Adherence to ASX Principles on Board Structure and Composition

Discuss about the Audit Assurance and Compliance for ASX Corporate Governance.

Australian Securities Exchange (ASX) has established standard state of principle and guidelines for business entities operating with Australia regarding the adoption and implementation of an effective corporate governance framework. As such, the analysis of the compliance of Woolworths, an ASX listed corporation as per its standard corporate governance procedures is carried out as follows:

Woolworths as per this ASX principle has effectively established and disclose the respective roles and responsibilities of the board and management. The corporate governance statement of the company has established that the major role of Board is to protect the interests of shareholders and enhance their value. The responsibilities of the Board include strategic planning, financial oversight, financial reporting, selection of business leaders, development of effective corporate governance rules and risk management and remuneration committees. The CEO is accountable to the Board and in support of senior management should report to the Board about the daily management and operations of the company. Also, the company has established an effective framework for monitoring and evaluation of the performance of Board and management ASX Corporate Governance Council, 2014). The evaluation of the performance of Board and its associated committed is carried out on an annual basis in which the performance of each director is assessed through an annual performance evaluation process. The feedback is taken from all the directors and senior management for completing the performance evaluation process of each director. The People Performance Committee is established by the Board for performance evaluation of CEO and other group executive committee members and reporting to the Board ASX Corporate Governance Council, 2014).

ASX listed entities need to develop an effective composition of Board having adequate skills, size and competencies so that it can meet its roles and responsibilities appropriately. Board of the company has maintained diverse range of skills, backgrounds and experiences among its directors to ensure a rationale decision-making ASX Corporate Governance Council, 2014). It is also committed to enhance diversity within the board composition having both men and women working as executive and non-executive directors. The key skills set and experience maintained by Woolworths ensures the achievement of its strategic goals and priorities ASX Corporate Governance Council, 2014).

The Code of Conduct established by Woolworths has ensured that all directors, employees and managers carry out their roles and responsibility as per the ethical procedures and practices. The standards are developed as per the ethical principles of honesty, integrity and fair dealing to ensure that all business procedures are carried out in an ethical manner. In addition to this, the company has also undertaken different programs for restricting the occurrence of unethical practices (Fleckner and Hopt, 2013). The Corporate Responsibility Strategy of the company has defined the commitment of the company for acting responsibly towards customers, communities, people and environment. It is also emphasizing on attracting and retaining a competent workforce having a positive customer focus to provide a safe and engaging working environment ASX Corporate Governance Council, 2014).

Ethical Practices

ASX listed entities need to have a rigid process for verifying and safeguarding the integrity of corporate reporting as per its CGC principles. The Board of Directors is responsible for approving, monitoring and review the management process involved in development and presentation of financial statements. This is done to ensure the integrity in financial reporting. Also, the company continually discloses its financial information to provide the shareholders timely and accurate information. This is done to promote the confidence and trust of investors about the integrity of its financial reporting process ASX Corporate Governance Council, 2014).

The business companies should make timely and balanced disclosure of all the matters having a material effect on the securities price. As such, Woolworths have adopted a policy of continuous disclosure to ensure that end-users are bale to access timely and relevant information supporting their decision-making process. The policy aims to effectively comply with all the regulatory compliance, assess the accountability of Board and senior executives and improving the trust of investors in the reliability and accuracy of the financial information. The company aims to make balanced disclosure of its financial and non-financial information in the annual and sustainability report developed on yearly basis so that stakeholders gain access to all the required information for making effective decisions (Plessis, McConvill and Bagaric, 2005).

Woolworths as per the ASX principle of providing right to security holders through disseminating them adequate information has effectively disclosed the policies of shareholder engagement undertaken in its corporate governance statement. The shareholders are provided all the required information of the material matters impacting the company performance by ASX announcements, periodic communications and also through the use of variety of forums and publications. The company website also has presence of shareholder communication policy that provides a range of information relevant to shareholders such as update off share process, dividend policy, published reports, and details of meeting held with shareholders and other material announcements. It has also developed an effective investor relation programs that are specifically designed for facilitating communication with the shareholders (Bazley, Hancock and Robinson, 2014). The specific activities included within the program aims at conducting Annual General Meeting and releasing annual report that discloses half and full-year financial results ASX Corporate Governance Council, 2014).

