Semester 3, 2019: Auditing and Assurance Report on Woolworths Group

This report provides a comprehensive analysis of the auditing and assurance aspects of Woolworths Group, a major Australian retail company. It begins with an introduction to the company, its operations, and its financial performance, including sales, EBIT, and key financial highlights. The discussion section delves into the company's business risks, including those related to strategy, competition, administrative expenses, expansion, liquidity, customer preferences, external factors, and supplier relationships. The report also assesses the company's capital structure using financial risk ratios, such as the debt-to-equity ratio and current ratio, and analyzes the impact of these ratios on the company's financial health. Furthermore, the report examines the company's corporate governance practices, including the composition and skills of the board of directors, and evaluates their effectiveness. The report concludes by summarizing the key findings and highlighting the company's performance, risks, and governance practices. The report is based on the company's annual report and provides a detailed overview of its financial position and operational strategies.

Running head: AUDITING AND ASSURANCE
Auditing and assurance
Name of the student
Name of the university
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Table of Contents
Introduction......................................................................................................................................1
Discussion........................................................................................................................................2
Conclusion.......................................................................................................................................8
Reference.........................................................................................................................................8
Introduction
A major Australian based Retail Company; Woolworths Group is the second largest
company in Australia as per the revenue. The company has founded on 1924 with its operations
that involved supermarket, liquor retailing, hotels and pubs under the Australian Leisure and
Hospitality group. The company has listed with Australian Stock Exchange with the market
capital of 54.576 billion. Woolworths inaugurated its first store as the Woolworths Stupendous
Basement. The company had a nominal capital of 185,000 pounds and 85,000 shares were
offered to the public. Subscription was only 81,707 shares. This group is mainly ran by its
purpose that create better experience for better tomorrow by working together. In the recent
economy, the customer demands are changing rapidly and to meet the customer demands the
Group is continuously transforming by experimenting together. From the point of the impact of
the organization, 196,000 plus team members, executive and senior manager positions held by
women 34%. Responsibility towards the community, the company has 44.3 million dollar direct

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community investment, 70 number of brand products. Concerning about the economic point of
the company, it drives the cash flow before dividends of 941 million dollar, returns on funds
24.2% and EBIT of the company is 2,724 million dollar.
Discussion
a. The Group, Woolworths has been considered as some of the most trusted brands in
Australia. The view of the organisation that while they operate their business, they endeavour to
create an excellent experience for each of their 28 million customers nationwide. This group has
three core businesses are Australia Food, New Zealand Food, Endeavour Group Limited
(woolworthsgroup.com, 2020). After analysing the company’s annual report it has been observed
that, Australian food sales performance improved in the second half, it ends the year with a good
momentum after a challenging phase. The VOC NPS of the Australian food’s was up 3 points in
respective of the previous year. Sales has increased by 5.3% to 39.6 billion dollar or 3.3% on a
normalised basis. Increase the comparable sales by 3.1% for the relevant year along with the
transaction growth of 1.8%. Sales of 39,568 million dollar in this particular Australian food area,
which is 3.3% up from the previous year. EBIT is 1,857 million dollar, which is also 3.8% up
from 2018(woolworthsgroup.com, 2020).
New Zealand food also backed a strong second half with the improved customer metrics.
It shows a strong sales and EBIT growth. The sales of 6,712 million dollar has come from New
Zealand Food sector, 2.4% growth from the previous year. EBIT has also growth of 1.0% from
the prior year and shows 296 million dollar (woolworthsgroup.com, 2020).
In the case of Endeavour Drinks, it evolves continuously in financial year 2019 with the
early progress on Dan Murphy’s repositioning. Considering the sales, the report reveals 8,657

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million dollar with 3.2% high and EBIT position of 474 million dollar, which is 9.7% down
(woolworthsgroup.com, 2020).
In the recent competitive world, Woolworths has set their standards of operations and
quality services to its customers. They are serving the millions of their customers in every
community across Australia and New Zealand. Organisation is managing the long lasting benefit
in the retail sector (Chang, Yeh & Liu, 2015).
The key highlights of financial year 2019 are as follows:
February 2019- the Group signs up to BCA Supplier Payment Code, the transitions of
Woolworths Supermarkets away from $1 per liter milk (Knox, 2015).
March 2019- this concern has launched new digital media platform, Cartology.
April 2019- Completion of Petrol sale to EG Group, Big W network review completed.
May 2019- the buyback share of 1.7 million dollar has been completed (Parkinson, 2018).
As per the report of February 2020, the group Woolworths converted a major expansion
at western Australian organic farm Gingin (Knox, 2015). It has become the recent beneficiary of
this group and the first from Western Australia.
The Australian food market forecast to reach 80.7 billion dollar by 2024, with a CAGR of
5.1%. There are several opportunities in the Australian foodservice market. Steady and positive
growth was showed by the chained food operators and are expected to continue to grow year on
year, during the forecast period (Pagotto, & Halog, 2016).

