Inherent Risk Assessment Template for Woodside Petroleum: Task 2(b)

This document presents an inherent risk assessment for Woodside Petroleum, focusing on the susceptibility of material misstatement before considering any internal controls. The assessment analyzes various factors, including the nature of the client's business in the oil and gas industry, results of previous audits, the quantity of non-routine transactions, required estimates and judgments, and potential fraud risk factors. The analysis considers factors like the company's exploration plans, changes in the IT environment, and accounting procedures. The conclusion summarizes the overall inherent risk level as a combination of low, moderate, and high risks based on the evaluation of these factors. The document also includes references to relevant annual reports and auditing standards (ASA).

Assessment Task 2(b) Template – Overall inherent risk assessment.
You will find the template on the next page of this document (adapted from Exhibit 3-
8 in the Lakeside Company Case Study).
PLEASE read and follow these instructions carefully for filling in the template
AND inserting it in your Discussion Forum (DF) post.
You only need to complete (fill-in) the relevant blank columns of the Template –
there is no need to change ANY formatting, just fill-in the requested information.
There is no need to add your name anywhere because you will copy the template
into the DF post that automatically adds your name.
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will automatically wrap … again, there is NO NEED to adjust any formatting!
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guidance) provided in the Assessment (Assignment) Task 2(b) folder in the
Once you have added the requested information to this Template:
1. SAVE a copy for your records;
2. Locate and open the DF post on which you nominated your chosen entity;
3. Choose to REPLY to your original post, select the completed TABLE on the
template and COPY the TABLE into the message.

NAME of your
Entity >>>
DISCUSSION
FACTOR According to ASA200.13(n)(i)
inherent risk (IR) is a measure of the
susceptibility of material
misstatement before considering any
internal controls.
LOW MODER
ATE HIGH
Nature of
client’s business
This is an Australian company, which
served in the Oil and gas industry.
This company is the largest operator
of oil and gas production within
Australia. The company is engaged in
the business of hydrocarbon
Exploration, evaluation, development,
producing and marketing of oil and
gas. The company operates in three
major segments that is present
globally. The project that is under
producing segments are North West
Shelf (NWS) project, Pluto liquefied
Natural Gas (LNG) and Australia Oil.
Development incorporates the
floating Liquefied natural gas
(FLNG) (Woodside.com). The other
segments deals in the trading and
shipping activities. The (NWS)
project of the company operates in the
exploration, development, production
and sales of type of gasses for
Example “Liquefied natural gas,
pipeline natural gas, liquefied
petroleum gas and crude oil. The
LNG project of the company operates
in the exploration, evaluation,
development, production and sale of
the liquefied natural. The yearly
production of the NWS project is 34.0
and the cost of production is 3.6$
with a sales revenue of
$1,497(Annual Report. 2018). The
production of LNG is more than
NWS that is about 43.3 and has a
Low

production cost of $3.6 with a sales
revenue of $2510. The capacity of the
project has also increased from 4.3 to
4.9 mtpa. The company produces 70
LNG cargoes out which all of them
are sols 9 cargoes on spot, and rest in
contracts. The company is focusing to
improve their NWS project as their
LNG project is operating well in the
market. The company also needs to
show a concern on their Natural gas
production and sales. The production
percentage is 86% and the sales
percentage is 80% which means the
company is not utilizing the full
production.
Results of
previous audits
The operating income revenue, EBIT,
Net profit and the free cash flow all
are less from the current year. The
operating income was 3975, the EBIT
was 1714, the net profit was 1069 and
the cash flow was 832 for the year of
2017(Annual Report. 2017). The key
ratios for example the Return on
equity, earnings are also less than this
year. The Percentage on return on
equity is 7.1% and the percentage on
earnings is 123%. From the last ten
year data summary it is seen that the
value of operating income in the year
2014 was more than the rest of the
years. The value is $7435 million.
Moder
ate
Initial versus
repeat audits
There are changes in the audit reports,
in the year 2018 from the other years.
The depreciation charges of the
company increase which was
decreasing in the previous years of
2017, 2016. The provision release for
the company remains the same, of
$120 million in the previous year it
was also same. The sale volume was
reducing in the previous years, in the
year 2016 sales volume was reduced
Low

