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Audit, Assurance and Compliance Assessment item

Wesfarmers
Executive Summary
The principle of corporate governance and the risk management strategy enables the
company to perform in an effective manner. It is important for the company to follow the
principles of corporate governance. To study the impact of corporate governance and risk
management, the selection of Wesfarmers has been done that is a company listed on the
ASX. In this report, it is described how the company implements the principles of corporate
governance followed by the procedure of risk assessment. Overall, the steps taken to assess
the risk have been considered. Moreover, ratio computation has been done to ascertain the
position of the company.
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Contents
Introduction...........................................................................................................................................3
Risk Assessment....................................................................................................................................6
Conclusion.............................................................................................................................................7
References.............................................................................................................................................8
Appendix...............................................................................................................................................9
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Wesfarmers
Introduction
Wesfarmers is a well known and recognized corporation. It has its securities registered on the
Australian Stock Exchange. The organization believes in planning audit in a way so that the
strategies are designed, construed and constructed in a manner that brings desired and
predetermined results. Here, the results vary depending on the duration, dimensions, and
features of the trade. The strategies of audit planning may be more appropriate and take more
duration if its trade is extensive or worldwide. It is necessary that the strategies related to
audit are well-planned and executed (Wesfarmer, 2017). This can be done with the analysis
of the economic operations and civic domain or framework of the organization and its
involvement with each other. Audit planning and strategies works once there is the beginning
of such involvement. Also, according to ISA 300, it shouldn’t be construed as another
segment of an aggregate audit. It begins as soon as the previous audit is completed and has
issues that need to be analyzed like inadequate errors or any discrepancies.
Implications of ASX Corporate Governance Principles
a) Efficient board structure
It is seen that the Company’s board consists mostly of the independent directors.
This means that these independent directors are independent and unimpeded of the
company’s affairs, its trade or any activities which could affect the business decision-making.
Assessment of the independence of the directors is made frequently to fortify neutrality in
decision-making (Wesfarmers Limited CG, 2016).
In order to scrutinize every Non-Executive Director and give Board suggestions on the
related issues, a nomination committee is made under an Independent Director.
The nomination committee makes sure that the company’s decisions are made in the best
interests of its users by aiming at framing individual performance reviews of the Board and
by scrutinizing the feedback from the majority of its shareholders (Wesfarmers Limited CG,
2016).
Wesfarmers Limited is seen to have maintained its quality of business quite eminently over
its years of operations and it is also confirmed with its compliance with ASX principles.
b. Protection of integrity in financial reporting framework
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It is the basic requirement of Wesfarmers that the directors of the Company hold legitimate
information and work experience in the field of economy, politics, and society. Also, being
updated with today’s digital scenario and upgrading and changing technologies is also
required (Wesfarmer, 2017). This will have in having enhanced reporting techniques. In order
to minimize any loopholes in the reporting framework by recognizing and its rectification, it
is also important for the directors of the company to hold expertise in finance and internal
control frameworks. Also, the directors should know how to tackle risks and its management
for the reporting of the financial framework (Caradonna, 2014). It can only happen if the
directors of the company are well knowledgeable and aware of the statutory requirements.
The Company has ensured the enhancement of its corporate governance standards by means
of having legitimate reporting guidelines.
c. Laying an effective foundation for oversight and management
Wesfarmers has a unique framework for risk management. It believes the controls, principles,
process, systems, methods, techniques and functions of risk management should be allocated
between its Finance Director and Managing Director, Divisional Management, Risk
Committee and Audit Committee which was assessed and analyzed by the Board (Peirson et.
al, 2015). It was also approved by Wesfarmers Group policies and procedures in May 2016.
With the change in interest rates and its effect on foreign currencies, it helps in balancing
financial risks and safeguards treasury options (Wesfarmer, 2017).
The activities of the Wesfarmers Board are divided into two segments. One being
Divisional Board and the other being Board Committee. This helps in outlining techniques in
which Wesfarmers conducts its business and safeguards and uplifts its identity and culture
(Wesfarmers Limited, 2016).
For the purpose of acquisitions and disinvestments, Wesfarmers has adopted due diligence in
its management.
d. Performing responsibly and morally
Wesfarmers has constructed and introduced a code of conduct in its area of operations. This
ensures that both the internal and external environments are responsible and moral in their
performance. In its statement of corporate governance, Woolworths has set well-thought
measures for its personnel. The directors, contractors, consultants, and subordinates are well
aware of the core values of the company (Benabou & Tirole, 2010).
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Wesfarmers
In order to motivate its personnel and keep them enthusiastic the company also framed
numerous compliance measures which make them more responsible and inform if any
unethical practices in the company (Wesfarmer, 2017).
e. Managing and identifying risks
To calculate the risk trends that can influence or sculpt its industry, Wesfarmers believes in
risk financing program which can transfer risk to re-insurers and external insurers. Each of its
section is constrained by its formal corporate planning systems. It is why preparation of
SWOT analysis and pre-planning of a situation and its performance is important. Therefore,
the company believes in a systematic risk financing program (Wesfarmer, 2017).
