Business Risks of Woodside Petroleum

Running head: CORPORATE AUDITING
Corporate Auditing
Name of the Student:
Name of the University:
Author’s Note

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Table of Contents
Part 1................................................................................................................................................2
Difference in role of Auditor, Those Charged with Governance and Management....................2
Misconception Regarding the Role of an Auditor.......................................................................3
Reasons for Suspecting Errors in Revenue recognition principles..............................................4
Fraud Cases..................................................................................................................................5
Part 2................................................................................................................................................6
Business Risks of Woodside Petroleum Ltd................................................................................6
Analytical Procedures..................................................................................................................8
Inherent Risks of the Business.....................................................................................................8
Key Accounts and Assertions......................................................................................................9
Inherent risks Evaluation...........................................................................................................11
Planning Materiality..................................................................................................................11
Reference.......................................................................................................................................13
Appendix........................................................................................................................................15

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Part 1
To, Mrs. Williams
Audit Manager
Subject: Update Regarding the Risks of Audit and Role of Auditor
Respected Madam
I would like to update you with the risks which we are facing while conducting the
audit of the business and also regarding the facts which indicate that there might be fraudulent
activities in the operations of the business. Th provisions which are stated in ASA 240 makes it
clear that there is a difference in the responsibilities of the auditor and those charged with
governance and the management of the entity itself. All such parties have different role to play
which can ultimately lead to prevention and detection of frauds in a business.
Difference in role of Auditor, Those Charged with Governance and Management
The primary role of an auditor as stated by ASA 240 is to ensure that the financial
statements which is prepared by the management of the company is showing true and fair view
of the financial position of the business. The auditor provides reliance to the stakeholders by
assuring them whether the financial statements are appropriately presented or not and thus
guiding them to take appropriate decisions relating to the business (Auasb.gov.au. 2019).
However, if the auditor notices that there is a material misstatement resulting from fraud in a
business, then the same cannot be ignored even though it is not the primary responsibility of the
auditor. The provisions of ASA 200 make it clear that the auditor needs to consider the
implications of risks which are resulting from frauds especially management frauds (Griffiths
2016). The provisions of ASA 315 states that the auditor shall identify and assess the risks of

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material misstatement due to fraud at the financial report level. Hence. risk of not detecting the
material misstatement resulting from fraud is higher than the risk of not detecting due to error.
Furthermore, the auditor also needs to maintain an independent approach while conducting the
audit for the business and ensure that the judgement of the auditor is not clouded by anything.
The role of the management and those charge with governance is to ensure that the
financial statements are free from errors or is free from any fraudulent activities. The
management and those charged with governance also needs to realize that it is not the role of the
auditor to prepare or maintain the financial statements and rather it is their role (Chou 2015). In
addition to this, the management and those charged with governance also needs to understand
that the auditor is not an employee of the business and therefore independence of the auditor
while conducting audit for the business is crucial.
Misconception Regarding the Role of an Auditor
The auditor is an individual who conducts independent examination of the financial
statements in order to ensure whether the financial statements are free from material
misstatement or not. In a business or society, there is a misconception that the auditor is
appointed for the purpose of detecting frauds which might be taking place in the operations of
the business. However, this is not the case. The auditor is not responsible for detection of frauds
in the business and would only be concerned regarding the presence of any misstatement or
errors in the financial statement of the business. However, ASA 315 provides that if while
conducting audit procedures, the auditor suspects presence of fraud than he needs to apply more
audit procedures and assertions so that the presence of fraud can either be confirmed or denied.
The auditing standards which are implemented in the business environment needs to be followed
by the auditor while performing auditing procedures for a business. Another major

