Audit, Assurance and Compliance - Woolworths Limited

This report evaluates the financial position of Woolworths Limited and suggests prospective steps for minimising risk. It also sheds light on analysing the income statement and balance sheet statement ratios.

Running head: AUDIT, ASSURANCE AND COMPLIANCE
Audit, Assurance and Compliance
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1AUDIT, ASSURANCE AND COMPLIANCE
Executive Summary:
For this current report, Woolworths Limited is selected as the organisation, which is a
leading Australian retail firm having significant interest in Australia and New Zealand. It is the
second biggest firm in terms of revenue placed after Wesfarmers and it is popular for its liquor,
gaming poker machine and hotels in the nation. Upon evaluating its financial position, it has
been found that the organisation is struggling to maintain its competitive position in the market.
The board is responsible for mitigating the risks related to financial aspects after it approves the
treasury policies in order to govern the financial risk management related to the group. Some of
the primary steps under this kind of mitigation could be detected from the financial risks like
interest rate, liquidity and foreign currency risks. A turnaround plan is inherent in the
organisation, which is relevant to general merchandise and it is monitored regularly in order to
estimate the realised sale of petrol business for improving the capital position.

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Table of Contents
Introduction:....................................................................................................................................3
Implication of ASX Corporate Governance Principles in the context of Woolworths Limited:.....3
Risk assessment of Woolworths Limited:.......................................................................................5
Income statement and balance sheet statement ratios and development of common size financial
statements:.......................................................................................................................................7
Prospective steps for minimising risk:...........................................................................................15
Conclusion:....................................................................................................................................17
References:....................................................................................................................................18

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Introduction:
For this current report, Woolworths Limited is selected as the organisation, which is a
leading Australian retail firm having significant interest in Australia and New Zealand. It is the
second biggest firm in terms of revenue placed after Wesfarmers and it is popular for its liquor,
gaming poker machine and hotels in the nation. The few significant strategies of the organisation
include developing a loyal customer base along with forming a store-led team and culture. The
identification of such priorities is made with developing sustainable momentum of sales and
drinks business for delivering greater value to the shareholders. Woolworths is one of the leading
retailers due to the systems excellence and the approach of end-to-end process
(Woolworthsgroup.com.au 2018).
The report would address the various implications of ASX principles of corporate
governance in the context of Woolworths Limited. The pertinent scope of discussion has taken
into consideration the audit risks of the organisation and potential steps that could be adopted for
minimising such issues. Finally, the report would shed light on analysing the income statement
and balance sheet statement ratios.
Implication of ASX Corporate Governance Principles in the context of Woolworths
Limited:
It has been identified that adequate significance is provided to corporate governance on
the part of Woolworths Limited and thus, significant contributions are made in order to ensure
long-term value of the shareholders. The management has assured that Woolworths adheres to
all the principles and recommendations of the corporate governance council of ASX. The board

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is responsible to present and serve the shareholders’ interest. In addition, it has an added
responsibility to set the strategic direction for increasing the wealth of the shareholders. The
strategy that the board has approved is delegated to the management through formal authority
delegation to the CEO. Furthermore, the board of Woolworths Limited is accountable to carry
out the following set of functions:
Financial oversight
Effectiveness of the framework related to risk management
Financial reporting
Evaluation of performance
Carrying out regulatory functions
Material transactions
Corporate governance
Social responsibility
The board performance review is represented with the help of the review outcomes with the
outside facilitator. After receiving feedback, the chairperson of Woolworths Limited is involved
in discussion with the individual directors. The contract comprises of the policies and terms at
the time of appointment that take into account the performance requirements and remuneration
entitlements. It has been identified that the importance of relationship between evaluation of
remuneration and management performance is clearly represented while analysing the
performance of the management.
In accordance with the 2017 reporting period, the performance is reviewed on the part of the
board and the remuneration of the members of the Executive Committee, “individual