by $831 million and the in the year
2017 by $392 million (Annual
Report. 2016). This year the sales
volume have increased. This shows
the company is repeating audits the
company is trying or focusing to the
increase the numbers which was
reducing and decreasing.
Quantity of non-
routine
transactions
The transaction that involves
accession and destruction of an asset
or business unit, accepting or
rejecting an effective business plan,
closing or opening of a plant all these
transaction comes under routine
transaction. The transactions like
Exploration and evaluation of assets,
differed tax rate, Interest bearing
liabilities, impairment loss,
Exploration and Evaluation written
off. PRRT received, Payments for the
restoration these are all the Non
routine transactions that have been
found from the financial statement of
2018 audit report of the Woodside
petroleum.
Moder
ate
Quantity of
estimates and
judgement required
for accounts
There are some accounts which
require accounting estimates and
judgements. The income tax that is
$2062 million in the year 2018
requires judgement and estimation as
due to the changes in the tax laws and
rates, affect the business (Coetzee and
Lube. 2014). The value of the
inventory may change daily as due to
the fluctuation in the market. The
accountants then estimate the value
by using Fifo and Lifo method and
they also keep a judgement in writing
down the value if the inventory
becomes outdated. The Depreciation
also require some financial estimation
requirements.
Moder
ate
Potential for The risk factors according to ASA high

fraudulent
financial reporting
& misappropriation
of assets (fraud
risk factors, see
ASA 240)
240 arising from the dishonest
financial reporting
(Legislation.gov.com). The economy,
industry or the operation of the entity
often threatens the company’s
financial position and stability. These
may occur dur to incapability of
generating cash flows from the
operation, facing difficulty in
adopting the new changes. Excessive
pressure on the management to meet
the goals of the organisation
(Johnstone, Grambling and
Rotenberg. 2013). Deficit in the
internal control components as the
high turnover rates and the internal
audit is not so effective. The risk
factors due to misappropriation of
Assets such as the Insufficient use of
keeping the records, insufficient in
safety of cash and inventory.
Deficiency in timely and completely
reconciliation of assets.
List any other
factors (can you
see any
illustrations in
your client’s
annual report of
the examples in ASA
315, Appendix 2 and
ASA 570.A2?)
The other factors that indicate risk
they are
Exploration plan in the business, as
the Woodside petroleum is having a
plan in exploration of their business
in Myanmar, Sengal, Gabon and Peru.
However if the business does not
operate well then the company will
have to incur a huge loss.
The relevant changes in the It
environment (Johansen and Peterson.
2013). The company planning to
some changes in the It department so
that can keep better control over the
business.
Lack of using appropriate methods of
accounting and analysing reporting
skills. The company is not using
appropriate methods for the
transaction. The complexity in the
Low

accounting procedure they also make
the accounting wrong for the
company.
Conclusion:
Overall inherent
risk level
The above discussion come to a
conclusion with three low and three
moderate and one high risk level. The
nature of clients business, list of the
other factors and the initial versus low
report has a low risk. The reason
behind these is that the nature of
clients business is operating well the
audit reports shows the improvement
and the initial versus the previous
audit reports show that the initial
report improves a lot. The result of
the previous audit, the quantity of the
Non routine transaction, the quantity
of required estimates and judgement
inherits a moderate risk, the reason
behind this is that the quantity in non-
routine and the required estimation of
accounts of the entity has been
founded a lot which inherits a
moderate level of risk. The potential
for fraudulent risk factors is also there
for the company and the quantity for
these is more, so this why the level of
risk inherit is high.
References:
Annual Report 2017. (2017). Major Reports and Publications. [online] Woodside,
p.152. Available at:
https://files.woodside/docs/default-source/investor-documents/major-reports-(static-
pdfs)/14-02-2018-annual-report-2017.pdf?sfvrsn=a0f9590_14 [Accessed 31 Dec.
2017].

Annual report. (2016). Major Reports and Publications. [online] Woodside, p.144.
Available at: https://files.woodside/docs/default-source/investor-documents/major-
reports-(static-pdfs)/01-03-2017-annual-report-2016.pdf?sfvrsn=39861556_8
[Accessed 31 Dec. 2016].
Annual Report. (2018). Major Reports and Publications. [online] Woodside, p.156.
Available at: https://files.woodside/docs/default-source/investor-documents/major-
reports-(static-pdfs)/annual-report-2018.pdf?sfvrsn=c9a46145_10 [Accessed 31 Dec.
2018].
Coetzee, P. and Lubbe, D., 2014. Improving the efficiency and effectiveness of risk‐
based internal audit engagements. International Journal of Auditing, 18(2), pp.115-
125.
Johansen, T.R. and Pettersson, K., 2013. The impact of board interlocks on auditor
choice and audit fees. Corporate Governance: An International Review, 21(3),
pp.287-310.
Johnstone, K., Gramling, A. and Rittenberg, L.E., 2013. Auditing: a risk-based
approach to conducting a quality audit. Cengage learning.
woodside.com (2019). Home. [online] Woodside. Available at:
https://www.woodside.com.au/ [Accessed 28 Aug. 2019].
www.legislation.gov (2006). Auditing Standard ASA 240 The Auditor's Responsibility
to Consider Fraud in an Audit of a Financial Report. [online] www.legislation.gov.
Available at: https://www.legislation.gov.au/Details/F2006L01368 [Accessed 28 Aug.
2019].