company which will eventually assists in
meeting the legal and corporate liabilities of company (Wingard, Bosman, and Amisi, 2016).

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Structure the board to add value
Board structure
It has majority of the executive directors however 5 out of 12 directors are the independent
directors.
Skills and composition of Board
All the directors of the Woolworths have several skills, background and qualification which they
deploy in the strategic decisions and legal compliance program of the company. They use their
divergent thinking to expand the business and takes effective decision. The key skills and
quality work intents of the directors includes following details (Wingard, Bosman, and Amisi,
2016).
 Market knowledge and merchandise knowledge which enhances practical implication of the
formulated strategies of Company.
 Set objective norms and goals based on each other’s.
 CSR implication and strategic work program to enhance the company.
 Adopt the advance technologies and emergent technologies which could enhance the overall
outcomes.
 Implement the risk assessment program (Woolworthsgroup.com.au. 2018).
Act ethically and responsibly
Woolworths Company has been working ethically and implements the proper code of the
conduct.
 Setting code of conducts for employees.
 Legal compliance and liabilities.
Code of the Conduct of the Company applied on the all the employees which will be followed by
them to increase the legal liabilities. The code of the conducts covers all the honesty, integrity,
ethical consideration, and legal compliance which needs to be complied by all the employees.

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Safeguard integrity in corporate reporting
It is analyzed that the audit risk management committee is framed and accustomed to act as per
the directions and instructions of the Michael Ulmer. The committee comprise of the three
directors and major independents. He is mainly responsible for the integrity of financial
reporting. The audit committee ensures that whether company is complying with the legal
policies and regulations (Woolworthsgroup.com.au. 2018).
Make timely and balanced disclosure
There need to be proper disclosures of the imperative information to stakeholders with a view to
prevent the insider trading. It is required to implement the proper disclosure policies and
complying with the listing rules and standards. Woolworths has been complying with the legal
and listing rules and regulations to strengthen the disclosure requirement.
Respect the rights of security holders
Company needs to comply with the shareholders requirements to make the busienss more
effective. Woolworths has complied with the several listing rules and corporate governance
program to strengthen the disclosure requirement. Company has displayed the compliance of its
ASX CGC principals and audit risk assessment with a view to make timely disclosure. The
investor relation program and work functions also increase the communication with the investor,
media and other stakeholders (Kaya, and Koch, 2015).
Recognize and manage risk
Woolworths has been running international busienss and it has to comply with the
international rules and regulation. The business of Woolworth is more exposed to the
transactions and transactions risk due to its international business functioning and foreign
exchange risk. These business risk and compliance risk issues could be mitigated by following
methods such as Performance evaluation of the CEO and board of directors., future program and
strategic planning of the Key managerial person, Monitoring of the performance of the company
and evaluating the future performance and implementing the strategic alliance and forested data
based on the trend (Newberry, and Ram, 2015).

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Remunerate fairly and responsibly
Woolworths Company has set up remuneration committee which will be handling all salary and
remuneration process to employees in effective manner. This committee analyses all the factors
which might impact the employee’s motivation and competitive work program.
(Woolworthsgroup.com.au. 2018).
Risk Assessment
Recognizing the nature
Woolworths Company has been running its business on international level. It minimizes the
prices and increases the quality of the products. The group of committee’s increases the set
targets and goals which increases the overall The Company mainly focuses on the minimization
of prices and increasing the quality of the products to increase the client’s satisfaction at large.
The supply chain management of the company is also more client oriented (Reuters.com. 2018).
Market overview
After analyzing the market factors, it is observed that Deloitte report, Australian retail market has
suggested in its report that company has been expanding its busienss by tapping new markets.
Company has strong growth due to the less legal implication and effective busienss functioning.
The main competitors of the Woolworth are Wesfarmers and Tesco Company which has been
running its business on international level. Woolworths has won the core competency in the
retail business by offering advance technical services (Deloitte Australia. 2017).
Woolworth’s strategy
Woolworth has followed mainly two strategies to win over the market, with the ramified
changes in its business and international risk, company has reduced its overall cost of capital by
increasing the debt portion. In addition to this, cost leadership and product differentiation
strategy have also been followed by Woolworths to win over the rivals in business. Company
swaps its experienced employees in its new outlet to create value and add value to the client’s
shopping experience. The strong brand image and developed strategic program have been
followed by Company to expand its business on domestic and international level. After analyzing

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all the factors and strategic program of the company, it could be inferred that proper strategic
program will increase the overall outcomes of the business.
Computation of ratios
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).
This ratio has shown that company has good amount of gross margin which will assist
organization to grow effectively in long run (Kvaal, 2017).
Balance sheet ratios
Current ratio Current Assets / Current liabilities 0.79
Quick ratio Quick Assets / Current liabilities 0.29
Debt-equity ratio Debt / Equity 32%

