Research Project: UK Supermarket Financial Performance and Factors

This research project investigates the impact of corporate governance and Big 4 audits on the financial performance of the UK supermarket industry, with a specific focus on Tesco. The project begins with an introduction outlining the background, problem statement, research objectives, questions, and methodology. The literature review explores the influence of corporate governance and Big 4 audits on financial performance, analyzing the tools used for performance analysis and strategies to mitigate negative influences. The methodology section details the research approach, which relies on secondary data and qualitative analysis. Findings and data analysis are presented in Chapter 4, followed by conclusions and recommendations in Chapter 5. The study aims to identify how these factors affect financial performance, offering insights into best practices and potential improvements for supermarkets. The project emphasizes the importance of corporate governance in fostering trust and transparency, while also examining the role of Big 4 audits in enhancing credibility and attracting investors.

Research Project

Contents
Research Project..............................................................................................................................1
TITLE: “The impact of corporate governance and big 4 audit on the financial performance of
UK’s supermarket industry”............................................................................................................2
Chapter 1: INTRODUCTION.........................................................................................................2
1.1 Introduction............................................................................................................................2
1.2 Background of the study........................................................................................................2
1.3 Statement of the Problem.......................................................................................................2
1.4 Research Objectives...............................................................................................................3
1.5 Research Questions................................................................................................................3
1.6 Research Methodology..........................................................................................................3
1.7 Significance of the study.......................................................................................................4
1.8 Possible contribution to Knowledge......................................................................................4
1.9 Limitations of the study.........................................................................................................4
Chapter 2: LITERATURE REVIEW..............................................................................................4
Impact of corporate governance on the financial performance of UK’s supermarket industry. .4
Impact of big 4 audit on the financial performance of UK’s supermarket industry....................6
Tools used for analysing the financial performance of UK’s supermarket industry...................8
Influences laid by corporate governance and big 4 audit on financial performance of UK’s
supermarket industry can be minimised......................................................................................9
Chapter 3: RESEARCH METHODOLOGY.................................................................................10
CHAPTER 4: FINDING AND DATA ANALYSIS.....................................................................12
CHAPTER 5: CONCLUSION AND RECOMMENDATIONS...................................................15
Conclusion.................................................................................................................................15
Recommendations......................................................................................................................16
REFERENCES..............................................................................................................................18
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TITLE: “The impact of corporate governance and big 4 audit on the financial
performance of UK’s supermarket industry”
Chapter 1: INTRODUCTION
1.1 Introduction
Corporate governance is basically said to be as the set of the rules, procedures and laws
that are taken into consideration by the company while operating its business activities
effectively. Big 4 is generally given as the nickname to four professional services network in
world (Buallay, Hamdan and Zureigat, 2017). It can be said that corporate governance as well as
Big 4 audit places huge impact over the financial performance of the UK’s supermarket industry.
In this research project Tesco is taken as the main company for developing detailed
understanding on the corporate governance as well as big 4 audit on the financial performance of
UK’s supermarket industry.
1.2 Background of the study
Tesco is the UK based largest chain of Supermarket which own almost 28.4% share within
the supermarket industry. The respective company was incorporated in the year 1919 by Jack
Cohen. It has been acknowledged that this company owns good positioning within UK but at the
same it faces range of problems from its competitor’s side which ultimately affects its customer’s
proportion as well as its profitability within the same marketplace. It has been acknowledged that
the company is planning to attain first position within UK for this they are emphasising on
conducting detailed study on the corporate governance as well as big 4 audit with the motive of
acknowledging its influence over the financial performance of the entity. This would definitely
help them out in identifying their weak areas so that meaningful action could be taken towards
the same in order to accomplish proposed motive of the company.
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1.3 Statement of the Problem
Increasing competitiveness within the supermarket industry can be seen as the core
problem that has developed the scope of conducting investigation for acknowledging the
financial performance and how two factors named as corporate governance and big 4 audit could
affect its positioning in the business world. Recent innovations and development has provided
the motivation of select this topic.
