Auditing and Assurance at Woolworths Holdings Limited - Assignment Example

Question 1 The financial report shows that during the normal course of business the business gets exposed to credit, interest rate, currency and liquidity risk. The group has to look at developing risk management policies and procedures so that the overall risk reduces. It is the responsibility of the group’s treasury function to determine the parameters through which funding and financial risk can be managed. The treasury policy which has been adopted is reviewed and approved by Woolworths Holding Limited Board. The policy provides the hedging level parameters, the limits with regard to dealing, the different instruments to be used, the authorized counterparties, and mechanism which will be used for settling all the transaction. Apart from it the Treasury Committee reports to the Board with regard to the manner in which policies will be implemented, the different bank covenant which will be focused on, the interest rates, financing issues, managing liquidity, develop budgets, dealing with foreign exchange risk and managing the overall procedure to manage different financial needs. The credit risk for Woolworth Financial Services is managed by a credit risk committee which has two directors from the board of Woolworths Holdings Limited. The credit risk for David Jones Proprietary Limited is managed by four directors and Country Road Group Proprietary Limited is managed by three directors who are part of Woolworths Holdings Limited. The business also faces foreign exchange risk due to international exposure but the major risk comes from US Dollar and Australian Dollar. The risk associated with foreign exchange arises from commercial transaction and investments made abroad. The group looks at ensuring that all exposures related to foreign exchange are fully covered apart from net investments made abroad. Inherent Risk Justify Your Answer Assertion and Ledger Account(s) Impacted Audit Procedure/Task Interest Rate The audit group manages the financial risk by taking appropriate decisions The objective is to reduce financial risk through different risk management techniques The audit group focuses on indicator data which works in correlation to the interest rate Fair Value of Financial Instrument Changes in counterparty credit has no impact on the hedge instrument as they are shown at fair value The hierarchy level is defined with 1 having the most priority and 3 the lowest Three level hierarchy is used for assessing the fair value Foreign Currency Foreign exchange risk is present due to international transaction associated with commercial transaction and investments The group covers all exposure in foreign currency apart from investment made abroad Investment are made in foreign subsidiaries Question 2 The treasury committee which reports to the board regarding the implementation of treasury policies carries out function like identifying the exposure to financial risk; the manner in which the risks are covered; the future expected interest rate movements; and identifying deviations and taking steps at the appropriate time. Credit risk for the business arises from cash equivalent, export and subsidiaries payments and prepayments. The maximum risk for the company depends on the carrying value of the assets. Trencor Limited has brought forward certain risk associated with the export partnership (Refer Note 8) stating that the credit risk is very high. Note 7 highlights the amount subsidiaries own. Analytical Review – Area of Concern/ comfort Identified Justify Your Answer Assertion and Ledger Account(s) Impacted Audit Procedure/Task Credit The credit quality needs to be accessed for financial assets which are not impaired to any external credit ratings or default rates The short term cash deposit are considered for quality credit standing Historical information pertaining to counterparty defaults in considered along with trade receivables, loan and other cash instruments are considered by the audit group Interest Rate Risk Interest rate risk arises from interest bearing instruments, financial instruments and other cash equivalent. The rate can be either fixed or floating exchange rate so that fair interest rate is determined The interest rate is determined based on refinancing cost and expected movements in the interest rates. To hedge the risk the business uses derivative financial instruments like interest rate swap and collar The long term interest rate is linked with the floating interest rate to determine the correct rate. This has helped to swap 65% of the floating rate risk to fixed rates Liquidity Risk The risk has been minimized through undrawn banking and debt facilities The Board needs to give permission for all security provided. The group maintains banking and debt facilities and the undiscounted cash flow are managed till they match the maturity profile The audit committee saw banking and debt facilities for 2015 and 2016 so that interest bearing borrowing, forward exchange rate, swaps and payables are managed Question 3 The audit committee performed the following functions Provides the Board with interim result and annual report so that approval can be received Reviews the assurance model and ensures it satisfies the internal control mechanism Reviews the finance function and provides information to the Group Finance Director Reviews the report provided by the Treasury Committee Approves insider trading policies, price sensitive information and auditors independence polices Looks into the internal audit charter and ensures integration with the assurance model Looks into the working on independent external auditor Looks into the appointment of the annual general meeting Determines the fee to be paid to the auditors for the work performed Determines the nature of non audit services Approves agreements with the auditors for provision of non audit services Prepares report to be part of annual financial statement Deals with different concerns and complaints Provides information to the Board with matters concerning accounting policies, controls and reporting Performs other functions as prescribed by the Board The auditor opinion shows that South Africa and Australia are facing business uncertainty which has reduced consumer confidence, decreased growth and increased spending. The results however were good. The first half showed good growth which slowed in the second half due to warm winters. Focusing and reducing expenses helped the bottom line to grow to R4 367 million from R6 219 million resulting in a growth of 16.4% which is confirmed by the audit reports. At