A company becomes aware of its shortcomings and potential damages in its operations with
the help of its risk committee. The transactions of the company are assessed by its team who
looks after audit and internal control players. The audit report once legitimately processed by
external auditors and has all the disclosures related to the risks and rewards are given to the
investors and stakeholders of the company (Bonson & Bednarova, 2015).
f. Facilitation of balanced and timely disclosure
The two Company Secretaries hired by Woolworths are accountable to the Board with
questions arising in context to Company’s comprehensive performance. To better the
reporting framework the Board is required to make legitimate disclosures in it. To encourage
advisory purposes for enhancing timely disclosures in its reporting framework, four Board
Committees are also designed. For executing legitimate operations from time to time these
Board committees give their own suggestions to the Board (Wesfarmer, 2017). To have
improvised and better audit processes the appointment of external auditors and internal
auditors can be seen. They have a very significant role in making financial statements
available to the public which results in disclosure of both the reports (financial and directors)
systematically.
g. Remunerating responsibly and fairly
It is only because of its strategies related to remunerating its personnel, the Company
received the Gold Tier Employer status. The Company also believes in gender equality which
means remuneration on the basis of skills, effort, talent and dedication and not on the basis of
gender. 40 percent women executives are also employed by the Company in order to
eradicate current gender gap which is calculated to be soon overcome by the company.
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Also, on the basis of the targets met by the employees over a given period of time is the basis
of awards and hikes given to them (Wesfarmer, 2017). For the handling of fair remuneration,
the Company has formed People Performance Committee.
h. Respecting security holders’ right
In order to ease frequent communication measures and for the purpose of ASX principles,
Woolworths has an inclusive information of shareholders. It helps shareholders to have
access to a wider set of details with context to share prices, dividend declaration, etc. To
make investors know about its general business, the Company also schemes a lot of investor-
friendly strategies (Needles & Powers, 2013).
Risk Assessment
Risks can be legal, financial, strategic, operational, etc. Financial risks are related to lack of
funds, liquidity, insolvency, change in currency values, etc. Legal risks are related to risks
related to laws and legal matters (Merchant, 2012). Operational risks are related to cyber-
attacks, failure to meet the expectations of people, etc. Strategic risks are risks in which a
company to surpass its competitors opt for unethical practices, etc (Douma & Hein, 2013).
To avoid these risks it is advisable for companies to appoint internal or statutory auditors and
other experts that can ease the entire process. It is also advisable for companies to adopt and
upgrade to newer software and technologies that allows it to store and recover lost data easily
by means of electronic storage. Also, auditors should have unbiased opinions on financial
statements (Cappelleto, 2010). The ratios can be used by the auditor to project the financial
situation. Going by the financial ratios, the auditor can come to the conclusion that the gross
profit of the company is high however, the company does not have a strong hold over the
operating expenses and hence the net profit is less (Elder et. al, 2010).
2016 2017
GP margin
=gross profit/ net sales*100
30.5089
1
31.8400
4
NP margin
=net profit/ sales*100 0.62126
4.22406
8
Current ratio
=current assets/ current liabilities 0.92901
0.92800
2
Quick ratio = 0.32847 0.30114
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Quick assets/CL 3 2
Conclusion
Going by the overall discussion, it can be commented that Wesfarmers has adhered to the
principles of corporate governance. The eight principles clearly indicate that the company has
followed the principles and the disclosures are relevant in nature. It signifies that the
management of the company is effective in nature s it keeps a strong attention on the
corporate governance principles. Moreover, the risk management approach indicates that the
company will be able to track the risks and avoid it at the earliest.
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References
Benabou, R. and Tirole, R. (2010) Individual and Corporate Social responsibility. Ecnomica.
[online]. 11, pp. 1-19. Available from: https://doi.org/10.1111/j.1468-0335.2009.00843.x
[Accessed 2 May 2018]
Bonson, E. and Bednarova, M. (2015) CSR reporting practices of European companies.
Spanish Accounting Review. [online]. 18 (2), p. 182-193. Available from:
doi: http://dx.doi.org/10.1016/j.rcsar.2014.06.002 [Accessed 23 April 2018]
Cappelleto, G. (2010) Challenges Facing Accounting Education in Australia. AFAANZ,
Melbourne
Caradonna, J. L. (2014). Sustainability: A History. Oxford University Press
Douma, S. And Hein, S. (2013). Economic Approaches to Organizations. London
Elder, J. R, Beasley S. M. and Arens A. A. (2010) Auditing and Assurance Services. Person
Education, New Jersey: USA
Merchant, K. A. (2012) Making Management Accounting Research More Useful. Pacific
Accounting Review. [online]. 24(3), 1-34. Available from
https://pdfs.semanticscholar.org/6ccf/f78a452763f17ed5e4f4ddc6b96703801403.pdf
Needles, B.E. & Powers, M. (2013) Principles of Financial Accounting. Financial
Accounting Series: Cengage Learning.
Peirson, G, Brown, R., Easton, S, Howard, P. and Pinder, S. (2015) Business Finance, 12th
ed. North Ryde: McGraw-Hill Australia.
Wesfarmer. (2017). Wesfarmer annual report and accounts 2017 [online]. Available from:
https://www.wesfarmers.com.au/docs/default-source/default-document-library/2017-annual-
report.pdf?sfvrsn=0 [Accessed 2 May 2018]
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Appendix
Gross profit ratio 2016 2017
gross profit 19987 21656
Net sales 65512 68015
GP margin
=gross profit/ net sales*100
30.50891 31.84004
Net Profit ratio 2016 2017
Net income 407 2873
Net sales 65512 68015
NP margin
=net profit/ sales*100
0.62126 4.224068
Current ratio 2016 2017
current assets 9684 9667
current liabilities 10424 10417
Current ratio
=current assets/ current
liabilities
0.929009977 0.92800
2
Quick ratio 2016 2017
current assets 9684 9667
Inventories 6260 6530
quick assets = CA- inventories 3424 3137
current liabilities 10424 10417
Quick ratio =
Quick assets/CL
0.328472755 0.30114
2
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