1.4 Research Objectives
Research Aim
“To identify the impact of corporate governance and big 4 audit on the financial
performance of UK’s supermarket industry”.
Research objectives
 To identify the impact of corporate governance on the financial performance of UK’s
supermarket industry.
 To identify the impact of big 4 audit on the financial performance of UK’s supermarket
industry.
 To identify the tools to analysing the financial performance of UK’s supermarket industry
 To analyse the ways to minimise the influences laid by corporate governance and big 4
audit on financial performance of UK’s supermarket industry”.
1.5 Research Questions
 What are the impacts of corporate governance on the financial performance of UK’s
supermarket industry?
 What are the impacts of big 4 audit on the financial performance of UK’s supermarket
industry?
 What are the tools to analysing the financial performance of UK’s supermarket industry?
 How the influences laid by corporate governance and big 4 audit on financial
performance of UK’s supermarket industry can be minimised?
1.6 Research Methodology
For carrying out this investigation in appropriate manner researcher focuses on making use
of secondary data would be gathered from books, journals, newspapers, online articles and other
published materials (Walliman, 2017). This gathered information would be further analysed with
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the usage of qualitative method which is supportive in determining overall research outcome or
results from the core theoretical information.
1.7 Significance of the study
The core motive of conducting this study is to acknowledge overall influence of corporate
governance as well as big 4 audits firms so that its core role on financial positioning of the Tesco
could be acknowledged effectively. The research will also contribute in acknowledging best
possible ways through which things could get managed and impact of both factors over financial
performance of the company can be controlled effectively.
1.8 Possible contribution to Knowledge
The overall developed knowledge with the study will be helpful for Tesco in considering
corporate governance norms while executing their organizational activities. This would
definitely help the company out improvising the overall performance of the company which
would ultimately contribute in enhancing its financial position in lucrative form. This directly
maximises the overall knowledge of the investigator which would ultimately support them in
conducting more effective research in the near future.
1.9 Limitations of the study
The research completely relies upon the secondary data which becomes its core limitation
because the information attained from secondary study is not fresh as it includes only past
theories. This also places major influence over the core findings of the project in negative
manner.
Chapter 2: LITERATURE REVIEW
Literature review can be referred as the summary of sources in which the viewpoint of
several authors are compared on the topic and gaps in the study are analysed. This literature
review is based on the topic “To identify the impact of corporate governance and big 4 audit on
the financial performance of UK’s supermarket industry”.
Impact of corporate governance on the financial performance of UK’s supermarket industry
As per the view point of James Chen, 2020, corporate governance can be defined as a
system of practices, processes and rules through which an organisation is directed as well as
control. It involves balancing the interest of stakeholders of company like suppliers, customers,
senior management executives, shareholders, community, government and financiers. Good
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corporate governance assists the organisation to develop trust with community and investors and
assist in promoting financial viability through developing an opportunity of long term investment
for the participants of market (What Is Corporate Governance? 2020). Here, it can be said that
with the help of corporate governance business associations can effectively regulate and control
their organisational activities. Here, it has been further said that seen that the role of corporate
governance is not only limited to the company’s operational areas but at the same time it is
supportive in maintaining interest of organisational stakeholder’s which includes its customers,
government, management, suppliers and many others. On the other hand, financial performance
is referred as a subjective measure of how appropriately a company can utilise its asset from
primary business mood and developed revenues.
As per the opinion of Sikka, and Stittle, (2017), in an organisation, there are several
stakeholders involving investors, management, employees, creditors, bondholders etc. In
tracking the financial performance of organisation, each of these stakeholder group has its own
interest. The learning about financial performance of company can be gained by analyst through
data published by it in form 10K which is also called annual report of company. The main
purpose of the financial report is to give stakeholders with reliable and accurate financial
statements that gives an overview about financial performance of organisation. Apart from this,
the leader of company audit and sign the statements along with other disclosure documents. As
stated by ArAs, (2016), Corporate governance highly influences on financial performance of the
supermarket organisations in United Kingdom. Corporate governance plays a significant role in
developing culture of openness, transparency and consciousness. It is about having
accountability, competence and legitimacy in realm off policy as well as delivery of services
through simultaneously respecting human rights and laws.