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misconception regarding the role of the auditor, is that the auditor is an employee of the business
(Drogalas et al. 2017). This is not the case as one of the fundamental principles which needs to
be followed by the auditor is the principle of independence while performing audit procedures in
a business. If independence principles are not maintained in auditing procedures than the quality
of the audit would be affected significantly.
The management of the company is responsible for ensuring that there is no frauds in the
business and also for setting up the internal control structure of the business. The auditor would
be just checking the financial statements and ensure that the annual reports are fairly presented
and all relevant disclosures are provided in the report.
Reasons for Suspecting Errors in Revenue recognition principles
The auditor of a business needs to follow appropriate audit procedures while conducting
the audit and the same needs to be done so that material audit evidences can be collected. The
auditor also needs to follow the principle of professional skepticism in a business so that
appropriate and sufficient audit evidences can be collected by the management of the company
while conducting the operations of the business (Czerney, Schmidt and Thompson 2014). The
reasons due to which an auditor suspects the presence of errors or frauds in the concept o
revenue recognition are listed below in details:
 The auditor might suspect that a revenue has been overstated in the financial statement
which can have an impact on the operations of the business. In certain cases, the auditor
of the business might also might suspect that the assets which are shown in the financial
statements are fictitious in nature and therefore, there is a high probability of fraud in the
operations of the business.

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 Another reason due to which the auditor might consider presence of fraud in the revenue
recognition criteria of a business is when the auditor notices that there is a weakness in
the internal control system or there is an opportunity for the management of the company
to engage in unethical practices in business. There are many cases where the management
have the opportunity to engage in fraud and this causes maximum cases of such scandals.
It is therefore for this reason that the auditor needs to appropriate be skeptic of the
situation.
 In case, the revenue related transactions of a business are complex in nature then the
auditor needs to provide special attention to the same as there might be a appropriate
opportunity for the management of the company to engage in fraudulent activities.
Fraud Cases
There have been various scandals which have affected the field of accounting and shaken
the business environment drastically and most of these cases are related to misappropriation of
revenue or cooking of profits in the financial statements of the business. Some of the cases are
discussed below in details:
Enron Case
One of the most significant scandal which affected the USA and shook its financial
markets was the Enron Scandal which not only questioned the accounting practices which was
followed in a business but also affected the integrity of the profession of Audit. It was discovered
in 2001 that the senior executives of the company had been making use of the accounting
loopholes to show favorable financial position of the business (Eckhaus and Sheaffer 2018). The
company had systematically covered up billions of dollars’ worth of losses in order to depict a
positive financial performance of the business. The auditing partners of the company Anderson

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was also pressurized to show that the policies of the company were appropriate and all things
were perfect. When the scandal was exposed, the share price of the company fell rapidly and it
ultimately resulted in bankruptcy of the company (Dibra 2016). Legal action was taken against
the CEO of the company and also the auditing firm for their hand in the scandal.
Bernie Madoff scandal (2002)
The Bernie Madoff scandal is also known far and wide which was considered to be one
of the biggest Ponzi scandal in the history. Bernie Madoff was a stock broker and operated in the
region of United states. The stockbroker had tricked the investors several times over the years
and it was discovered after the financial crisis that Bernie Madoff had accumulated around $ 64.8
billion from tricking the investors. In this case as well, it can be seen that the revenue of the
business has been affected by the unethical practices which resulted in fraud which was
discovered after the financial crisis of 2008.
Part 2
Business Risks of Woodside Petroleum Ltd
The company which is selected for this part Woodside petroleum ltd which is considered
to be one of largest oil and gas company operating in Australia with a global portfolio
(Annualreports.com. 2019). The annual report for the business is considered for estimating the
performance of the business during the period. Some of the business risks which have been
identified are listed below in details:
 Fluctuation in Oil Prices: The prices of oil have fluctuated significantly at the start of
the years which can affect the operations of the business. The main source of revenue for
Woodside petroleum ltd is oil and therefore, it is obvious that if the prices of oil

