Solution
David answered on
Dec 23 2021
Woolworths Limited
AUDIT PLANNING MEMORANDUM
Prepared by:
Reviewed by:
Date :
1. TERMS OF ENGAGEMENT
The audit of Woolworths Limited shall be conducted in accordance with the purpose,
scope and output of the audit as agreed upon in the letter of engagement. Broadly, it is
equired to audit the financial reports of the company in accordance with the relevant and
applicable Australian Auditing standards, complying with ethical requirements of audit,
ca
ying out relevant and necessary audit procedures on the basis of the assesses risk to
obtain reasonable assurance that the financial statements are free from any material
misstatement and finally, to express an opinion on the financial report of the entity, being
Woolworths Limited.
2. BACKGROUND INFORMATION
2.1 Business Risk Factors
The company faces several business risk factors relating to strategic risk, financial risk, operational
isk, compliance risk and other risks. The factors which affect these kinds of risks for the company
include the market position of the Australian food retail industry which is expected to undergo
accelerated growth in the future, the competitive landscape of the food and retail industry of Australia,
market concentration in various parts of the retail industry and other factors relating to the anti-
competitive planning and zoning laws and also various restrictive provisions in lease agreements for
supermarkets laid down by the Australian Competition and Consumer Commission (ACCC).
2.1.1. Factors that increase risk
The competitive landscape of the industry and the consumer behaviour of a decline in
spending on goods over services are the factors which go to increase the business risk for
the company. Such consumer behaviour is wa
anted by growing tendency in favour of
savings and need to pay their own debts.
2.1.2 Factors that decrease risk
The capital intensity of the retail industry is a factor which goes to decrease the business
isk through its impact on increased sales due to investment in computerisation and
machinery resulting in better services to customers. Then there is growth in labour
productivity which goes to decrease the business risk for Woolworths Limited and
improve upon its profitability.
2.2 Internal Control Environment
2.3 Risk of fraud for Woolworths Limited
The company has an effective and efficient internal control environment and for this
purpose it has set up an Audit, Risk Management and Compliance Committee (
ARMCC) to provide advice and assistance in respect of the internal control systems, in
addition to other matters, to the Board. However, mere existence of such control
measures does not absolve the company of the potential risk of fraud and it faces such
isk of fraud in respect of its various assets and also fraud in financial reporting.
2.3.1 Accounts susceptible to asset misappropriation
There could be several non-cash accounts and also cash account in particular which may
e susceptible to asset misappropriation in case of the company. Cash account has
chances of being subject to misappropriation at the time of payment for supplies, payroll
of employees, purchase of property, plant and equipment, purchase of investments,
purchase of business, and also at the time of receipts from customers, vendors, receipts
for interest and dividend etc. The non-cash accounts which may be susceptible to
misappropriation include inventory, plant and equipment which may be used for their
personal benefits by the employees.
2.3.2 Accounts susceptible to fraudulent financial reporting
The various accounts which are susceptible to fraudulent financial reporting are those
elating to cash, intangibles, property, plant and equipment, and inventory and other large
and unusual transactions during the year.
3 PLANNING MATERIALITY
3.1 Materiality base selected and percentage applied
The materiality of the various items may be determined on the basis of the quantitative
thresholds set in this context. It is envisaged that an amount equal to 8% of the base
amount may be selected and applied to be considered as material. Further, cash,
eceivables and other financial assets ($2,000 m) may be assigned materiality of 9% as
they form 9% of the total of all assets ($21,581 m).
3.2 Base amount selected and applied
In respect of all balance sheet items, the base amount to be selected would be the total of
the applicable asset class or liability class. For all items of the income statement, the base
amount would be the net profit before taxes. Finally, for all cash flow items, the base
amount would be the more suitable of the net cash used in or provided by operating,
investing or financing. These selections and proposed application are in accordance with
the provisions of AASB 1031 on Materiality.
4. LAWS AND REGULATIONS APPLICABLE
Woolworths Limited, which is a giant name in the food, liquor and general merchandise
industry, is subject to various laws and regulations operative in the various states and
te
itories of Australia where it has its presence, and is also subject to several
Commonwealth regulations. These include the Product safety regulations, Goods
transportation and load limitations regulations, Workers compensation regulations,
Container deposit regulations, Corporate registration regulations, and Liquor licensing
and staff training regulations. Further, there are several quarantine regulations...