Impact of AASB 16 Standards on Woolworths Group Limited

This study analyzes the impact of the AASB 16 accounting standards on Woolworths Group Limited, the largest retailer in Australia. It examines how the new standards affect the company's financial statements and profit ratios.

Impact of AASB 16 Standards on Woolworths Group Limited 1
Impact of AASB 16 Standards on Woolworths Group Limited
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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?

Impact of AASB 16 Standards on Woolworths Group Limited 4
Limitations of the Study
This section of the study paper will highlight the limitations encountered while
conducting the research. The section will also cover the disadvantages of the study methodology
or any factor that could lead to less than perfect results.
One of the major limitations of the research paper is that it will not implement first-hand
information from interviews and questionnaires. Primary research is often more difficult and
time consuming in comparison to secondary research which this paper will implement. Primary
research, however, provides first-hand information that is the most credible information. Another
limitation to the study is that the subject of the study is a new accounting standard that started
implementation at the beginning of the year. This means that available credible information on
the relevant subject is limited since the subject has not been studied for a long time (Sieverding,
2018, P. 34).
Background
This section of the study paper will provide a historical, theoretical, social and
intellectual background on the subject of the research. This section will also provide the reader
with the relevance and importance of conducting the study. This study paper is important since it
provides the readers with relevant information on the workings of accounting standards and how
they can impact a company. The paper also provides relevant information on Australia’s largest
retailer, the Woolworths Group Limited company and how it will affect by the new AASB 16
accounting standards that started implementation at the beginning of the year. The paper will
also increase the body of information that is available regarding accounting standards.
All companies are accountable to their shareholders and investors and are required to
provide information on how the company has been performing as well as the planned moves to
grow the company. Publically traded companies and other companies provide this information in
the form of financial statements and annual reports (Niskanen, W., 2010, P. 20). Financial
regulatory bodies have been tasked with the challenge of ensuring the companies are transparent,
accountable and accurate in their reporting. As a result accounting standards are defined and
provided by the financial regulatory bodies in order to enforce transparency and accountability.
Accounting standards define the structure of financial statements and how to classify each item
when producing financial statements. As times change and the dynamics of conducting business
accounting shifts the regulatory bodies have to adjust the accounting standards in order to
capture trends and new information identified after formation of previous regulations. In
Australia, the Australian Accounting Standards Board (AASB) is in charge of setting and
defining accounting standards within the country (Overland, 2017, P. 23). In the past the
regulatory body has acquired new information and decided on new accounting standards that are
aimed at creating more transparency in respect to appearance of liabilities on financial
statements. A new accounting standard was defined by the Australian Accounting Standards
Board (AASB) in response to international standards and new accounting information. The new
accounting standard is referred to as the AASB 16 accounting standard. 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

Impact of AASB 16 Standards on Woolworths Group Limited 5
liabilities section of accounting financial statements and started implementation on 1st January of
2019 (Baskerville, George and Makale, 2018, P. 19).
Woolworths Group Limited, Australia is one of the companies under the regulation of the
Australian Accounting Standards Board (AASB) and has to implement the AASB 16 accounting
standard. Woolworths Group Limited is the largest retailer in Australia and has multiple leases
that will be affected by the new regulation. The company will be expected to utilize the new
AASB 16 standards and indicate all leases under the liabilities and assets section of the
accounting financial statements. Woolworths Group Limited is expected to reflect a reduced
profit margin due to increased items on the liabilities section as liabilities (Xu, Davidson and
Cheong, 2017, P. 14).
Ethical Considerations
In this section of the study paper the author will state and highlight the measures taken
while conducting this research in order to maintain morals and stick to ethical standards that
guide academic works. The first ethical consideration that was implemented is that any works
that has been used in the research or quoted in the study paper must be referenced and cited. This
will ensure the authors of the works are recognized for their role in the research subject. The
author will also not copy and paste any information from other sources. Instead the author will
only read and understand the resources then proceed to write in his or her own words and
understanding. This consideration will ensure the study paper does not contain any plagiarism
which helps maintain the credibility and authenticity of the research proposal. Another ethical
consideration that was observed is that only academic and credible resources can be used in
gathering information to be used in the research paper. The consideration will ensure the paper
portrays accurate information and maintains credibility and authenticity. Private information
such as home addresses and personal contact information will not be displayed on the research
paper. This is in order to ensure information that was not intended to be shared remains private
adhering to ethical standards guiding academic works. In order to avoid providing personalized
points of view and wrong information in the paper. Any information that will be stated on the
study paper should be backed by credible resources.
Literature Review
In this section of the paper, the author will highlight key ideas and concepts that have
been mentioned by other authors in regard to the research objective and subject. The author will
make use of credible published works in order to evaluate the existing information on the subject
under study. This will help the author determine the specific area in which the research will
probe for answers.
The new AASB 16 accounting standards follow similar standards being implemented in
the United States of America known as the IFRS 16 accounting standards that kicked off on 1st
January 2019. This new occurrence has drawn the attention of several scholars who provide their
findings on the expected impacts of the AASB 16 regulations that have recently been adopted by
the Australian regulators. The standards will have major effects on Australian companies and