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fluctuates than the profit margin of the company would be affected. The annual report for
2016 shows that the prices of oil had significantly fallen and it was almost 20% below
last years prices. Therefore, this can be considered to a major risk for the business as it
directly impacts the revenue and profits of the business. Increase in debts: Another major factor which can affect the profitability and also
enhance the risks of the business is the increase in debts of the business. The annual
report of the business shows that the management has focused on acquiring more oil
fields and businesses and therefore a lot of capital was required. The business was able
to finance such operations by increasing the debts of the business. Increase in debts also
means an increase in the finance costs of the business which is clearly shown in the
income statement of 2016. Governmental Policies: The governmental policies also play a vital role and can affect
the revenue which is generated by the business. As per the annual report of Woodside
petroleum ltd for the year 2016, the government has introduced regulations and has also
decided to review the oil industry as there has been a serious decline in the revenue of the
business (DeZoort and Harrison 2018). The investments which are made on such
industries have also not been fruitful and returns after obtained after a long wait. Inflation: Another important factor which affects the revenue of the business is the
inflationary pressure in the country. Due to the effects of inflation, the factor costs have
increased significantly such a labour costs, material costs which directly impacts the
revenue of the business. In the case of Woodside petroleum ltd, the economy of Australia
faces a cyclical rise in prices which has affected the revenue made by the business.

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Analytical Procedures
Analytical procedures are one of the techniques which is used by the auditor for checking
the accuracy of the financial statement of the business. The auditor also is able to notice the
changes in items which are presented in the financial statement so that he can apply appropriate
audit procedures for the same. The techniques which are used for the analysis in the case of
Woodside petroleum ltd is ratio analysis where key financial ratios of the company are
ascertained and horizontal analysis which would allow the auditor to review the changes in the
items of the financial statements in comparison to previous year. The cash balance of the
business shows a tremendous increase from 2015 which needs to be invested by the auditor of
the business. In addition to this, the net profit of the business has increased significant which is
clear from the net profit ratio shown in the ratio analysis depicted in the appendix. The auditor
also needs to check the assets of the business as the same shows significant increase in 2016 in
comparison to previous years estimate (Guiral, Guillamon Saorin and Blanco 2014). The analysis
shows that the auditor of the company needs to apply appropriate audit procedures in order to
ensure that the financial statements are showing true and fair view of the financial position of the
business.
Inherent Risks of the Business
The inherent risks are the risks which arises when there is an error or omission of
appropriate information in the financial statement of the business. The analysis of Woodside
petroleum ltd reveals certain inherent risks which are faced by the business and the same are
discussed below in details:
 Cost of operations: The revenue of Woodside petroleum ltd is shown to be have decreased
significantly from previous year but the profits of the business has increased significantly.

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This means that the business has reduced the costs of operations (Bennett and Hatfield
2017). The audit needs to check the expenses of the business and ensure whether the same
has been presented in appropriate manner. There is chance that the expenses are portrayed
to be lower in order to show favorable income statement.
 Exploration and Evaluation assets: The exploration and evaluation assets show material
value in the financial statements of the business. The auditor needs to check if the same is
genuine or not. The auditor needs to apply audit assertion so that it can be confirmed or
denied that the items are showing true and fair view.
 Contingent Liabilities: The annual report of Woodside petroleum ltd shows that the
business has contingent liabilities and the same is shown in the notes to account section of
the financial statements (Hatfield 2014). The auditor needs to check the actual liability in
such a situation and whether the same poses any threats to the operations of the business or
not.
 Long term debts: The long-term debts of the business is shown to have changed in
comparison to previous year and the auditor needs to ascertain if the same is the actual case
or not and also needs to conduct audit procedures to confirm or deny the suspicions of the
auditor.
Key Accounts and Assertions
Account Name Assertion Audit procedure
Cost of Operations The auditor needs to check
the assertion of completeness
and ensure that expenses
relate to the current years
The auditor needs to apply
vouching practices to
different expenses such as
wages, cost of sales, taxes

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have been recorded in the
financial statement of the
business.
and finance expenses
(Knechel and Salterio 2016).
The auditor needs to check all
day books and invoices and
receipts so that appropriate
evidences can be obtained
from the same.
Exploration and Evaluation
assets
The auditor needs to check
the validity of assertion of
valuation so that the auditor
can determine if the asset is
showing correct value in the
financial statement of the
business.
The auditor needs to apply
verification procedures and
also check the valuation
process which is adopted by
the business (Bumgarner and
Vasarhelyi 2018). If there is
still confusion regarding the
valuation of the asset that
help of an expert can also be
taken.
Contingent Liabilities The auditor of the business
needs to check the assertion
of existence so that it can be
ascertain the level of risks
which is faced by the
business.
The auditor needs to check
the existence of the
contingent liability and the
risks which the same poses. If
the contingent liability poses
a threat than the same needs

