Auditing Practices: Analysis of Woolworths Ltd and Risks Faced

This presentation analyzes the business of Woolworths Ltd, its risks, financial ratios, and sampling plan for testing accounts.

AUDITNG PRACTICES

Introduction
• The main purpose of the presentation is to analyse the business of
Woolworths Ltd which is engaged in the business of providing
different varieties of products in Australia.
• The presentation would be analysing different risks which is faced by
the business from the perspective of audit.
• The presentation would be computing appropriate financial ratios
which can show the performance of the business over the past three
years.
• The presentation would also be covering a sampling plan for testing
each of the accounts which are identified from the financial
statements.

• The company which is selected for
this presentation is Woolworths ltd
which operates in chain of
supermarket and the same is
considered to be the leading
supermarket of Australia.
• The annual report of the company
shows that the business is serving
around 29 million customers on a
weekly basis on an average. This
shows that the industry is growing
one and it is anticipated to grow
even more in future years.

Different Types of Business Risks
• Competitive Pressure: The industry of supermarket is competitive
in nature as Woolworth ltd has a close competitor Coles Group which
is also performing appropriately which makes the market divided.
• Liquidity Conditions: This is another major risk which is faced by
the business which relates to the inability of the business to collect
necessary funds from the market so as finance different projects.
• Regulation and Government Regulations: The business also
faces risks which is associated with change in regulations of the
business. In many cases, the business enters into tie up agreements
with other organization.

Audit Risk Model
Account Name Audit Risks (AR) Inherent Risk (IR) Control Risk (CR) Detection Risk
(DR)
Requirement of
Evidences
Sales Revenue High High (90%) High (95%) Low High
Costs of Sales High High (85%) High (80%) Low High
Inventory High Low (40%) Moderate Moderate Moderate
Borrowings High Low (30%) Moderate Moderate Moderate

Analytical Review of the Business
• The key financial ratios are analyzed for
ascertaining the accuracy of the financial
information of the business.
• The profitability of the business effectively shows
that the business has improved significantly in
terms of generation of profits in comparison to
previous year estimate.
• The debtor policy of the business also shows
changes as the estimate which is computed above
has declined in comparison to previous year
estimate.
• The liquidity ratio of the business is represented by
current ratio, quick ratio and gearing ratio. The
current ratio and quick ratio of the business shows
significant decline and the same is shown to be
below 1 which means that the current liabilities of
the business are much more than the current
assets of the business

Estimation of Planning Materiality
• The process of auditing involves estimation of materiality
which is an integral part of the audit process of the
business
• In other words, an item which is represented in the financial
statement would be considered to be material if
misstatement of the same can affect the financial position
of the business

Planning Materiality
• In the case of Woolworths ltd, percentage which is used for
computing planning materiality is considered to be 5%
while the item which is considered for the base would be
total asset figure.
• The computation of planning materiality is shown below:

Audit Risks and Assertion
• The audit risks and assertions which are related to different accounts are:
• Cash and Cash Equivalents
• Inventories
• Other Financial Assets
• Property, Plant and Equipment
• Intangible Assets
• Trade and Other Payables
• Provisions
• Current Tax payable
• Borrowings
• Retained Earnings

Thanking You