It has been revealed from many studies that ineffective corporate governance practices lead
to poor performance as well as worry among stakeholders of supermarket. It is a system which
not only improve the relationship among stakeholders and shareholders of company, but also
make sure appropriate resources provision among competing users. As per the view point of Al
Okaily, Dixon, and Salama, (2019), Corporate governance helps in assuring the stakeholders that
they get adequate return on their investment. When the value of an organisation increases, it
eases in raising capital to make purchases. Corporate governance impact positively on growth of
business by making it easy for the company to raise adequate amount of capital and develop new
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products and services. Effective products and services of super market will help in generating
high sells that leads to increase in revenues of company and enhance its financial performance in
the market. However, it also has some negative influence as if the corporate governance strategy
of an organisation is not effective, then it weakens the confidence of shareholders on the
company and do not want to invest in such company from where they are not able to get returns
on investment (Aguilera, Judge and Terjesen, 2018).
Apart from this, lack of adherence to strategies associated with corporate governance main
incur maximize government oversight from the divisions looking to verify that the organisation
is operating within the law. It may involve business practices review including quality of
manufacturing facilities, legality of investments, employee pay and relations, influence of
practices of businesses on environment, honest reporting of losses, debts and profits etc. If the
government found a supermarket like Tesco to violate the government rules and regulations, then
it may face fines and penalties which adversely influence on financial performance of company
and also lower down its reputation in market. So, it can be said that corporate governance
impacts highly on the financial performance of an organisation (Owuor, 2018).
Impact of big 4 audit on the financial performance of UK’s supermarket industry
According to Buallay, Hamdan and Zureigat, 2017, the big four accounting firms such as
KPMG, Deloitte, Ernst & Young and PwC provide range of financial services such as auditing,
taxation, transaction advisory, risk advisory, consulting and actuarial services. These Big Four
perform audit over the majority of private and public sector companies throughout the world.
These in turn support organisation in having a better look over their financial performance and at
the same time help in determining the area where they required to make improvement for
enhancing its level of performance.
The financial reporting is consider to be one of the most successful sources of information
that is mainly used by the lenders, investors and other creditors for forming up tehri investment
decision. These big 4 audit firms are more reputed and trustworthy firms whose report about a
particular organisation enhance the credibility and hence attract the investor and enhance brand
image within marketplace whose report are being presented by these Big Audit houses. Hence,
these Big 4 Audits have a great influence over the financial performance of supermarket. As the
reports presented by these audit firm support the supermarkets in adding trust and confidence
over their financial data. This in turn further increasing the brand reputation and image within the
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supermarket industry and hence support in influencing financial performance by increasing the
support from its stakeholder. Other than this, these big audit firms are also operating from years
in this field which provide supermarket with better analysis of financial data that ensures that
true image of its performance is presented in front of organisation which in turn aid in taking
right decision for further improving eth performance and enhancing the financial growth of
supermarket industry.
On the other hand, Nawafly and Alarussi, 2016, stated that financial statements audit is
consider to be a significant tool which help in reducing the information regarding asymmetries
and maintaining the efficient market environment. But if an organisation wants to improve its
performance with the help of audit practice then it ensures the credibility and reliability of the
financial information provided by them. As the impact of audit quality over the financial
performance is relatively higher. The accuracy and quality that are maintained while performing
audit process contribute a lot in affecting eth overall financial performance of a supermarket
working with UK industry. The higher the quality and standard maintain in delivering the
services the better there remains a chance to take correct financial decision which ensures right
actions to be taken toward further improvement of operations and reducing those actions that are
affecting the financial performance of company.
