ASX Corporate Governance Compliance and Risk Assessment of Woolworths Limited

This report analyzes the compliance of Woolworths Limited with the ASX Corporate Governance Principles and the risk assessment procedures used for assessing the audit risk of the company. It discusses the nature of the company, its market overview, business strategy, and potential steps to be implemented for reducing the risk. The report also includes the computation of income statement and balance sheet ratios, subject, course code, course name, and college/university are not mentioned.

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Audit Assurance and Compliance

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Executive Summary
The present report is developed for providing an adequate understanding of the
importance of presence of effective corporate governance statement policies and risk assessment
procedures in an organization. For this purpose, the report has selected a business company listed
in ASX (Australian Securities Exchange) in the S&P 300 index. The compliance of the selected
company with the ASX Corporate Governance Principle is examined through the help of its
corporate governance statement. In addition to this, the risk assessment procedure used for
assessing the audit risk of the selected company is also discussed in the report. As such, the
report has discussed the nature of the company, its market overview, business strategy for
focusing on the relevant audit risk and the potential steps to be implemented for reducing the
risk.

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Contents
Implication of ASX Corporate Governance Principles by Woolworths Limited............................4
Developing Solid Foundations For Management and Oversight.................................................4
Board Structure Capable of Adding Value..................................................................................4
Ethical and Responsible Actions..................................................................................................5
Safeguard Integrity in Corporate Reporting.................................................................................5
Timely and Balanced Disclosure.................................................................................................5
Protection of Rights of Security Holders.....................................................................................5
Risk Management........................................................................................................................6
Fair and Responsible Remuneration............................................................................................6
Risk Assessment..............................................................................................................................7
Identification of the Nature of the Company...............................................................................7
Market Overview.........................................................................................................................7
Business Strategy.........................................................................................................................8
Computation of Income Statement and Balance Sheet Ratio......................................................8
Audit Risk and Potential Steps Taken to Reduce the Risk..........................................................9
Conclusion.......................................................................................................................................9
References......................................................................................................................................10

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Implication of ASX Corporate Governance Principles by Woolworths Limited
The ASX Corporate Governance Council was established by ASX in the year 2002 for
developing and issuing principles-based recommendations on the corporate governance practices
to be implemented by the business entities in Australia listed on ASX. The standard corporate
governance principles are developed for promoting the trust and confidence of the investors in
the business operations of the entities and meeting the varying needs and expectations of the
stakeholders. The business entities listed on ASX need to ensure that their corporate governance
practices are developed in relation to the principles developed by the council. As such, the
compliance of Woolworths Limited as per the ASX Corporate governance principles can be
analyzed through reviewing its corporate governance statements and the information published
in the annual report. Woolworths Limited, one of the most recognized retailing brands of
Australia, develops and issues its corporate governance statement. The compliance of the
company’s corporate governance statement as per the principles of ASX Corporate Governance
Council is analyzed as follows:
Developing Solid Foundations For Management and Oversight
As per the ASX Corporate governance principles, the business entities listed on ASX
should disclose the necessary information regarding the roles and responsibilities of the board
and management. Also, the measures adopted by the company on monitoring and reviewing their
information should be disclosed. The corporate governance statement of Woolworths Limited
has effectively disclosed the role and responsibilities of the board. The Board is accountable to
provide a strategic direction toe the company for enhancing the shareholder value. The various
responsibilities of the Board is also disclosed in the statements such as financial oversight,
developing risk management framework, leadership selection, social responsibility and others. In
addition to this, the various duties of the directors such as representing the board to shareholders
and others are disclosed in the statement (Bazley, Hancock and Robinson, 2014). The
performance evaluation strategies adopted for reviewing the performance of Board and
management is also discussed in the corporate governance statement. As per the statement, the
Chairman is responsible for carrying out the performance evaluation process and the review of
the Board performance is carried out annually. The director performance is evaluated by the

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Chairman by discussion with them on individual basis and providing them the feedback. Thus, it
can be said that the company has effectively followed this principle of ASX Corporate
Governance Council (Woolworths Group: Corporate Governance Statement, 2017).
Board Structure Capable of Adding Value
As per this ASX principle, there should be the presence of an effective board structure of
adequate size, composition, skills and commitment so that it is able to effectively carry out its
duties (ASX Corporate Governance Council, 2014). Woolworths Limited in its corporate
governance statement has provided information about the board structure, skills and
composition. The board structure is composed of independent non-executive directors having
varying skills, background and experience. The key skills and experience required by the
company for an individual to become a member of the board is also stated in the corporate
governance statement. The different committees established for providing assistance to the Board
so that they carry out their duties effectively are also stated. However, the information regarding
the Board Commitment is not adequately disclosed in the governance statement of the company
(Woolworths Group: Corporate Governance Statement, 2017).
Ethical and Responsible Actions
The company should also disclose the information for ensuring that it carries out is
business operations in an ethical and responsible manner (ASX Corporate Governance Council,
2014). It has established the core values, code of conduct and policy framework for providing
guidelines to all the employees regarding the standard behavior to be conducted in the
workplace. In addition to this, it has also developed a Corporate Responsibility Strategy 2020 for
defining its commitments to the stakeholders and promoting the social and environmental
development (Woolworths Group: Corporate Governance Statement, 2017).
Safeguard Integrity in Corporate Reporting
There should be the presence of a formal and rigorous process for verifying and
safeguard the integrity of its corporate reporting (ASX Corporate Governance Council, 2014). In
order to comply with this corporate governance principle of ASX, Woolworths have disclosed
that its corporate reporting process is assured by the external auditor Deliotte. In addition to this,
the Group also carries out internal audit that is managed by the Group Risk and Assurance Team.