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performance committee reviews”, group executive and the CEO is approved. Moreover, the
directors do not undertake any decision that might lead to conflict of interest as well as material
personal interest. If any such incidents are identified, they need to be reported immediately to the
organisation. Hence, the individual directors and board committees of Woolworths Limited
could exercise their accountability and power in accordance with the reserved board matters. The
review of the committee and board charters is made in the reporting year, which is published in
the website of the organisation (Woolworthsgroup.com.au 2018).
Risk assessment of Woolworths Limited:
Woolworths Limited has complicated business operations due to the vast array of
financial, strategic, compliance and operational risks. Such complexities are evident in online
and retail businesses comprising of liquor, food, general merchandise, petrol, bar,
accommodation, bar and gaming operations (Balachandran and Faff 2015). In order to manage
material risks for carrying out the business operations, the governance structure and framework
of enterprise risk management are developed for providing considerable support. Moreover, the
above framework of enterprise risk management of Woolworths Limited has adhered to the
“Principles and Recommendations of ASX Corporate Governance” and the “Australian/New
Zealand Standard of AS/NZS ISO 31000:2009 Risk Management- Principles and Guidelines”.
The policy of risk management of the organisation depicts the overall philosophy of its
approach towards risk management along with establishing the significant roles and
responsibilities. With the help of the processes related to enterprise risk management, it is
possible to detect, monitor and report the risks having effect on the success pertaining to
operational plans and strategic objectives (Christensen and Kent 2016).

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It has been identified that Woolworths has implemented various identified opportunities
continuously in order to enhance the entire framework of risk management that ARMCC has
reviewed during the accounting year. There are certain material business risks for the
organisation, which include environmental, economic and risks related to social sustainability.
For the environment of retail trading, the strategic risks are taken into account with the
competition. In this regard, Contessott and Moroney (2014) cited that disruptions in technology,
entry of new players and varying expectations of the customers coupled with external as well as
internal risk factors drive the overall competition. If these factors are not evaluated properly, it
could have adverse impact on the market share and overall business performance.
There are few financial risks as well in relation to the funding availability and capital
management along with liquidity needed for the business operations and growth of the
organisation. It has been observed that Woolworths Limited has not succeeded to turn the
general merchandise in the previous financial year, which has negative impact on the
profitability of the organisation (Gitman, Juchau and Flanagan 2015).
In accordance with the policy of the organisation, the operating events are exposed to
various factors of risk comprising of safety standards of the product, breaches of data,
information technology, business disruptions because of cyber attacks and security asset. In case
of Woolworths Limited, the operational risks include inability to fulfil the standards of product
safety, business disruptions, security asset and unpredictable weather conditions in future (Halim
et al. 2017). Along with this, there might be industrial disputes because of interruptions in supply
chain and failure of technology. The compliance issues are associated with applicable
regulations, laws and contractual agreements, which are viewed to be exposed to adverse
legislation or regulatory changes. The violations or opposing variations could lead to negative

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effect on the brand image and profit level of the organisation constituting of significant fines and
other negative consequences (Hutchinson, Seamer and Chapple 2015).
Income statement and balance sheet statement ratios and development of common size
financial statements:
After assessing the income statement of Woolworths Limited in 2017, it could be
observed that both revenues and profit have increased in contrast to the previous year. This could
be validated by depicting the fact that the overall revenue of the organisation has increased from
$53,473.9 million in 2016 to $55,475 million in 2017. Significant improvements could be
observed in profit level as well to $1,422.1 million in 2017 from $726.3 million in 2016.
Comparison of Consolidated Income Statements
Particulars Woolworths
Group 2017
Woolworths
Group 2016
Percentage
of the total
income
Revenues 55,475 53,473 104%
Profit for the
Period
1,422.1 726.3 196%
Comparison of Statement of Financial Position
Particulars Newcrest
Mining
2017
Newcrest
Mining
2016
Percentage
of the total
income
Total Assets 22,915.8 23,502.2 98%
Capital 1840.5 1797.5 102%

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Expenditure
Percentage of the total income
0%
50%
100%
150%
200%
250%
104%
196%
Comparison of Income Statements
Revenues Profit for the Period
Percentage of the total income
95%
96%
97%
98%
99%
100%
101%
102%
103%
98%
102%
Comparison of Balance Sheet
Statement
Total Assets Capital Expenditure

