HI6026 Audit Assurance and Compliance

Focus in each headline the implication of ASX Corporate Governance Principles from your selected company. Conceptualize and explain how to your selected company implements ASX CGC principles

Risk assessment (When performing an audit, you use risk assessment procedures to assess the risk that material misstatement exists. This step is very important because the whole point of a financial statement audit is finding out if the financial statements are materially correct. How exactly do you assess audit risk?)

Recognizing the nature of the company, what’s the company’s market overview? Who (if anyone) regulates the client? What’s the company’s business strategy? Computation of income statement and balance sheet ratio, and Development of common-size financial statements and focus on relevant audit risk and potential steps to reduce risk.

Introduction

Wesfarmers is a well known and recognized corporation. It has its securities registered on the Australian Stock Exchange. The organization believes in planning audit in a way so that the strategies are designed, construed and constructed in a manner that brings desired and predetermined results. Here, the results vary depending on the duration, dimensions, and features of the trade. The strategies of audit planning may be more appropriate and take more duration if its trade is extensive or worldwide.  It is necessary that the strategies related to audit are well-planned and executed (Wesfarmer, 2017). This can be done with the analysis of the economic operations and civic domain or framework of the organization and its involvement with each other. Audit planning and strategies works once there is the beginning of such involvement. Also, according to ISA 300, it shouldn’t be construed as another segment of an aggregate audit. It begins as soon as the previous audit is completed and has issues that need to be analyzed like inadequate errors or any discrepancies.

Implications of ASX Corporate Governance Principles

1. Efficient board structure

lign: justify;">It is seen that the Company’s board consists mostly of the independent directors.

This means that these independent directors are independent and unimpeded of the company’s affairs, its trade or any activities which could affect the business decision-making. Assessment of the independence of the directors is made frequently to fortify neutrality in decision-making (Wesfarmers Limited CG, 2016).

In order to scrutinize every Non-Executive Director and give Board suggestions on the related issues, a nomination committee is made under an Independent Director.

The nomination committee makes sure that the company’s decisions are made in the best interests of its users by aiming at framing individual performance reviews of the Board and by scrutinizing the feedback from the majority of its shareholders (Wesfarmers Limited CG, 2016).

Wesfarmers Limited is seen to have maintained its quality of business quite eminently over its years of operations and it is also confirmed with its compliance with ASX principles

1. Protection of integrity in financial reporting framework

It is the basic requirement of Wesfarmers that the directors of the Company hold legitimate information and work experience in the field of economy, politics, and society. Also, being updated with today’s digital scenario and upgrading and changing technologies is also required (Wesfarmer, 2017). This will have in having enhanced reporting techniques. In order to minimize any loopholes in the reporting framework by recognizing and its rectification, it is also important for the directors of the company to hold expertise in finance and internal control frameworks. Also, the directors should know how to tackle risks and its management for the reporting of the financial framework (Caradonna, 2014). It can only happen if the directors of the company are well knowledgeable and aware of the statutory requirements. The Company has ensured the enhancement of its corporate governance standards by means of having legitimate reporting guidelines.

1. Laying an effective foundation for oversight and management

Wesfarmers has a unique framework for risk management. It believes the controls, principles, process, systems, methods, techniques and functions of risk management should be allocated between its Finance Director and Managing Director, Divisional Management, Risk Committee and Audit Committee which was assessed and analyzed by the Board (Peirson et. al, 2015). It was also approved by Wesfarmers Group policies and procedures in May 2016. With the change in interest rates and its effect on foreign currencies, it helps in balancing financial risks and safeguards treasury options (Wesfarmer, 2017).

     The activities of the Wesfarmers Board are divided into two segments. One being Divisional Board and the other being Board Committee. This helps in outlining techniques in which Wesfarmers conducts its business and safeguards and uplifts its identity and culture (Wesfarmers Limited, 2016).

For the purpose of acquisitions and disinvestments, Wesfarmers has adopted due diligence in its management.

1. Performing responsibly and morally

Wesfarmers has constructed and introduced a code of conduct in its area of operations. This ensures that both the internal and external environments are responsible and moral in their performance. In its statement of corporate governance, Woolworths has set well-thought measures for its personnel. The directors, contractors, consultants, and subordinates are well aware of the core values of the company (Benabou & Tirole, 2010).

In order to motivate its personnel and keep them enthusiastic the company also framed numerous compliance measures which make them more responsible and inform if any unethical practices in the company (Wesfarmer, 2017).

1.     Managing and identifying risks

To calculate the risk trends that can influence or sculpt its industry, Wesfarmers believes in risk financing program which can transfer risk to re-insurers and external insurers. Each of its section is constrained by its formal corporate planning systems. It is why preparation of SWOT analysis and pre-planning of a situation and its performance is important. Therefore, the company believes in a systematic risk financing program (Wesfarmer, 2017).