Impact of AASB 16 Standards on Woolworths Group Limited 6
more so retailers. However, different researchers have differing opinions on the magnitude and
form the impact will take. It is expected the Earnings before Interest and Tax (EBIT) and
Earnings before Interest Taxes Depreciation and Amortization will increase due to the new
standards (Albu and Alexander, 2014, P. 22). It is also expected that the figure for the profits
before tax will decrease. In turn the figure for the net debt of the company will also increase in
the balance sheet. According to the new standards AASB 16, leases appear as liabilities on the
balance sheet and newer debts have a larger liability value which reduces as time moves towards
the end of the contract. In previous years many liability did not get recorded on balance sheets,
now with the new accounting standards companies that have large leases will record the leases as
liabilities; this will increase the net debt the company has on the balance sheet.
Woolworths Group Limited Company will benefit from the new AASB 16 accounting
standards when comparing their performance with that of their competitors. The new AASB 16
standards have been designed to increase the comparability of different companies that
implement the accounting standard in their balance sheets. In this aspect Woolworths Group
Limited Company can now more accurately compare their performance with that of their
competition and make adjustments to their company strategies and plans in order to account for
the new information that will be gained from the comparison. The AASB 16 accounting
standards achieve better comparability among companies by recognizing all assets and liabilities
especially in leases. The accounting standard also ensures that all leases are measured in the
same way for all companies that are under the ASSB 16 accounting standard thus increasing
comparability (Dhankar, 2019, P. 19). The accounting standard also recognizes the rights of use
for a facility and the liabilities that arise from the lease. The new AASB 16 accounting standard
recognizes and records the lease liabilities at the present value of future lease payments changed
from the previous accounting standards. The accounting style provides more accurate
information on the performance of a company in comparison to the previous standards.
Another major impact of the new AASB 16 accounting standards on Woolworths Group
Limited is that the company will have to rearrange debt covenants. Although many leases and
debt covenants have clauses in case of changes in standards, Woolworths Group Limited will be
forced to enter into renegotiations with its leasers in order to come with new terms that keep in
mind the AASB 16 accounting standards. Woolworths Group Limited has a chain of over 3, 240
stores spread across Australia and New Zealand (Humayun, 2016, P. 39). Some of these stores
are not owned but rather leases, the group company also has warehouses and other facilities that
it utilizes under lease agreement. All these leases were not indicated on the last financial year
report but on the current year’s report all the leases will have to be listed in accordance to AASB
16 accounting policy. The net financial debt of Woolworths Group Limited Company had
dropped in 2018, compared to the previous year and as a result have led to a decrease in net
financing cost as reported. This observation is expected to reverse and the net financing cost will
rise significantly. This will occur as a result of the company’s expected increase in debt and
liabilities that will be in the form of leases on the balance sheet (Lessambo, F.I., 2018, P.
Increases in liabilities and debt can also lead to a reduction of profits before tax. Even though the
changes will only occur on the balance sheet and the company will remain the same the public
outlook on the company will change depending on how the financial statements will reflect. A
reduction in profits before tax and an increase on liabilities on the financial balance sheet will
affect the investors and public in general negatively. These changes on the balance sheet can