Woolworth has also established a sound and effective risk management framework for periodically reviewing the effectiveness of the framework. The Group carries out complex business activities and therefore is exposed to different type of strategic, financial, operational and compliance risks. The risk is inherent within the operational activities of the company and therefore it is essential for development of an effective plan to reduce the possibility of occurrence of such risks. The company has developed an effective risk management framework for managing the material risks as per the standard regulations and guidelines. The framework designed has distinctly categorized the role and responsibilities of different levels of management to identify, evaluate control and mitigate the risks. As per the company’s corporate governance statement, it has also obtained assurance about the accuracy of its financial information through carrying out internal and external audit. It assures that all type of materialistic risk are mitigated and controlled by the company effectively (ASX Corporate Governance Council, 2014).

Risk Management

Board has developed remuneration committee for deciding over the matters related to remuneration offered to its senior executive people. The board reviews the performance of the Key Management Personnel (KMP) and approving the remuneration to the CEO and other group executive members. Thus, remuneration matters are decided by the board in association with the CEO and the executive members ensuring that the process is fair and just (Woolworths Group, 2017).

In order to ensure that there is no material risk present in the company it is essential to carry out the risk assessment procedure. The risk assessment procedure is followed to provide a basis in relation to identification and assessment of risks of material misstatement that are present in the financial statement and other assertion levels. It is also that risk assessment procedure that are auditor themselves, do not provide appropriate evidences on which audit opinion can be provided. There are three main procedures that are carried under the risk assessment procedures, they are inquires from the management, analytical procedures and observations and inspection (Auditing and Assurance Standards Board, 2009). The risk assessment procedure is provided in the International Standard on Auditing 315 and this process is conducted to ensure that any information provided to the auditor either material or non material is free from errors and any material misstatement. This section of the report discusses risk assessment procedures that are essential to analyse the risks that are presented in financial statement and other data given to the auditor. In this section analytical procedures that are defined in the Auditing Standard ASA 520 are performed in context to Woolworth Company. The analytical procedures includes identification of nature of company, market overview, reviewing business strategy and analyzing financial performance to give comment on the inherent audit risk present in the financial statements of the company (O’Donnell and Perkins,   2011).

Woolworth is the famous retail brand that operates in Australia and it is involved in retail sale of consumer goods at very large level. The retail operations of Woolworth includes sales at different segment of retail business such as supermarket, petrol, liquor, home improvement, hotels, and other retail services. The main mission of the company is to provide high quality products and services to their valuable customer in very reasonable price (Woolworths Group, 2018).

Woolworth mainly operates in Australia and covers all the major areas of Australia. It has acquires some subsidiaries that have businesses in both Australia and outside Australia. The retail market in Australia has potential to give company desirable amount of revenue and also have high growth rate. Woolworth almost covers the half of the retail market of Australia and it ranked amount top retail brand in the Australia (Strategy and objectives, 2018). 

Financial Reporting

The Woolworth Company has developed and implemented the business strategy that helps to develop its business through applying the principles of integrity. The business strategy that has been developed by the management helps to increase the shareholders value up to maximum standards. The main motive is to deliver the best quality product to the customer that has best value, highest quality and as per the needs of the customer. It can be said that business strategy of the company is in line with the business needs and vision. There is no point mentioned in the business strategy that proves that company is following any unfair practices that leads to undue losses to the shareholders of the company (Strategy and objectives, 2018).

Evaluating the financial performance of the company using the comparative analyse and applying other financial method is the most important part of the analytical procedures as mentioned in the audit standard (Putra, 2010). In light of the audit standard the comparative analysis of the Woolworth through using the income and balance sheet ratio:

Income Statement ratio: The ratios that are computed using the financial items of the income statement. Some of the important ratios of the income statement are gross profit ratio and net profit ratio.

