Impact of AASB 16 Standards on Woolworths Group Limited

Impact of AASB 16 Standards on Woolworths Group Limited 1
Impact of AASB 16 Standards on Woolworths Group Limited
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Impact of AASB 16 Standards on Woolworths Group Limited 2
Introduction
Woolworths Group Limited is the second largest company in Australia and also the
largest retailer in both Australia and New Zealand. The company was founded in 1924 and has
since been expanding to the giant retailer it is now. Woolworths Group Limited has average
revenue of $ 55.6 billion according to their annual company report. The company serves an
impeccable number of customers, averaging at 29 million customers served per week. It is also
one of the largest employers within the region employing an approximate of 200,000 employees
which helps in reducing the percentage of unemployed individuals (Parkinson, 2018, P. 7).
Woolworths Group Limited is made up of five different retailers owed by the group company.
These retailers include Australian Food, New Zealand Food, Endeavour Drinks, BIG W and
Hotels. Woolworths Group Limited is also one of the largest tax payers within the country,
contributing an average of $661 million per annum (Merrett, 2019, P. 11). Woolworths Group
Limited has 3,240 stores distributed across Australia and New Zealand in order to serve its
customers with convenience at various locations. Woolworths Group Limited being an
Australian company has to adhere to the standards and regulations set out by the regulatory
bodies and government policy within the country (WoolworthsGroup, 2018, P. 19). Previously
the accounting standard regarding leases was the AASB 17 standard but due to reviews in the
policy a new accounting standard has been formulated. The AASB 16 accounting standard was
defined by the Australian Accounting Standards Board (AASB) and started implementation on
1st January 2019. The new accounting standard entails the definition of a lease and how a lease
will be recorded on the financial statements. The accounting standard defines a lease as a
contract that gives a certain company the right to use a particular facility for a defined period of
time. Retail companies such as Woolworths Group Limited have large numbers of leases that
start and terminate at different periods and are expected to be some of the most impacted
companies by the new AASB 16 accounting standards (Mitchell, 2017, P. 8). The standard
requires that all leases except short term leases and low value leases are recorded on the balance
sheets. Previously not all assets were required to appear on the balance sheets until the
commencement of the AASB 16 accounting standards. The requirement for all assets except for
the previously mentioned will change the dynamics of financial statements and public outlook on
companies. Companies with a large amount of long term and expensive leases are expected to be
the most affected as the figures will appear on the financial statements as liabilities. This will in
turn affect the profit ratios on the balance sheets. This study paper will analyze the impact of the
AASB 16 accounting standards on Australian companies with an interest on the Woolworths
Group Limited company.
Research Problem
Companies and more specifically publically listed companies have to be accountable and
transparent to their shareholders and investors. Some of the ways governments and regulatory
bodies enforce accountability is by enacting accounting standards. Accounting standards are
some of the regulations that ensure transparency of companies. An accounting standard can be
referred to as a common set of rules or principals and procedures which are adopted by a
company for designing their financial accounting policies and practices (Bari, et al, 2019, P. 15).
These standards are used in order to ensure all companies use a similar process of doing their
accounts making it easier for any person to understand the financial records of different

Impact of AASB 16 Standards on Woolworths Group Limited 3
companies without having to learn new standards with each company. The accounting standards
are used to increase the transparency of companies while producing their financial papers to the
public. In Australia, the Australian Accounting Standards Board (AASB) is in charge of setting
and defining accounting standards within the country. A new accounting standard was defined by
the Australian Accounting Standards Board (AASB) in response to international standards
(Hannoudi, 2015, P. 9). This new accounting standard is known as the AASB 16 and starts being
implemented from 1st January of 2019 (Trotman and Carson, 2018, P. 13). The AASB 16
accounting standard deals with the definition and handling of leases in accounting and financial
statements. The new standards force all companies to list their operating leases in the assets and
liabilities section of accounting financial statements. The new standards are expected to have an
effect on Australian companies such as the largest retailer in the country, Woolworths group
Limited. This study paper is aimed at investigating the expected impact of the new AASB 16
accounting standards on Woolworths Group Limited.
Research Questions
This section of the study will define the questions that the paper aims at answering and
providing more information on. Research questions come before a research is conducted. The
author comes up with research questions which need to be answered and hence give the research
a purpose and goal. The research questions are divided into primary and secondary research
questions (Joubert, Garvie and Parle, 2017, P. 20).
Primary research question
The primary research question is the main purpose of the research paper. In conducting the
appropriate research the author aims to correctly answer the primary question while
understanding the reason for the answer. Below is the study paper’s primary research question
1. What are the expected impacts of the AASB 16 accounting standards on Woolworths
Group limited Company?
Secondary questions
The secondary research questions are other questions the study aims at answering apart from the
primary question. The secondary questions are in support of better understanding the bigger
picture and other elements of the study (Brumm and Liu, 2019, P. 7). Below are the secondary
questions.
1. Will the new AASB 16 accounting standards benefit or disadvantage Woolworths Group
limited Company?
2. Are the new AASB 16 accounting standards more effective than the previous accounting
standards in achieving transparency?