Impact of AASB 16 Standards on Woolworths Group Limited 7
cause public trust and interest in the company to reduce. This in turn will lead to lower numbers
of investors buying the shares of the company which may have several ripple effects such as the
company not being able to access funds for future plans and strategies. The Woolworths Group
Limited company brand can also suffer a dent when negative changes occur on the financial
statements as a result of the AASB 16 accounting standards (Bugeja and Shan, 2015, P. 25).
Research Aim and Objectives
The aims and objectives of the research are the basic purpose of conducting the entire
research process. In this section the author will highlight and explain the aims and objectives of
this study paper. The aims and objectives of a particular research guide the author on the kind of
information he or she will look for and the direction the paper will take. The aim of the research
study is to explore and evaluate the impact of the AASB 16 on the business performance, assets
and liabilities of Woolworths Group Limited. The research paper also aims at finding out new
ways of addressing the challenges that will arise. In the process of finding the new information
the research will produce new material and add to the body of knowledge on the subject matter.
The paper will also increase the knowledge and understanding of accounting concepts and how
they affect real world organizations as the readers gain new information from the study paper.
The research objectives are as listed below:
 To explore the set of rules or accounting standards defined by AASB 16
 To investigate the impact of AASB 16 accounting standards on the financial reporting of
Woolworths Group Limited.
 To find out the ways to address the challenges faced by Woolworths Group Limited due
to the new accounting standards being implemented in Australia.
Research Design
The research design includes the method and methodology that has been implemented in
the study paper. The research design can also provide the theoretical approach that the paper has
taken in order to achieve the set out objectives and goals. The research design also entails the
intended methods of data collection that will be used in conducting the research. After the data
collection method the research design also includes the data analysis method that will be used to
come up with answers and conclusion for the research (Hussey and Ong, 2017, P. 26). This
section of the paper will highlight the details of the research design. The section will also make
justifications of why the paper has implemented the research design that it has used. The section
is important as it lets the reader understand the logic the author will use when conducting the
research.
The research method will make use of secondary data instead of primary data due to its
availability. Primary data is the data that is collected on a first hand basis by the author such as
questionnaires and interviews. Secondary data on the other hand is data that has been recorded
by other credible authors in relation to the subject matter (Clark, 2013, P. 12). This study paper
will make use of secondary data due to its ease of use and availability in comparison to primary
data. The collection of primary data is also a strenuous and time consuming process that would

Impact of AASB 16 Standards on Woolworths Group Limited 8
drastically increase the timeline of the research. Primary research data collection also requires
large amounts of resources compared to secondary data collection. The secondary data that will
be used in the research will be sourced from libraries as well as certified online resources. The
data used will also be appropriately cited and referenced. In this study paper, the accounting
standards will be explored from the official AASB publications found on their website. The
Woolworths Group Limited company annual reports will be used in obtaining information on the
company’s financial reports. Obtaining data from the involved company’s official documents
means that the information will be verified and credible as it comes from the source directly.
Woolworths Group Limited Company as a publically listed company is also obligated to provide
its financial information to the public on an annual basis (Wong and Jeter, 2016, P. 33). The
reports are also expected to adhere to the set accounting standards and hence can be trusted.
In research there are two main research methodologies, quantitative and qualitative
research methods. Quantitative research methodology deals with numerical data that shows
specific measurements and statistics. Qualitative research method on the other hand, entails non
numerical data that shows the degree or quality of a particular factor. Each of the two research
methodologies is appropriate and suitable for different research needs depending on the type of
research being conducted. This study paper will implement a mixed approach during the research
process. A mixed approach implies that the study paper will use both the quantitative and the
qualitative research methodology (Henderson, et al, 2015, P. 34). The author has preferred the
mixed approach because it combined the advantages of both the research methodologies into one
approach. The mixed approach, however, means that the amount of time used to conduct the
research will increase in comparison to the time it would have taken using only one research
methodology. The author in this respect has traded in more time spent conducting the research
for a better understanding and cross section of the subject matter (Dakis, 2016, P. 14). A better
understanding of the research subject matter will ensure more relevant information is provided to
the reader as well as ensure the research is credible and authentic.

Impact of AASB 16 Standards on Woolworths Group Limited 9
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