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It could be identified that the net margin of Woolworths Limited has increased from
1.36% in 2016 to 2.56% in 2017. On the other hand, the return on equity has been negative in
2016, which has increased positively to 92.74% in 2017. In addition, positive rise in return on
assets could be seen in 2017, as it has increased to 6.21 in 2017 from 3.09 in 2016.
Profitability Ratio Analysis: -
Woolworths Group
Particulars 2017 2016
Revenue (A) 55,475 53,473
Net Profit/Loss after Tax (D) 1,422.1 726.3
Ordinary Equity(H) 1,533.5 -1,234.8
Total Assets (G) 22,915.8 23,502.2
Net Profit Margin (D/A) 2.56% 1.36%
Return on Equity (A/H)) 92.74% -58.82%
Return on Assets (G/D) 6.21% 3.09%

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2017 2016
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
2.56%
1.36%
Net Profit Margin
2017 2016
-80.00%
-60.00%
-40.00%
-20.00%
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
92.74%
-58.82%
Return on Equity
The stock clearing effectiveness has improved considerably from the past year, which is
inherent with an improved inventory turnover ratio of 9.74. On the other hand, the asset turnover
ratio of the organisation has risen to 2.4 in 2017 from 2.28 in 2016.
Efficiency Ratios Analysis
Woolworths Group

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Particulars 2017 2016
Cost of
Goods
Sold(A)
39 ,739.7 38,538.6
Inventory
(H)
4,080.4 4,558.5
Revenue (A) 55,475 53,473
Total Assets
(G)
22,915.8 23,502.2
Inventory
Turnover
Ratio (A/H))
9.74 8.45
Total Asset
Turnover
Ratio (A/G)
2.42 2.28

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2017 2016
7.50
8.00
8.50
9.00
9.50
10.00 9.74
8.45
Inventory Turnover Ratio
2017 2016
2.20
2.25
2.30
2.35
2.40
2.45
2.42
2.28
Total Asset Turnover Ratio
According to the analysis of the liquidity position of the organisation with the help of
current ratio and quick ratio, the current ratio of the organisation has declined slightly to 0.79 in
2017 from 0.83 in 2016. Such declining trend of the current ratio states that the organisation has
not maintained adequate working capital in order to manage its daily business operations and
activities (Klettner, Clarke and Boersma 2014).

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Short-Term Liquidity Ratio Analysis: -
Woolworths Group
2017 2016
Total Current Assets (A) 6,994.2 7,427
Receivables (D) 744.7 763.9
Cash and equivalents (B) 909.4 948.1
Total Current Liabilities (F) 8,824.2 8,992.7
Current Ratio (A/F) 0.79 0.83
Quick Ratio [(B+D)/F) 0.19 0.19
2017 2016
0.77
0.78
0.79
0.80
0.81
0.82
0.83
0.79
0.83
Current Ratio
Woolworths Group

14AUDIT, ASSURANCE AND COMPLIANCE
2017 2016
0.19
0.19
0.20
0.19
0.19
Quick Ratio
Woolworths Group
The significant representation of the debt ratio implies that Woolworths Limited has been
able to minimise overall debt obligations from 2016 to 2017. This is because the debt-to-assets
ratio of the organisation has fallen from 0.63 in 2016 to 0.57 in 2017. However, the equity base
of the organisation is significantly lower, which denotes that Woolworths funds its projects and
operations mostly through debt financing.
Debt Equity Ratio
Woolworths Group
2017 2016
Total Liabilities (A) 13,039.7 14,720.3
Total Assets (B) 22,915.8 23,502.2
Total Equity (C ) 1,533.5 -1,234.8
Debt-to-total Assets Ratio (A/B) 0.57 0.63
Debt to Equity Ratio (A/C) 8.50 -11.92

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2017 2016
0.54
0.55
0.56
0.57
0.58
0.59
0.60
0.61
0.62
0.63
0.64
0.57
0.63
Debt-to-total Assets Ratio
2017 2016
-15.00
-10.00
-5.00
0.00
5.00
10.00 8.50
-11.92
Debt Equity Ratio
Prospective steps for minimising risk:
The prospective steps that Woolworths Limited undertakes for eradicating strategic risk
is represented with the board approval for steering customer-oriented culture and enablers of
investment growth including store network, technologies and digital channels. In addition, it
aims to develop delivery offices in order to boost the initiatives of transformation. Currently, the