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b. Five areas of identified business risks of Woolworths Group that may lead to material
misstatement are as follows:
1. The Strategy of Woolworths Group and the competitive environment it is working in is a
cause of business risk. The retail industry in Australia is constantly changing, and new
technologies are coming up daily. The customers of Woolworth’s group have a change in
their preferences every day. Although this creates an opportunity for Woolworths, it can
cause an issue of material misstatement. The competitive environment of that Woolworth
is subjected to create a risk for material misstatement as this creates pressure on the
management to present a financial report that has been manipulated so that it can attain a
better position than its competitors. The administrative risk of Woolworths Group has
increased from AUD 3,529 million in 2018 to AUD 3,682 in 2019, and the branch
expenses had increased from AUD 10,854 million in 2018 to AUD 11,695 million in
2019. This transaction poses a risk of material misstatement since the expenses have
increased; it affects the profit of Woolworths Group. Woolworths Group must provide
various incentive schemes for its employees if they can successfully implement the
company’s strategy. A review of the various activities of Woolworths Group’s business
must be done to prevent such risks (Methner, Hamann, & Nilsson, 2015).
2. The expansion of the business of the Woolworths group is a cause of business risk. The
company Woolworths Group is at a transformational phase and is having to pace up with
the rapidly changing environment it is working to be successful in its transformation and
expansion. But this creates a potential risk that the demand of Woolworths Group is not
accurately estimated. The cash held by Woolworths Group has decreased from AUD

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1,273 million in 2019 to AUD 1,066 million in 2019. This transaction poses a liquidity
risk for the Woolworths Group.
3. The marketplace that Woolworths Group is working in is highly competitive because its
customers are opting for online shopping (Al-Debei, Akroush & Ashouri, 2015).
Woolworth group has expected that its customer base will remain volatile in the financial
year 2020. Still, the inventories of Woolworths Group have increased from AUD 4,233
million in 2018 to AUD 4,280 million in 2019 due to an increase in production, but this is
at a business risk as Woolworths Group is facing high competition. The experience of
different customers of Woolworths Group must be tracked regularly. Woolworths Group
must conduct various surveys so that the needs of the customers are properly understood.
This type of tracking of customer experience will help in reducing risks of Woolworths
Group in the market place.
4. The business of Woolworths Group is highly interrupted due to various external factors
like disputes in the industry, failure of the technology that Woolworths Group uses, etc.
The Contingent liabilities of Woolworths Group has increased from AUD 596 million in
2018 to AUD 603 million in 2019. This transaction has not been presented in the
financial statement of Woolworth Group because of its reliability issue. But the existence
of this contingent liability is due to the company's business risks due to the external
factors (Bachmair, 2016). Woolworths Group must monitor the various external threats
that can lead to a lowering of the organization’s performance levels. Woolworths Group
must practice different types of exercises in the company to test the capability of the
company to respond to various external threats. Woolworths Group must create several

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back-ups of its data so that it can avoid external risks. Woolworths Group must also use
Information Technology extensively so that it can avoid such this type of risks.
5. Woolworths Group sells products that are bought from both national and international
sellers. A good relationship with the suppliers of Woolworths Group is required to run
business. The accrual trade payable of Woolworths Group has decreased from AUD
1,435 million in 2018 to AUD 1,242 million in 2019. This transaction can be a
misstatement for Woolworth Group for the reason that it has to maintain a good
relationship with its suppliers. Woolworths Group must ask for feedback from its national
as well as international customers so the suppliers can inform the company on their
perspective, and then their opinions can be escalated. This feedback system can help
Woolworths Group in maintaining a good relationship with its various suppliers
(Vecchiato, 2015).
c. A company’s capital structure is assessed by the financial risk ratios and the current risk
level related to the company’s debt level (Hossain & Hossain, 2015).
Based on the financial statement analysis, the company’s debt to equity ratio for the
current year is 28%, which is more than the previous year, 2018 is 21%. So higher D/E ratio
indicate negative impact of the company to recover additional financing. Total debt of the
company 12,822 and 12,542 million dollar in 2019 and 2018 respectively. Debt has increased
and the position of equity is 10,699 million dollar in 2019, lower than 2018 that was $10,849
(Kamar, 2017).

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Current ratio is also decreased from 0.78 to 0.73. Therefore, the company has liquidity
crunch. Lower ratio indicates that the company is certainly not able to meet the short-term
obligations. Company’ total current assets has decreased to 6,298 million dollar in 2019 from
7,014 million dollar in 2018. Whereas the current liabilities 8260 million dollar which is also low
from the previous year. In 2018, it was 9,029 million dollar (Ulzanah & Murtaqi, 2015).
As per the report, it suggests that the company has negative working capital of $1962
million. It happens due to the increment of trade payables. The negative working capital can
affect the long-term investment abilities and its financial strength to cover short-term liabilities.
In the financial statements the company’s trade payables has declined but the company allotted
more provisions. Therefore, a probability in risk of misstatement might be taken place (Bandara,
2015).
d. As per the company’s annual report the group, Woolworths has been followed every
recommendations of the ASX Corporate Governance Council’s governance principles and
recommendations throughout the reporting period. The group has eight directors. Diverse range
of skills, experience and backgrounds supports the effective governance and robust decision-
making within the group. The board has evaluated its director’s skills and experience collectively
across the key desired areas listed below. Considering the strategic positioning within the group,
an evaluation of these skills and experience takes place regularly.
Director’s skills and experience towards the retail market is 8 out of 9.
Skill set towards Governance is 8 out of 9
Towards the strategy is 9 out of 9