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to be recorded in the financial
statement of the business.
Long term debts The auditor in this case needs
to check the assertion of
existence and ensure that the
business has actually taken a
debt or not.
The auditor can opt for
external confirmation from
the creditors or banks so that
existence of debts can be
confirmed (Kharisova and
Kozlova 2014).
Inherent risks Evaluation
The inherent risks posses a serious threat to the process of audit and effective
consideration should be provided to process of audit so that audit procedures can be conducted
for reducing the inherent risks of the business. The auditor needs to pan effectively for the
inherent risks and choose appropriate samples based on planning materiality estimates so that the
overall audit risks of the business can be lowered.
Planning Materiality
The computation of planning materiality depends on the judgement of the auditor and the
percentage which is used for determining the planning materiality also depends on the judgement
of the auditor (Eilifsen and Messier Jr 2014). The business of Woodside petroleum ltd shows that
the most material figure presented in the balance sheet of the company is total assets and the
same is considered to be the base for computing the planning materiality of the business. The
percentage which is considered is 5% of the value of total assets. The computation of planning
materiality is shown below:

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¿ Total Assets × Percentage
¿ $ 24,753× 5 %
¿ 1,237.65 million
The planning materiality is shown to be high in the above equation and it also indicates
that the detection risk of the business would be low as the control risks is high and the same is
estimated due to Audit risk model.

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Reference
Annualreports.com. (2019). Woodside Petroleum Limited - AnnualReports.com. [online]
Available at: http://www.annualreports.com/Company/Woodside-Petroleum-Limited [Accessed
1 Sep. 2019].
Auasb.gov.au. (2019). [online] Available at:
https://www.auasb.gov.au/admin/file/content102/c3/ASA_240_Compiled_2015.pdf [Accessed 1
Sep. 2019].
Bennett, G.B. and Hatfield, R.C., 2017. Do approaching deadlines influence auditors' materiality
assessments?. Auditing: A Journal of Practice & Theory, 36(4), pp.29-48.
Bumgarner, N. and Vasarhelyi, M.A., 2018. Continuous auditing—A new view. In Continuous
Auditing: Theory and Application (pp. 7-51). Emerald Publishing Limited.
Chou, D.C., 2015. Cloud computing risk and audit issues. Computer Standards & Interfaces, 42,
pp.137-142.
Czerney, K., Schmidt, J.J. and Thompson, A.M., 2014. Does auditor explanatory language in
unqualified audit reports indicate increased financial misstatement risk?. The Accounting
Review, 89(6), pp.2115-2149.

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DeZoort, F.T. and Harrison, P.D., 2018. Understanding auditors’ sense of responsibility for
detecting fraud within organizations. Journal of Business Ethics, 149(4), pp.857-874.
Dibra, R., 2016. Corporate Governance failure: the case of Enron and Parmalat. European
Scientific Journal, 12(16).
Drogalas, G., Pazarskis, M., Anagnostopoulou, E. and Papachristou, A., 2017. The effect of
internal audit effectiveness, auditor responsibility and training in fraud detection. Accounting
and Management Information Systems, 16(4), pp.434-454.
Eckhaus, E. and Sheaffer, Z., 2018. Managerial hubris detection: the case of Enron. Risk
Management, 20(4), pp.304-325.
Eilifsen, A. and Messier Jr, W.F., 2014. Materiality guidance of the major public accounting
firms. Auditing: A Journal of Practice & Theory, 34(2), pp.3-26.
Griffiths, P., 2016. Risk-based auditing. Routledge.
Guiral, A., Guillamon Saorin, E. and Blanco, B., 2014. Are Auditor Opinions on Internal Control
Effectiveness Influenced by Corporate Social Responsibility?. Available at SSRN 2485733.
Hatfield, R., 2014. Do approaching deadlines influence auditors’ materiality assessments and
audit sampling decisions. Prieiga per https://www. business. unsw. edu. au/About-Site/Schools-
Site/Accounting-Site/Documents.
Kharisova, F.I. and Kozlova, N.N., 2014. Applying the category of «Assertions (or
preconditions)» In audit of financial statement. Mediterranean journal of social sciences, 5(24),
p.180.
Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Routledge.