A company becomes aware of its shortcomings and potential damages in its operations with the help of its risk committee. The transactions of the company are assessed by its team who looks after audit and internal control players. The audit report once legitimately processed by external auditors and has all the disclosures related to the risks and rewards are given to the investors and stakeholders of the company (Bonson & Bednarova, 2015).

1.     Facilitation of balanced and timely disclosure

The two Company Secretaries hired by Woolworths are accountable to the Board with questions arising in context to Company’s comprehensive performance. To better the reporting framework the Board is required to make legitimate disclosures in it. To encourage advisory purposes for enhancing timely disclosures in its reporting framework, four Board Committees are also designed. For executing legitimate operations from time to time these Board committees give their own suggestions to the Board (Wesfarmer, 2017). To have improvised and better audit processes the appointment of external auditors and internal auditors can be seen. They have a very significant role in making financial statements available to the public which results in disclosure of both the reports (financial and directors) systematically.

1.     Remunerating responsibly and fairly

It is only because of its strategies related to remunerating its personnel, the Company received the Gold Tier Employer status. The Company also believes in gender equality which means remuneration on the basis of skills, effort, talent and dedication and not on the basis of gender. 40 percent women executives are also employed by the Company in order to eradicate current gender gap which is calculated to be soon overcome by the company.

Also, on the basis of the targets met by the employees over a given period of time is the basis of awards and hikes given to them (Wesfarmer, 2017). For the handling of fair remuneration, the Company has formed People Performance Committee.

1.    Respecting security holders’ right

In order to ease frequent communication measures and for the purpose of ASX principles, Woolworths has an inclusive information of shareholders. It helps shareholders to have access to a wider set of details with context to share prices, dividend declaration, etc. To make investors know about its general business, the Company also schemes a lot of investor-friendly strategies (Needles & Powers, 2013).

Risk Assessment

Risks can be legal, financial, strategic, operational, etc. Financial risks are related to lack of funds, liquidity, insolvency, change in currency values, etc. Legal risks are related to risks related to laws and legal matters (Merchant, 2012). Operational risks are related to cyber-attacks, failure to meet the expectations of people, etc. Strategic risks are risks in which a company to surpass its competitors opt for unethical practices, etc (Douma & Hein, 2013).

To avoid these risks it is advisable for companies to appoint internal or statutory auditors and other experts that can ease the entire process. It is also advisable for companies to adopt and upgrade to newer software and technologies that allows it to store and recover lost data easily by means of electronic storage. Also, auditors should have unbiased opinions on financial statements (Cappelleto, 2010). The ratios can be used by the auditor to project the financial situation.  Going by the financial ratios, the auditor can come to the conclusion that the gross profit of the company is high however, the company does not have a strong hold over the operating expenses and hence the net profit is less (Elder et. al, 2010).

Conclusion

Going by the overall discussion, it can be commented that Wesfarmers has adhered to the principles of corporate governance. The eight principles clearly indicate that the company has followed the principles and the disclosures are relevant in nature. It signifies that the management of the company is effective in nature s it keeps a strong attention on the corporate governance principles. Moreover, the risk management approach indicates that the company will be able to track the risks and avoid it at the earliest.

References

Benabou, R. and Tirole, R. (2010) Individual and Corporate Social responsibility. Ecnomica. [online]. 11, pp. 1-19. Available from: https://doi.org/10.1111/j.1468-0335.2009.00843.x [Accessed 2 May 2018] 

Bonson, E. and Bednarova, M. (2015) CSR reporting practices of European companies. Spanish Accounting Review. [online]. 18 (2), p. 182-193. Available from: doi: https://dx.doi.org/10.1016/j.rcsar.2014.06.002 [Accessed 23 April 2018]

Cappelleto, G. (2010) Challenges Facing Accounting Education in Australia. AFAANZ, Melbourne

Caradonna, J. L. (2014).  Sustainability: A History.  Oxford University Press

Douma, S. And Hein, S. (2013). Economic Approaches to Organizations. London

Elder, J. R, Beasley S. M. and Arens A. A. (2010) Auditing and Assurance Services. Person Education, New Jersey: USA

Merchant, K. A. (2012) Making Management Accounting Research More Useful. Pacific Accounting  Review. [online]. 24(3), 1-34. Available from https://pdfs.semanticscholar.org/6ccf/f78a452763f17ed5e4f4ddc6b96703801403.pdf Needles, B.E. &  Powers, M. (2013) Principles of Financial Accounting. Financial Accounting Series: Cengage Learning.

Peirson, G, Brown, R., Easton, S,   Howard, P. and Pinder, S. (2015) Business Finance, 12th ed. North Ryde: McGraw-Hill Australia.

Wesfarmer. (2017). Wesfarmer annual report and accounts 2017 [online]. Available from: https://www.wesfarmers.com.au/docs/default-source/default-document-library/2017-annual-report.pdf?sfvrsn=0 [Accessed 2 May 2018]