Gross profit margin: Gross profit /Net Sales	Net profit margin = Net Profit/Net Sales
Gross Profit (2017) = 15929 AUD million	Net Profit (2017) = 1534 AUD million
Net Sales (2017) = 55669 AUD million	Net Sales (2017) = 55669 AUD million
Gross profit margin Ratio = =28.61%	Net profit margin Ratio = 2.75%

Balance Sheet Ratios: The balance sheet ratio represents ratios that are calculated using the financial items of the balance sheet. Some of the important balance sheet ratios are as follows:

Current Ratio: Current Assets/Current Liabilities	Debt Equity Ratio = Debt/Equity
Current Assets (2017) = 6,994 AUD million	Debt (2017) = 13040 AUD million
Current liabilities (2017) = 8,824 AUD million	Equity (2017) = 9526 AUD million
Current Ratio (2017) = 0.79 times	Debt Equity Ratio (2017) = 1.37 times
(Woolworths Group: Annual Report, 2017).

Audit risk that have been found in the financial statement of the Woolworth and has impact of the materiality of the financial statements

Some of the important risks that have been identified in the financial statement of the Woolworth and have impact on the audit procedure are as follows:

• Market risk: Market risks refer to the risks that can arise due to movement in the price of the foreign currency and it is important because Woolworth has business outside Australia. Market risk can impact the materiality of financial statement as it is not feasible to report each and every change in the financial report of the company. It is very hard to carry out the audit procedure for the transaction that is carried out of the country. Therefore there are many audit risk associated with the transactions of foreign country. Market risk can be managed through applying various financial control techniques and use of appropriate combination between the fix and floating interest rate with the use of swap contract options.
• Credit Risk: Audit risk can arise when company has been default in meeting the obligations and results will the financial loss to the company. So it is important that auditors must overview the liquidity position of the company very carefully in order check whether company has sufficient liquidity to meet the obligations. There are various ways to reduce the credit risks such as checking the creditability and liquidity position of the company time to time in order to avoid the shortage of funds (Woolworths Group: Annual Report, 2017).

Conclusion

The report concludes that ASX principles have lead to the strengthening of the corporate governance framework within the Australian business entities. Also, the development of ASA 50 have enabled to the establishment of analytic procedures for assessing and mitigating the audit risk of a business entity.

References

ASX Corporate Governance Council. (2014). Retrieved 24 April, 2018, from https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-recommendations-3rd-edn.pdf

Auditing and Assurance Standards Board. (2009). Auditing Standard ASA 520 Analytical Procedures. Retrieved 24 April, 2018, from https://www.auasb.gov.au/admin/file/content102/c3/ASA_520_27-10-09.pdf

Bazley, M., Hancock, P. and Robinson, P. (2014). Contemporary Accounting PDF. Cengage Learning Australia.

Fleckner, A. and Hopt, K. (2013). Comparative Corporate Governance: A Functional and International Analysis. Cambridge University Press.

O’Donnell,   Ed & Perkins,   D.  (2011). Assessing   Risk   with   Analytical   Procedures:   Do   Systems-Thinking   Tools   Help Auditors   Focus   on   Diagnostic   Patterns? Auditing; Sarasota    30 (4),   pp. 273-283.

Plessis, J., McConvill, J. and Bagaric, M. (2005). Principles of Contemporary Corporate Governance. Cambridge University Press.

Putra, L. (2010). The Use Of Analytical Procedures In Auditing. Retrieved 24 April, 2018, from https://accounting-financial-tax.com/2010/04/the-use-of-analytical-procedures-in-auditing/

Strategy and objectives. (2018). Woolworths Group. Retrieved 24 April, 2018, from https://www.woolworthsgroup.com.au/page/about-us/our-approach/strategy-and-objectives Woolworths Group. (2017). Annual Report. Retrieved 24 April, 2018, from https://www.woolworthsgroup.com.au/icms_docs/188795_annual-report-2017.pdf

Woolworths Group. (2017). Corporate Governance. Retrieved 24 April, 2018, from https://www.woolworthsgroup.com.au/content/Document/Woolworths%20Group%202017%20-%20Corporate%20Governance%20Statement.pdf