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Appendix
BALANCE SHEET
2016 2015
PARTICULARS
AMOUNT
($m)
AMOUNT
($m)
Chan
ge
Percentage
Change
Current Assets
Cash and cash equivalent 285 122 163 57%
Recievables 446 489 -43 -10%
Inventories 149 170 -21 -14%
Tax Recievables 2 106 -104 -5200%
Other Assets 18 47 -29 -161%
Disposal group held for sale 145 -145
Total Current Asset 900 1079 -179 -20%
Non-current Assets
Recievables 172 93 79 46%
Inventories 5 19 -14 -280%
Other Financial Assets 30 30 0 0%
Other assets 8 8 0 0%
Exploration and Evaluation Asset 3228 2528 700 22%
Oil and gas properties 19,376 19,236 140 1%
Other plant and equipment 69 76 -7 -10%
Deffered Tax Assets 965 770 195 20%
Total non-current assets 23853 22,760 1093 5%
Total Assets 24,753 23,839 914 4%
Current Liabilities
Payables 546 813 -267 -49%
Interest bearing liabilities 76 77 -1 -1%
Oither financial liabilities 17 1 16 94%

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Other liabilities 31 42 -11 -35%
Provisions 202 215 -13 -6%
Tax Paybales 91 91 100%
Liabilities associated with disposable group
held for sale 156 -156
Total current liabilities 963 1304 -341 -35%
Non-current Liabilites
Interest bearing liabilities 4897 4364 533 11%
Deferred tax liabilities 1578 1390 188 12%
Other financial liabilities 20 11 9 45%
Other liabilities 72 92 -20 -28%
Provisons 1561 1653 -92 -6%
Total current liabilities 8128 7510 618 8%
Total Liabilities 9091 8814 277 3%
Net Assets 15662 15025 637 4%
Equity
issued and fully paid share 6919 6547 372 5%
Share reserved for employee share plan -30 -27 -3 10%
Other Reserve 979 963 16 2%
Retained Earnings 6971 6743 228 3%
Equity attributable to equity holders of the
parent 14,839 14226 613 4%
Non-controlling interst 823 799 24 3%
Total equity 15662 15025 637 4%
Income Statement
2016 2015
Particulars Amount($m) Amount ($m) Change Percentage Change
Operating Revenue 4,075 5,030 -955 -23%
Cost of Sales -2234 -3073 839 -38%
Gross Profit 1841 1957 -116 -6%
Other Income 61 31 30 49%
Profit before tax and net finance cost 1388 441 947 68%
Finance Income 8 4 4 50%
Finance Cost -56 -89 33 -59%
Profit before tax 1340 356 984 73%
Petroleum resource rent tax 177 -131 308 174%
Income tax expense -544 -112 -432 79%
Profit aftert tax 973 113 860 88%

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Profit attributable to
Equity holder of the parent 868 26 842 97%
Non-comntrolling interest 105 87 18 17%
Profit for the year 973 113 860 88%
Ratio Analysis
RATIO ANALYSIS
2016 2015
Profitability Ratio
Net profit Margin 24% 2%
Gross Profit Margin 45% 39%
Liquidity Ratio
Current Ratio 0.934579439 0.827453988
Quick Ratio 0.929387331 0.812883436
Efficiency Ratio
Inventory Turnover Ratio 25.54858934 29.58823529
Debtors Turnover Ratio 9.1367713 10.28629857
Average Inventory 159.5 170
Solvency Ratio
Debt Equity Ratio 0.580449496 0.586622296
Equity Ratio 0.632731386 0.630269726