Auditing Inherent Risk: Flaws in Safety Culture - Assignment Example

Auditing Name Course Lecturer Date Inherent Risk: Flaws in Safety Culture Flaws in the safety culture of Woodside Petroleum limited are very dangerous. The culture represents a set of shared norms and values upon which personnel in the organisation make decisions. Having safety culture in the company is simply the subset of the overall culture reflecting the general approaches and attitude to risk and safety management (Johnsen et al., 2007). Woodside Petroleum limited is involved in a risky business in terms of the safety of its employees. The company must have an appropriate safety mechanism and culture for ensuring that all its employees are very safe when they are on duty and off duty as well. Notably, the employees may some time to time or on certain occasions not observe the safety measures while on duty. These actions expose them to serious safety risks including burn, severe injuries and even death. There might be fatalities as a result of workers being struck by, caught in or caught between hazards from multiple sources such as falling equipments, moving machines and high pressure lines (Skogdalen et al., 2011). How is it a risk? The auditors may fail to identify lapse in safety measures and flaws in the safety culture in Woodside Petroleum limited. This will raise chances of injuries and death occurring. Such lapse and flaws in safety culture expose the workers in dare safety conditions. It is any time that the workers can get injured or die due to collision, being hit, being struck by, caught in or caught between machines or drilling equipments as the auditors may not detect them and recommend preventive actions. The death of workers may be a big blow to the company as it would not only lose a human resource but also increase cost of replacing the worker. The likelihood of this happening in Woodside Petroleum limited is very high due to the nature of work as well as lack of detection by the auditors. Drilling of oil involves heavy machinery and high power. As such, the employees are exposed to risk of being inflicted injuries from the machines and the high voltage electrical power (Antonsen 2009). Essentially, flaws in safety culture of the company represents a high likely risk to the employees especially those directly involved in drilling. Moreover, Woodside Petroleum limited workers are exposed to fires and explosions. They face risk of fire and explosions due to ignition of flammable gases and vapors. Flammable gases and vapors and hydrogen sulfide can be released from wells, production equipments and trucks or even surface equipments (Skogdalen et al., 2011). All these expose the workers to high risks of severe injuries and fatalities. Why is it a risk? It is a risk as the auditors may fail to detect it. The auditors need to conduct additional substantive procedures to detect where employees do not observe company policy on safety. The company would then be compelled to compensate if employee die due to lapse in safety while on duty. In addition, the company is exposed to suit and litigations. Such suits and litigations may end up masking the company to be compelled to pay the workers huge sums of money (Antonsen 2009). Inherent Risk: Exchange Rate Fluctuations Woodside Petroleum limited exposure to volatility in the Australian dollar is partially offset by its domestic gas revenue which is priced in Australian dollars (Tille 2008). The impact of currency volatility becomes more pronounced when Woodside is undertaking new domestic and onshore developments. A key factor in operating in export markets is the currency exchange rate movements. The nature of the worldwide currency markets means that predicting the future is almost impossible. A key driver to currency exchange rates is the interest rates applicable in different countries (Basher & Sadorsky 2006). How is it a risk? The auditors need to determine the exchange rates at the respective dates when the company exchanged currency. The auditors may fail to determine the specific exchange rates. As such, it becomes a risk as the auditor’s substantive procedures may not detect irregularities in exchange of currency. In addition, the oil and gas prices are highly unpredictable and therefore the company may not be able to plan and implement mechanism for controlling the same. If one country offers significantly higher interest rates then investors will want to put money into that economy, thus increasing demand for the currency. A cross border company purchase will mean that a company may have to buy a significant amount of currency at once. Sentiment can move a market as can a sporting result. So it is almost impossible to know the future - although one thing is clear; it cannot do much to influence currency exchange rates (Campa & Goldberg 2005). Why is it a risk? Woodside Petroleum limited is at a risk of losing value due to fluctuations of the exchange rate. The company would then end up reporting inflated income or understated income. The company's oil and gas value would decrease in value when the exchange rate fluctuates. This is bearing in mind that oil and gas pieces are set in respect the United States dollar. Therefore, if the dollar loses value and the exchange rate fluctuate, the company products would decrease in value (Chen & Chen 2007). Inherent Risk: Supply And Demand Woodside Petroleum limited has a fundamental commodity business. This means that its operations as well as earnings are significantly affected by changes in gas, oil and petroleum prices. As such, there is need to consider additional tests and analytical procedures in planning for the audit. They are also affected by changes in margins in refined products. The prices and margins of gas and petroleum products depend on local, regional as well as global events and conditions. Its products are subject to international supply and demand. Conditions such as political upheavals and developments significantly affect the price of the company petroleum products. In addition, the presence of trading alliances such as OPEC can particularly affect world supply and oil prices. This presents the company with a serious inherent risk. Essentially, such a review would the view of the company management of oil and gas prices in the long term. How is it a risk? The adverse effects on the company revenues, profitability and margins from any future fall in oil and gas prices, a lengthy period of low prices or other adverse pointers would lead to review for impairment of Woodside Petroleum limited oil and gas properties (Hamilton 2008). This puts the company at a risk of decreasing the value of its assets. Moreover, such factors as OPEC and unstable political climate in major oil and gas producing countries affect the supply of oil and gas products and hence put the company at uncertainty situation. Prolonged low prices, as indicated above would make the company to review its assets. This would make the company assets to lower their value and hence the value and worth of the company lowers accordingly (Asif & Muneer 2007). Why it is a risk? Changes in supply and demand of oil and gas products are a damaging risk to the company's assets especially oil and gas producing equipments. This is because they are impaired according to the fluctuations of the prices. Importantly, if Woodside Petroleum limited fails to review its assets according to the price developments, it would overstate its assets. This would mislead the investors in to thinking that the company is financially stable and healthy. The investors and the existing shareholders would then invest in the company based on wrong information (Asif & Muneer 2007). Moreover, the company can operate bearing that it has enough assets to produce oil and gas while in actual fact the assets have worn out and there is no replacement of such assets. This can eventually lead to collapse of the company. References Antonsen, S, 2009, Safety culture and the issue of power: Safety Science, 47(2), 183-191. Antonsen, S, 2009, Safety culture assessment: a mission impossible? Journal of Contingencies and Crisis Management, 17(4), 242-254. Asif, M., & Muneer, T, 2007, Energy supply, its demand and security issues for developed and emerging economies: Renewable and Sustainable Energy Reviews, 11(7), 1388-1413. Kilian, L. (2009). Not all oil price shocks are alike: Disentangling demand and supply shocks in the crude oil market. The American Economic Review, 1053-1069. Basher, S. A., & Sadorsky, P, 2006, Oil price risk and emerging stock markets: Global Finance Journal, 17(2), 224-251. Campa, J, M, & Goldberg, L, S, 2005, Exchange rate pass-through into import prices: Review of Economics and Statistics, 87(4), 679-690. Chen, S. S., & Chen, H, C, 2007, Oil prices and real exchange rates: Energy Economics, 29(3), 390-404. Hamilton, J, D, 2008, Understanding crude oil prices: National Bureau of Economic Research. Johnsen, S., Ask, R., & Roisli, R, 2007, reducing risk in oil and gas production operations: In Critical infrastructure protection (pp. 83-95), Springer US. Skogdalen, J. E., Utne, I, B, & Vinnem, J, E, 2011, Developing safety indicators for preventing offshore oil and gas deep water drilling blowouts: Safety science, 49(8), 1187-1199. Tille, C, 2008, financial integration and the wealth effect of exchange rate fluctuations: Journal of International Economics, 75(2), 283-294. Read More