Other than this the external financial statement user such as current as well as potential
investors and other stakeholders want reliable information as on the basis of which they take up
the resource allocation decision. When the financers of organisation have huge confidence and
trust among the audited financial report of an organisation, they remain bound to invest more
fund within the organisation which results into increase in financial performance. The big four
audit are well known brand and offer their auditing services to range of public and private
organisation throughout the world and having a huge brand reputation. Therefor, there role
toward enhancing the financial performance of supermarket in UK is relatively higher. It offer
services to big supermarkets who are setting yup their monopoly in market and help them in
presenting their true image of financial performance which provide a trust to their customers that
they are being served ethically. Other than this the report presented by these big four audit
houses also attract more investment from the investors which is the reason they are getting full
support from current as well as potential stakeholders and hence help in attracting the fund which
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they require for growth. Therefor it can be said that these big four audit are very much helpful in
improving the financial performance of supermarket industry within UK.
Tools used for analysing the financial performance of UK’s supermarket industry
As per the view point of Eshna Verma, (2020), financial performance is referred as an extent
to which financial objectives of company has been accomplished. It involves analysis as well as
interpretation of financial statements of an organisation in such a manner that it undertakes
complete diagnosis of financial soundness and profitability of business (Financial Performance,
2020). There are some tools and techniques which can be utilized for analyzing the financial
performance of supermarket industry of United Kingdom. These tools include average analysis,
fund flow analysis, cost volume profit analysis, ratio analysis, common size statement, trend
analysis etc. Some of the methods which are used to analyses the financial performance of
supermarket sector in United Kingdom are discussed below in detail:
 Comparative statements: it deals with comparison of distinct items related to profit and
loss account as well as balance sheets of two or more years. It is also called horizontal
analysis which shows financial position and profitability. By the help of these statements,
supermarket organisation can gain an idea regarding financial position of company. The
comparison of financial statement is only possible when similar principles of accounting
are utilized in developing these statements.
 Common size statement: it is also called as vertical analysis in which financial
information is presented vertically for developing common size statement. In this, the
rupee value of statement contents is not considered but, percentage form is taken into
consideration for developing common size statement.
 Comparative income statement: It is the another statement through which a supermarket
organisation can analyses financial performance of its business. From the comparative
income statement, an organisation can obtain 3 types of crucial information including
operating profit, net profit and gross profit. The improvements and changes in
profitability of organisation is ascertained over a time period and if improvements and
changes are not satisfactory, the administration can determine the reasons for it and can
take corrective actions accordingly that need to improve the financial performance of
company.
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On the other hand, according to Al-ahdal and et. al., 2020, an organisation must regularly
evaluate about the financial performance as it support in determining the actual position of the
company and at the same time also help in determining the area where it is incurring losses and
reason behind it. There are several tools hat can be used for evaluating the performance of
supermarket within UK. These are,
 Cash flow analysis: The movement of cash within and outside the business is termed as
cash flow analysis, when the cash flows within organisation then it is known as cash
inflow and when it flows out of organisation then it is called cash outflow. The cash flow
statement is prepared in a manner where it represents the cash received and utilised
throughout the year. Hence this is considered to be an effective analytical tool which
analyse the cash flow that explains the reason for changing the cash. Additionally, it
support in assessing the liquidity of an organisation and help in taking the right decision
regarding the investment, operation and finance.
 Ratio analysis: The quantitative analysis of information presented within the financial
statement of company is consider as ratio analysis. This presents the relationship between
the items presented within balance sheet and profit and loss account of an organisation.
This in turn support the organisation in determining the solvency or liquidity position of
company that help in determining the capability of supermarket like TESCO to deal with
challenges and contingency risk.