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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).
The effective strategic program of the Woolworth has shown that company has been reduced it
cost of capital by inducing less capital in business (Öztürk, and Serçemeli, 2016).
Relevant audit risk
With the international business expansion and complex business structure, the management of
the Woolworths has to face several risks such as inherent risk, detection risk and control risk
which could be faced by company. The company exposed to inherent risk due to less cash
balance reduced profit. The inherent risk arises due to mistakes and errors in the reporting
framework. The Net present value of the company is 3% only (Collis, Jarvis, and Skerratt,
2017).
Ways to reduce the risk
There are various risks which have been faced by Woolworths Company due to its international
business and legal compliance. The one way is to reduce these risks is to set up strong
harmonization in the auditing standards and legal compliance. These risks are inherent in

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business and could be reduced by company by following proper work program in determined
approach (Ball, 2016).
Another way is to improve the internal control system by setting the strong compliance and
quality test work process in its value chain activities. The internal control system and double
check process in Woolworths will avoid the possible inherent risk which could be avoided by
company by the proper check. It will also save company from the several losses in long run.
In addition to this, financial reporting of the company should also be done on the basis of
international rules and regulations. It has assessed proper auditor risk program and implemented
strategies which will help company to set up proper harmonization in the reporting framework
with the domestic rules and international rules and regulation (Morris, 2017).
Conclusion
After analyzing the annual report of the company, it is observed that Woolworths has
complied with all the legal ASX CGC principals and audit risk assessment. Company has
prepared its financial statement by complying with the eight CGC principals and audit principles.
However, company has to face transactional and transaction risk due to its international business.
In addition to this, performance risks of the business have also been assessed by calculating the
ratio analysis. It reflects that company has average risk which might impact the business in long
run if not minimized in timely basis. This strategic program and effective compliance program
has shown that company has followed the proper strategic program to reduce the legal an ethical
compliance in effective manner. Now in the end, it could be inferred that Woolworths has kept
its business more transparent which will eventually increase the ethical and legal compliance.

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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 16th April 2018].
Ball, R., 2016. IFRS–10 years later. Accounting and Business Research, 46(5), pp.545-571.
Collis, J., Jarvis, R. and Skerratt, L., 2017. The role and current status of IFRS in the completion
of national accounting rules–Evidence from the UK. Accounting in Europe, 14(1-2), pp.235-247.
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 16th April 2018].
Financials.morningstar.com. (2018). Balance Sheet for Woolworths Group Ltd (WOLWF)
[Online] Available at: http://financials.morningstar.com/balance-sheet/bs.html?
t=WOLWF&region=usa&culture=en-US [Accessed 16th April 2018].
Financials.morningstar.com. (2018). Income Statement for Woolworths Group Ltd (WOLWF)
[Online] Available at: http://financials.morningstar.com/income-statement/is.html?
t=WOLWF&region=usa&culture=en-US [Accessed 29 April 2018].
Kaya, D. and Koch, M., 2015. Countries’ adoption of the International Financial Reporting
Standard for Small and Medium-sized Entities (IFRS for SMEs)–early empirical
evidence. Accounting and Business Research, 45(1), pp.93-120.
Kvaal, E., 2017. The role and current status of IFRS in the completion of national accounting
rules–Evidence from Norway. Accounting in Europe, 14(1-2), pp.150-157.
Morris, R.D., 2017. Discussion of: The Phoenix Rises: The Australian Accounting Standards
Board and IFRS Adoption. Journal of International Accounting Research, 16(2), pp.155-157.

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Newberry, S. and Ram, R., 2015. Understanding complexities in international accounting
standard setting: agenda entry and the case of IFRS for SMEs.
Öztürk, M. and Serçemeli, M., 2016. Impact of New Standard" IFRS 16 Leases" on Statement of
Financial Position and Key Ratios: A Case Study on an Airline Company in Turkey. Business
and Economics Research Journal, 7(4), p.143.
Reuters.com. (2018). Woolworths Group Ltd (WOW.AX). [Online] Available at:
https://www.reuters.com/finance/stocks/overview/WOW.AX [Accessed 16th April 2018].
Wingard, C., Bosman, J. and Amisi, B., 2016. The legitimacy of IFRS: An assessment of the
influences on the due process of standard-setting. Meditari Accountancy Research, 24(1),
pp.134-156.
Woolworthsgroup.com.au. (2017). Annual Report. [Online] Available at:
https://www.woolworthsgroup.com.au/icms_docs/188795_annual-report-2017.pdf [Accessed
16th 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 16th April 2018].