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Thus, the audit process of the Group assures that the integrated reporting process is free from any
error (Woolworths Group: Corporate Governance Statement, 2017).
Timely and Balanced Disclosure
As per this ASX principle, the company should disclose all the materialistic information
impacting the price of the securities in a timely and balanced disclosure. Woolworths Limited
ensures that all its stakeholders are informed about the material matters of the company through
ASX announcements, periodic communications and diverse range of forums and publications as
per its shareholder communication policy provided on its official website (ASX Corporate
Governance Council, 2014). In addition to this, it also adopts the use of regular email
notifications in respect of the major events for corporate reporting in order to promote multiple
stakeholder engagement. Also, the materialistic information is disclosed to the end-users through
the conducting an annual general meeting, publishing annual report and releasing the financial
statements depicting its financial performance on an annual basis (Woolworths Group: Corporate
Governance Statement, 2017).
Protection of Rights of Security Holders
The rights of the security holders should be respected by the company through providing
them all the necessary information and allowing them to exercise their rights effectively ASX
Corporate Governance Council, 2014). As per the ASX principle, Woolworths have developed
an investor relations program that aims to facilitate effective communication with the security
holders. In addition to this, its continuous disclosure policy aims to provide its shareholders all
the required information appropriate. The policy aims to promote the confidence of the
shareholders in the business operations through providing them timely, direct and equal access of
the required information useful in decision-making. However, it corporate governance statement
has not discussed the facilities provided to security holders for exercising their rights
(Woolworths Group: Corporate Governance Statement, 2017).
Risk Management
The company should develop an effective risk management framework for periodic
review of the risk in order to mitigate it in advance. Woolworths, as per this ASX principle, has
effective disclosed its risk management framework and policy in its corporate governance
statement (Plessis, McConvill and Bagaric, 2005). The Group faces various types of strategic,

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financial, operational and compliance related risks due to complex nature of its business
operations. Its risk management framework includes booth the risk management policy and the
enterprise risk management framework. It has also provided a detailed description of its risk
governance practices and the consecutive responsibilities of the Board in managing and
monitoring the risk. Also, its annual report has provided detailed information regarding the
material business impacts and the consequent mitigation plans adopted by the Group for
overcoming them (Woolworths Group: Corporate Governance Statement, 2017).
Fair and Responsible Remuneration
The company should develop an effective remuneration policy for attracting and
retaining high quality directors and designing attractive remuneration package for attracting,
retaining and motivating high quality senior executives (ASX Corporate Governance Council,
2014). As per the principle, Woolworths Board reviews the performance and approves the
remuneration for CEO and the executive committee members. The annual report of the Group
has also provided detail information about the pay of the executive key management personnel
(KMP). The remuneration framework has described the policies adopted by the Group for
deciding the remuneration of the KMP for ensuring that the compensation provided to them is
fair and just (Woolworths Group: Corporate Governance Statement, 2017).

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(Source: https://www.woolworthsgroup.com.au/icms_docs/188795_annual-report-2017.pdf)
Risk Assessment
The analysis of the risk assessment process in Woolworths Limited will provide an
understanding of the internal control framework adopted by it for ensuring that material
information provided to the auditors is free from any material misstatement. As such, the present
section discusses the risk assessment procedures used for assessing the risk that material
misstatement exists (Identifying and Assessing the Risks of Material Misstatement through
Understanding the Entity and Its Environment, 2018). The assessment of the audit risk can be
carried out the use of an effective risk assessment procedure having the following steps:
Identification of the Nature of the Company
Woolworths Groups is a recognized brand in retailing in Australia and is actively
involved in providing is retails services to million of customers every day. Its main retail
operations include supermarket, petrol, liquor, merchandise, home improvement, hotels and

