Wesfarmers’ Board Structure and Social Responsibility

Lay solid foundations for management and oversight:

It is important for the growth and development of any business to have a set of roles and responsibilities for the managerial staff and the Board of Directors (BOD). At Wesfarmers the role of the Board is to approve the strategic plans laid down by the management, guide and monitor the workings of the staff and keep an eye on the governance of the company (Lama & Anderson, 2015). The Managing Director of Wesfarmers is responsible for the day-to-day management of the business. The ultimate role of the board is the strategic planning for the growth and development and monitoring the managerial workings. The management is engaged in preparing and presenting the policies, plans, outcome, review, etc. for the approval of the board.

Structure of the Board to add value

The Board structure of Wesfarmers is highly qualified and experienced and adds value to the workings of the company. The past experiences of all the Board members are diverse which a plus point is for the company. The Board structure along with the skills of the members is tabulated below:

Name Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	Designation	Current designation since	Specialization
Mr Michael Chaney AO	Chairman	November, 2015	He specialises in the statutory compliances of the company as he joined Wesfarmers as a Company Secretary in 1983
Mr Richard Goyder AO	Managing Director	July, 2002	Mr Richard has a financial background. As he has worked as a financial manager and CFO of Wesfarmers in the past years. And has clarity with the day- to- day working of the company.
Mr Terry Bowen	Finance Director	May, 2009	Mr Terry comes with an immense experience of finance and is currently looking after the accounts as a director and a CFO
Ms Jennifer Westcott	Director	April, 2003	Ms Jennifer is well known for her leadership qualities from her past experiences.
Ms Vanessa Wallace	Director	July, 2010	Considering her past workings with various company it is found that Ms Vanessa is an excellent strategic management consultant
Mr Wayne Osborn	Director	March, 2010	Mr Wayne has been appointed at various levels in different companies and is competent in multi-tasking.
Mr Paul Bassat	Director	November, 2012	Mr Paul has good knowledge of law and finance which is used by Wesfarmers in a brilliant way.
Mr Tony Howarth AO	Director	July, 2007	He has an experience of more than 30 years in banking and finance
Ms Diane Smith-Gander	Director	August, 2009	She has an extensive knowledge of governance and provides strategic recommendations.
Mr James Graham AM	Director	May, 1998	Mr James has an exclusive experience of manpower management and leadership

(Anon, 2017)

Act ethically and responsibly

It is important for every company to follow the ethical ground rules for a better and smooth working. In order to assure long term promises Wesfarmers are socially active in sharing a part of their profits for the development of the society as a whole (Anon, 2018). No fraudulent activity is undertaken by the company and no false promises are made. The management and the Board of Directors are loyal to the company and to society as well.

Safeguard integrity in corporate reporting

Wesfarmers have a setup of committees and professionals who have the responsibility to safeguard the integrity of the company. Properly signed by the authorised signatory reports are uploaded on the website depending on the time period in which same is required to be done (Coffey, 2015). The reports that are maintained by the professionals of Wesfarmers are- Financial statements, Audit report, Director report, Governance report, etc. the data entered in the reports are cross checked by the CEOs and the CFOs and are verified by the Board members.

Make timely and balanced disclosure

It is the responsibility of the Company Secretary (Ms Linda Kenyon) of Wesfarmers to make the required disclosures on time. In order to make it easy, the company has developed a system by which the disclosure dates are readily available with the concerned person. With the help of this system, timely and corrective reports are submitted to the concerned authority.

Reports and Disclosure

Respect the rights of security holders

At Wesfarmers the shareholders are considered as the owners of the company. It is believed that the majority of the funds raised by the company are through the transactions made by the shareholders (Dahan, 2013). Hence, the rights of the shareholders such as right to vote, call an extra ordinary meeting, opportunity to inspect the books of accounts, etc. are preserved by the company for its shareholders.