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organisation is popular in combining the loyalty, digital and data businesses into WooliesX,
which is concentrate on providing interlinked customer strategy. Both the short-term and long-
term incentive plans are matched with the initial strategy of the customers. Moreover, the CSR
strategy has detected the aims of enhancing the entire sustainability and environmental effect
related to the business operations (Linnenluecke, Birt and Griffiths 2015).
The board is responsible for mitigating the risks related to financial aspects after it
approves the treasury policies in order to govern the financial risk management related to the
group. Some of the primary steps under this kind of mitigation could be detected from the
financial risks like interest rate, liquidity and foreign currency risks. A turnaround plan is
inherent in the organisation, which is relevant to general merchandise and it is monitored
regularly in order to estimate the realised sale of petrol business for improving the capital
position.
The organisation is involved constantly in formulating training, policies and standards
for enhancing its business operations along with ensuring well-being and safety of all its related
stakeholders. The major investments could be observed in the fields related to cyber security,
technology, operating ability and processes. Several steps have been undertaken for enhancing its
framework of business resilience in order to handle the response of the major business
disruptions and operating incidents. The framework related to compliance of Woolworths
Limited constitutes of different policies, which are formulated in order to improve regulatory,
legal and different bodies in accordance with the regulatory and legal changes. As per the code
of conduct of the organisation, the training program is detected in enhancing the awareness
related to regulatory, legal and requirements related to internal policy.

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For eliminating the audit risks, the external auditor of the organisation is “Deloitte
Touche Tohmatsu”. In addition, pertinent recommendations are made on the part of ARMCC in
relation to appointment, selection, re-appointment or replacement of the outside auditor. The
services related to internal auditing are the accountability of the independent function of internal
audit handled on the part of the group risk and assurance team. These bodies ensure objective
and independent assurance services for the board and management in terms of internal control,
framework of risk management and corporate governance of the organisation. The functions
related to internal audit are carried out in compliance with the plan of internal audit, which is
created through risk-based approach yearly on the part of ARMCC.
Conclusion:
Based on the above discussion, it could be evaluated that Woolworths has implemented
various identified opportunities continuously in order to enhance the entire framework of risk
management that ARMCC has reviewed during the accounting year. In addition, upon evaluating
its financial position, it has been found that the organisation is struggling to maintain its
competitive position in the market. The board is responsible for mitigating the risks related to
financial aspects after it approves the treasury policies in order to govern the financial risk
management related to the group. Some of the primary steps under this kind of mitigation could
be detected from the financial risks like interest rate, liquidity and foreign currency risks. A
turnaround plan is inherent in the organisation, which is relevant to general merchandise and it is
monitored regularly in order to estimate the realised sale of petrol business for improving the
capital position.

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References:
Balachandran, B. and Faff, R., 2015. Corporate governance, firm value and risk: Past, present,
and future. Pacific-Basin Finance Journal, 35, pp.1-12.
Christensen, J. and Kent, P., 2016. The decision to outsource risk management
services. Accounting & Finance, 56(4), pp.985-1015.
Contessotto, C. and Moroney, R., 2014. The association between audit committee effectiveness
and audit risk. Accounting & Finance, 54(2), pp.393-418.
Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson
Higher Education AU.
Halim, E.H., Mustika, G., Sari, R.N., Anugerah, R. and Mohd-Sanusi, Z., 2017. Corporate
governance practices and financial performance: The mediating effect of risk management
committee at manufacturing firms. Studies, 10(4), pp.272-289.
Hutchinson, M., Seamer, M. and Chapple, L.E., 2015. Institutional investors, risk/performance
and corporate governance. The International Journal of Accounting, 50(1), pp.31-52.
Klettner, A., Clarke, T. and Boersma, M., 2014. The governance of corporate sustainability:
Empirical insights into the development, leadership and implementation of responsible business
strategy. Journal of Business Ethics, 122(1), pp.145-165.
Linnenluecke, M.K., Birt, J. and Griffiths, A., 2015. The role of accounting in supporting
adaptation to climate change. Accounting & Finance, 55(3), pp.607-625.

19AUDIT, ASSURANCE AND COMPLIANCE
Woolworthsgroup.com.au., 2018. [online] Available at:
https://www.woolworthsgroup.com.au/icms_docs/188795_annual-report-2017.pdf [Accessed 22
Apr. 2018].
Woolworthsgroup.com.au., 2018. [online] Available at:
https://www.woolworthsgroup.com.au/content/Document/Woolworths%20Group%202017%20-
%20Corporate%20Governance%20Statement.pdf [Accessed 27 Apr. 2018].