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Gambling. It is strongly committed in providing high quality products and services to the
customers at low cost (Woolworths Group, 2018).
Market Overview
The Group generates large part of its income from the supermarket and Grocery stores in
Australia. The company mainly targets the markets of Australia and New Zealand The
supermarket chain of Woolworths account for about 80% of the market of the Australia
(Woolworths Group, 2018).
Business Strategy
The Group has implemented the business strategy of developing its business on the
principle of integrity for achieving the satisfaction of its stakeholders. In this context, the
company aims to deliver the bets in convenience, value and quality to the customers. It has
partnered with thousand of local farmers and manufactures to provide fresh food products to the
customers in its supermarket and grocery stores (Woolworths Group: Annual Report, 2017).
Computation of Income Statement and Balance Sheet Ratio
The computation of the fiannacil ratios of the income sttsment of the Group is as follows:
Income statement Ratios:
Gross profit margin: Gross profit /Net Sales
Gross Profit (2017) = 15929 AUD million
Net Sales (2017) = 55669 AUD million
Gross profit margin Ratio = =28.61%
Net profit margin = Net Profit/Net Sales
Net Profit (2017) = 1534 AUD million
Net Sales (2017) = 55669 AUD million (Woolworths Group, 2017)
Net profit margin Ratio = 2.75%
Balance Sheet Ratios

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Current Ratio: Current Assets/Current Liabilities
Current Assets (2017) = 6,994 AUD million
Current liabilities (2017) = 8,824 AUD million
Current Ratio (2017) = 0.79 times
Debt Equity Ratio = Debt/Equity
Debt (2017) = 13040 AUD million
Equity (2017) = 9526 AUD million (Woolworths Group, 2017)
Debt Equity Ratio (2017) = 1.37 times
Audit Risk and Potential Steps Taken to Reduce the Risk
The Group in its annual report has discussed the relevant financial risks that can impact
the materialistic information provided in the financial statements and thus have to be taken into
account by the auditors at the time of carrying out the audit (Auditing and Assurance Standards
Board, 2009). The risk is categorized as follows:
 Market Risk: The market risk relates to the significant risk arising from the movement in
the foreign currency. The auditors need to take into account the impact on the various
elements of the financial statements due to risk exposure of the foreign currency. The
company in order to mitigate the risk of foreign currency has entered into forward
exchange contracts and foreign currency options. This will helps the company to hedge
the risk related to changes in the foreign currency. In addition to this, it also faces
significant risk related to fluctuations in the interest rates on its borrowed funds. The
company has managed the risk related to interest rate through developing an appropriate
combination between the fix and floating rate with the use of swap contract options
(Woolworths Group: Annual Report, 2017).
 Liquidity Risk: The risk is related to the incapability of the company to meet its financial
obligations in the future due to occurrence of any adverse situations. For managing this
risk, the company has developed a liquidity risk management framework as per which it

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develops and maintains a liquidity reserve that helps it to effectively mitigate the liquidity
risk (Woolworths Group: Annual Report, 2017).
 Credit Risk: The risk associated with the default of a counterparty to meet its obligations
resulting in causing financial loss to the company. In order to mitigate this risk, the
Group has developed a policy directing the managers to only invest funds for short-term
and the counterparty is assigned a credit rating that limits the amount of money credit to
them. This helps Woolworths in reducing the financial loss occurrence due to possibility
of default by the counterparty (Woolworths Group: Annual Report, 2017).
Conclusion
Thus, it can be said that Woolworths Limited has effectively complied with the ASX
Corporate governance principles that has enabled it to develop a strong brand image in the
stakeholder’s mind. Also, the risk assessment procedures have ensured that it has taken effective
steps in reducing the financial risk that can cause material misstatements.

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References
ASX Corporate Governance Council. 2014. [Online]. Available at:
https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-recommendations-3rd-
edn.pdf [Accessed on: 16 April 2018].
Auditing and Assurance Standards Board. 2009. Auditing Standard ASA 520 Analytical
Procedures. [Online]. Available at:
http://www.auasb.gov.au/admin/file/content102/c3/ASA_520_27-10-09.pdf [Accessed on: 16
April 2018].
Bazley, M., Hancock, P. and Robinson, P. 2014. Contemporary Accounting PDF. Cengage
Learning Australia.
Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity
and Its Environment. 2018. [Online]. Available at: https://auditinghelp.com/identifying-and-
assessing-the-risks-of-material-misstatement-through-understanding-the-entity-and-its-
environment-13914 [Accessed on: 16 April 2018].
Plessis, J., McConvill, J. and Bagaric, M. 2005. Principles of Contemporary Corporate
Governance. Cambridge University Press.
Woolworths Group 2017 - Corporate Governance Statement. 2017. [Online]. Available at:
https://www.woolworthsgroup.com.au/content/Document/Woolworths%20Group%202017%20-
%20Corporate%20Governance%20Statement.pdf [Accessed on: 16 April 2018].
Woolworths Group. 2017. Annual Report. [Online]. Available at:
https://www.woolworthsgroup.com.au/icms_docs/188795_annual-report-2017.pdf [Accessed on:
16 April 2018].
Woolworths Group. 2018. [Online]. Available at:
https://www.woolworthsgroup.com.au/page/about-us [Accessed on: 16 April 2018].