Recognise and manage risk

It is important for a company to have prior knowledge of the risks associated with the workings. Also provisions to manage such risks should be readily available with the company to reduce its impact. At Wesfarmers, the risk management is done by the managerial staff in coordination with the Board Members.

Remunerate fairly and responsibly

In order to retain the employees of the company it is important for the company to provide accurate remuneration in respect to the designation and working. At Wesfarmers, proper remuneration policy is plotted down so as to provide appropriate remuneration to the employees, managerial staff and the Board Member (Hardy, 2014).

Risk assessment is the determination of the factors that could hamper the working of a company in a particular situation. It is important for a company to manage its risk beforehand so that at the time of contingencies, the stability in the working is maintained. There are various steps that are to be taken for proper assessment of risk. The focus areas covered for assessing the risk are discussed under:

Wesfarmers is an Australian based company since 1914. It initiated its business as a Western Australian Farmers and now has grown its business to one of the largest listed companies of Australia. The headquarter of the company is in Western Australia. The company has shown diversity in its working and had come up with various operations, some of which are: supermarkets, hotels, convenience stores, departmental stores, office supplies, etc. Wesfarmers is Australia’s largest private company employees around 223, 000 employees and has a shareholder ship of approximately 515,000.

Business risk assessment: The risks associated with this business of Wesfarmers are as under:

• Heavy competition is the most impactful risk to the profitability and business activities
• Consumer trend i.e. rapid change in need and wants of customers
• Economic conditions
• Change in government policies in recent years
• Disturbance in the channel of distribution i.e. supply chain of business is huge and has different organisations involved

(Ciprian, 2015)

According to the annual report of Wesfarmers there is an increase in the competition of the company. New companies are entering the business of retail world. But the thinking of innovation is the key to the stability of the company in the market (Elefterie, 2012). It is considerable that the growth of the company has increased 600 times in last 33 years from $80 Million to $48 Billion today. It is also noted that in this period $22.3 Billion of net equity has been raised and $23.3 Billion dividend has been paid to the shareholders.

Shareholder Rights and Remuneration Policy

As an economic contribution, Wesfarmers has contributed in developing employment for people every year and has also contributed in the raise of GDP of Australia.

• Equity Risk
• Interest Rate Risk
• Currency Risk
• Commodity Risk
• Margining Risk
• Holding Period Risk
• Shape Risk

During the year the company faces a lot of enquiry form the government of federal and state to which an immediate response is mandatory. Wesfarmers being the number 1 company in retails and supermarkets has to comply with many authorities. Some of these authorities are:

• The Australian Stock Exchange
• Australian Securities and Investments Commission
• Australian Prudential Regulatory Authority
• Reserve Bank of Australia
• Australian Competition and Consumer Commission
• Department of the Treasury
• The Federal and the State Government

(Gemma, 2013)

The only risk associated with the regulatory authorities is that, in case of non-compliance the license of the company to deal in market could be withdrawn

Business Strategies:

The primary objective of Wesfarmers is to satisfy its customers and shareholder by providing sufficient returns to them by the way of financial discipline and proper management of a portfolio providing diversified facilities.

The key towards the development of the company is the strategic planning which covers – the core values of the company, boldness in market, outstanding personnel, good financial capacity, proper social responsibility, innovation, cultural empowerment, commercial excellence, strengthening the existing business by satisfying the current customers to the maximum level, avail opportunities by the way of entrepreneurial initiatives, review and renew the portfolio of the services of the company by adding value to it and maintain sustainability through long term management (Hannak, 2011).  The only risk associated with the strategies of Wesfarmers is the dynamic environment and increasing competition.