Influences laid by corporate governance and big 4 audit on financial performance of UK’s
supermarket industry can be minimised
As per the information presented by Danoshana and Ravivathani, 2019, corporate
governance are basically those structure through which an organisation is directed and
controlled. It presents a relationship between the shareholders, board of director and other
stakeholders which directly create effect over the corporate strategy and financial performance of
organisation. On the other side audit performed over an organisation also influence the financial
performance of organisation by presenting the true image of manner in which to is performing in
market. But when an organisation fails to operate effectively with corporate governance within
the organisation then the audit presents the prior performance of organisation after processing
which in turn further influence the choice of investors and other stakeholder to be a part of
organisation in term of providing fund or purchasing product or services. Hence the
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inappropriate management of corporate governance and big 4 audit have a huge influence over
the performance of an organisation.
In continuation with this, Abozaid, Elshaabany and Diab, 2020, stated that the super markets
of UK must take corrective actions in this regard for minimising the negative impact of Big four
audit and corporate governance over the financial performance of an organisation. These are
mentioned below:
Leadership: The supermarkets in UK must be headed with an effective board which take
responsibility for the success of company in long term and also remains responsible for leading
and controlling the operations performed by an organisation. The supermarkets must ensure a
clear division of responsibility for leaders as per their area of expertise. This in turn help in
reducing the chances of corporate governance failure and hence work will be operate in
systematic manner which further contribute toward minimising the negative impact over
financial performance.
Effectiveness: The Board as well as committees of an organisation should posses a balance
of experience, skills and knowledge so that they would be able ti discharge their respective
responsibilities and duties appropriately. This in turn help in ensuring that the operations
performed within each department must be executed with adherence to standards and plan which
are formulated in advance. This ensure less possibility of any kind of fraud and
misrepresentation of information which in turn bring positive influence of auditing over the
performance of the supermarket in UK.
Accountability: The board must focus toward presenting a true balance and understandable
assessment regarding the company’s position and prospects. The organisations operating in UK
are required its director to disclose the business review as a part of directors’ report along with
financial statements (Agyei-Mensah, 2018). Hence, the board must focus toward formal and
transparent agreement regarding how the they must apply for the corporate reporting, risk
management and internal control principle. In order to maintain an appropriate relationship with
company’s auditor. This ensure that true assessment of information is done by the Big four
auditor while auditing process which in turn reduce the chances of negative impact of auditing
over the financial performance of the company.
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Chapter 3: RESEARCH METHODOLOGY
Methodologies are consider as the essential part of an investigation which contribute toward
providing information regarding several tools and techniques that are used in order to perform
investigation within current research project. This provide the method chosen out of available
one to gather, evaluate and interpret the information and at the same time provide valid reason
regarding choosing it (Kumar, 2019). The combination of methodologies selected help a lot in
influencing the outcome of research. Other than this it also helps the readers in getting an idea
about the reliability and validity of data.
Research strategy: The research strategy basically refers to the method which is adopted
for collecting the information about particular area of investigation. This is one of the crucial part
of methodologies over which the success of whole investigation depends and on the bases of
research strategy adopted further methods are adopted by the investigator that are interrelated
with it. The most commonly used strategies within investigation are qualitative, quantitative or
mixed method (Mackey and Gass, 2015). Among them all the qualitative strategy will be
adopted as it helps in providing the detail understanding regarding the area of study. This is so
because it makes use of theoretical framework which presents detailed theory and concept about
area of study which further help in developing in depth understanding regarding the phenomenon
to be discussed within study.
Data Collection Methods: Data collection is generally acknowledged as the effective way
through which researcher emphasizes on gathering information on the proposed topic. This is
effectively done by simply making use of two most popular methods such as primary and
secondary methods. For carrying out present research in most effective manner, the respective
investigator has made use of secondary method in order to access maximum information within
the available period of time (Mzi, 2017). For executing the current research information is
gathered using sources such as books, journals, articles, blog and other webpages using online
sources as it provides the most updated and edited information. The main reason behind using
this method is that it allows investigator in attaining maximum information in limited period of
time. Also, it helps investigator in looking the topic with different point of views which
ultimately contributes in attaining its outcome in the quicker manner.
Data analysis: It is a process through which the gathered data is evaluated in order to
convert it into meaningful information with relation to research aim and objectives. This ensures
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