the date of preparation of the report the committee had five independent non executive directors. Mike Leeming retired as the Chairman of the Audit Committee at the annual general meeting held on 30th November 2015. This role has been taken by Hubert Brody. Page 62 brings forward the directors remuneration. The meeting was attended by the CEO, Finance Director, head of corporate governance, head of enterprise risk management and other important members. Question 4 The organization follows corporate governance policies as seen from the director’s report. In addition to it the organization has an audit committee with correct composition. The manner in which the company is regulated is provided and is aligned with King III, Companies Act of South Africa. Since it is a statutory committee it prescribes the roles and responsibilities of the committee. The committee acts as an Audit Committee for South African subsidiaries and carried out different functions and roles which are needed as per the subsidiaries. The audit committee reports to the group Audit Committee and is chaired by Patrick Allaway. In my team opinion the audit committee benefits the auditor and the company at large because it helps to carry out different functions and deals with the different financial risk aspect of the business. Reference International Accounting Standards Committee Foundation. (2003). Guidance on Implementing International Accounting Standard 39, Financial Instruments: Recognition and Measurement (Vol. 3). International accounting standards board. Baysinger, B. D., & Butler, H. N. (1985). Corporate governance and the board of directors: Performance effects of changes in board composition. Journal of Law, Economics, & Organization, 1(1), 101-124. Granberg, L., & Höglund, L. (2011). The auditors' way to acquire knowledge about a company's environment. 2. A copy of the minutes of the group meetings Meeting 1 1) Where and when the meeting was held UniSA Hub April 28, 2017 1) People present; absent; apologies All were present 2) What was discussed and agreed on; Discussion was on inherent risk and the link https://wow2016ar.qreports.com.au was reviewed 3) The follow up action relating to each member of the team; Liu found out information related to credit risk and interest risk as provided in the financial report. The group discussed on ways through which exposure to financial risk could be minimized and policies and procedures which need to be adopted 4) Any other relevant matter, things you agreed or disagreed on etc The date for the next meeting was decided and Xiao will record all information Meeting 2 1) Where and when the meeting was held Kaplan May 2, 2017 2) People present; absent; apologies All were present 3) What was discussed and agreed on; Discussion about credit risk was done and it concluded that credit quality of financial assets which are not impaired can be used as reference for external credit rating along with counterparty default rate 4) The follow up action relating to each member of the team; Discussions about different possibilities were looked at. Liu found the manner in which International Accounting Standards Committee Foundation works; Joy found ways the auditors work from the website http://www.divaportal.org/smash/get/diva2:434617/FULLTEXT01.pdf 5) Any other relevant matter, things you agreed or disagreed on etc The audited financial report for 2015 and 2016 were compared to ensure proper findings Meeting 3 1) Where and when the meeting was held UniSA Hub May 7, 2017 2) People present; absent; apologies All were present 3) What was discussed and agreed on; Discussion about interest rate was made and it was concluded that interest rate risk arises from derivative financial instruments, loan and cash equivalents. It was also seen that floating interest rate exposes cash flow interest rate risk whereas fixed rare exposs fair value interest rate risk. 4) The follow up action relating to each member of the team. The result was concluded 5) Any other relevant matter, things you agreed or disagreed on etc No Meeting 4 1) Where and when the meeting was held UniSA May 12, 2017 2) People present; absent; apologies All were present 3) What was discussed and agreed on; Discussions about liquidity risk was made and it was concluded that liquidity risk can be minimized through undrawn banking and debt facilities 4) The follow up action relating to each member of the team; Difference in opinion was seen with regard to liquidity among Xiao and Liu. At the end Liu explained the idea and we agreed to it 5) Any other relevant matter, things you agreed or disagreed on etc The last meeting was to be held on 22/5/2017 Meeting 5 1) Where and when the meeting was held Kaplan May 22, 2017 2) People present; absent; apologies Xiao and Liu attended, Chen was not well 3) What was discussed and agreed on; The meeting record and work 4) The follow up action relating to each member of the team; We summed the whole report to find what was done well and what was not done well 5) Any other relevant matter, things you agreed or disagreed on etc No ASSIGNMENT – 1 TRIMESTER 2017 TEAM WORK - PEER REVIEW Student Name and Number: ……Zhuowen Liu……………………124326..………………… Name of Team Marks Awarded Maximum 5 Member Reason for mark Xiao Liang 5 Clearly logical, reading booking properly and really well of knowledge of auditing risk. By passionate finding the linking resources and explain to us. Chen yang 5 Good communication with all the members, she is really joyful sharing the idea with us. She can help us correct the wrong thinking and grammar. Student Name and Number: ……Xiao Liang….……………………120992……………… Name of Team Marks Awarded Maximum 5 Member Reason for mark Zhouwem Liu 5 He did lots of research, and really understand the basics knowledge of auditing. Liu has been working extremely well with all the members, and helped us correct few mistakes Chen yang 5 Joy is a very friendly girl. She helped us with organizing the meets, she has been so nice to other members. She always ask questions and discuss with us. Joy also did lots of research and been working hard. Student Name and Number: …….……chen Yang……...….121829………………………… Name of Team Marks Awarded Maximum 5 Member Reason for mark Xiao Liang 5 Xiao is very hard working person, he clear understand the auditing knowledge. He also research some related information and explain to us, he always share his idea with us. Zhuowen Liu 5 Liu clear understand auditing and assurance. He also found a lot of recourse to share with us and helped us correct few mistakes. Liu had lots of patience and he would be happy to help us. Read More