Computation of income statement and balance sheet ratio

Statement showing calculation of ratio

Ratio	2017	2016
Current ratio	0.928 times	0.929 times
Acid Test Ratio	0.299 times	0.332 times
Net profit ratio	4.20 %	0.62 %
Return on total assets	7.16 %	1 %
Debt-to-equity	0.68 times	0.78 times
Interest coverage Ratio	22.73 times	5.48 times
Cash Adequacy Ratio	0.74 times	0.60 times

(Gauthier, 2009)

Common size Income Statement

Particulars	2017 ($)	Common size	2016 ($)	Common size
Revenues	68,444	100.00%	65,981	100.00%
Expenses:-
Raw materials and inventory	46,359	67.73%	45,525	69.00%
Employee benefits expense	9,132	13.34%	8,847	13.41%
Freight and other related expenses	1,096	1.60%	1,078	1.63%
Occupancy-related expenses	3,229	4.72%	2,959	4.48%
Depreciation and amortization	1,266	1.85%	1,296	1.96%
Impairment expenses	49	0.07%	2,172	3.29%
Other expenses	3,346	4.89%	3,107	4.71%
Total expenses	64,477	94.20%	64,984	98.49%
Other income	288	0.42%	235	0.36%
Share of net profits of associates and joint venture	147	0.21%	114	0.17%
Earnings before interest and income tax expense	4,402	6.43%	1,346	2.04%
Finance costs	264	0.39%	308	0.47%
Profit before income tax	4,138	6.05%	1,038	1.57%
Income tax expense	1,265	1.85%	631	0.96%
Profit attributable to members of the parent	2,873	4.20%	407	0.62%

(Gauthier, 2009)

Common size Statement of Financial Position

Particulars	2017	Common size	2016	Common size
Assets
Current assets
Cash and cash equivalents	1,013	2.53%	611	1.50%
Receivables – Trade and other	1,633	4.07%	1,628	3.99%
Receivables – Finance advances and loans			835	2.05%
Inventories	6,530	16.28%	6,260	15.35%
Derivatives	247	0.62%	54	0.13%
Other	244	0.61%	296	0.73%
Total current assets	9,667	24.10%	9,684	23.75%
Non-current assets
Investments in associates and joint venture	703	1.75%	605	1.48%
Deferred tax assets	971	2.42%	1,042	2.55%
Property	2,195	5.47%	2,396	5.87%
Plant and equipment	7,245	18.06%	7,216	17.69%
Goodwill	14,360	35.80%	14,448	35.43%
Intangible assets	4,576	11.41%	4,625	11.34%
Derivatives	246	0.61%	565	1.39%
Others	152	0.38%	202	0.50%
Total non-current assets	30,448	75.90%	31,099	76.25%
TOTAL ASSESTS	40,115	100.00%	40,783	100.00%
Liabilities
Current liabilities
Trade and other payables	6,615	16.49%	6,491	15.92%
Interest-bearing loans and borrowings	1,347	3.36%	1,632	4.00%
Income tax payable	292	0.73%	29	0.07%
Provisions	1,743	4.35%	1,861	4.56%
Derivatives	154	0.38%	160	0.39%
Other	266	0.66%	251	0.62%
Total current liabilities	10,417	25.97%	10,424	25.56%
Non-current liabilities
Interest-bearing loans and borrowings	4,066	10.14%	5,671	13.91%
Provisions	1,511	3.77%	1,554	3.81%
Derivatives	24	0.06%	81	0.20%
Other	156	0.39%	104	0.26%
Total non-current liabilities	5,757	14.35%	7,410	18.17%
Total liabilities	16,174	40.32%	17,834	43.73%
NET ASSETS	23,941	59.68%	22,949	56.27%
EQUITY
Issued capital	22,268	55.51%	21,937	53.79%
Reserved shares	26	0.06%	28	0.07%
Retained earnings	1,509	3.76%	874	2.14%
Reserves	190	0.47%	166	0.41%
Total equity	23,941	59.68%	22,949	56.27%
Total Liability and Equity	40,115	100.00%	40,783	100.00%

(Xu, 2003)

Relevant audit risk and Potential steps to reduce risk

Audit can be defined as the risk related to audit and assurance services for the business organisation and provided by auditor. Audit risk is dependent on level of inherent risk, control risk and detection risk present in business organisation. Audit risk is the mixture of three types and is as follows:

Inherent risk- Inherent risk in audit service is present in business environment or external factors that are related to business organisation. Inherent risk depends on market size, fluctuation in market, government policies, competition in the market and any other business related environmental factors. In case of Wesfarmers inherent risk in audit service is business risk associated with while operating business in market place. As discussed above, business risk can of different types and are uncontrollable risks (Patil, Grantham & Steele, 2012). Therefore there are no potential steps to reduce inherent risk associated with Wesfarmers. Although there are some general guidelines or steps if followed then inherent risk can be reduced but organisation cannot control it.

Risk Management and Retaining Employees

Control risk- Control risk is the risk which is related to efficiency and effectiveness of management of business organisation in terms of internal control system. When control risk of the business organisation is at higher side then it means internal control system of business organisation will not be able to control material misstatement in the financial statement of the business organisation and vice versa. In case of Wesfarmers limited control risk is at moderate level because of its vast business operations (Radford, Williamson & Evans, 2011). Therefore analysis of internal control system of the business organisation is first required to be tested. Therefore auditor is required to substantive testing on the financial statements or in internal control system. In order to reduce the control risk, substantive test needs to be applied.  

Detection risk- Detection risk is the risk which is based on auditor i.e. when auditor is not able to detect material misstatement in the financial statement then detection risk will be at higher side and vice versa. In case of Wesfarmers Limited, detection risk is at moderate level because of vast business transactions i.e. huge volume and diversified business operations. In order to reduce detection risk, more detailed verification of trade receivables, inventory management, goodwill valuation, trade payables and long term borrowings needs to be done.

References

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Anon, 2018. corporate governance. Britannica Online Academic Edition, pp.Encyclopædia Britannica, Inc.

Ciprian-Costel Munteanu, 2015. Audit Risk Assessment in the Light of Current European Regulations. Acta Universitatis Danubius: Oeconomica, 11(3), pp.94–105.

Coffey, J., 2015. Balancing ethics and risk: changes to ASX corporate governance principles 3 and 7. Company and Securities Law Journal, 33(2), pp.75–89.

Dahan, Nicolas M et al., 2013. Democratizing Corporate Governance. Business & Society, 52(3), pp.473–514.

Elefterie, L., 2012. Risk Assessment Audit versus Work Accidents Prevention. Contemporary Readings in Law and Social Justice, 4(2), pp.552–561.

Gauthier, S., 2009. Better Understanding the Financial Statement Audit. Government Finance Review, 25(3), pp.44–48.

Gauthier, Stephen J., 2009. Better understanding the financial statement audit. Government Finance Review, 25(3), pp.44–48.

Gemma Mackenzie, 2013. Farmers urged to make business risk assessment.(Business). Farmers Weekly, (858), pp.Farmers Weekly, June 21, 2013, Issue 858.

Hannak, J. et al., 2011. Snorkelling and trampling in shallow-water fringing reefs: Risk assessment and proposed management strategy. Journal of Environmental Management, 92(10), pp.2723–2733.

Hardy, K., 2014. Enterprise Risk Management A Guide for Government Professionals, Hoboken: Wiley.

Lama, T. & Anderson, W.W., 2015. Company characteristics and compliance with ASX corporate governance principles. Pacific Accounting Review, 27(3), pp.373–392.

Patil, R., Grantham, K. & Steele, D., 2012. Business Risk in Early Design: A Business Risk Assessment Approach. Engineering Management Journal, 24(1), pp.35–46.

Radford, M., Williamson, A. & Evans, C., 2011. Preoperative assessment and perioperative management, Keswick [U.K.]: M&K Pub.

Xu, L., 2003. FINANCIAL STATEMENT ANALYSIS AND BETA AND SIZE EFFECT. International Journal of Commerce and Management, 13(1), pp.103–122.