Corporate Governance Assignment: Case Analysis Of Woolworths

Question

Task: This corporate governance assignment requires a consideration and application of accounting theories and concepts with critical analysis based on General Purpose Financial Reporting by corporations. Students are required to prepare a comprehensive report directed to an Australian ASX Top 100 listed corporation detailing a critical analysis of the effectiveness of the corporation to meet the obligations of the conceptual framework of accounting. Students are to analyze the company’s accounting policies and corporate governance matters under the concepts discussed during the classes such as accounting Theories, harmonization, standards settings, positive accounting theories, normative theories, measurement approaches and others.

Answer

Introduction
This corporate governance assignmentis aimed to analyze the significance of accounting concepts and theories in the financial reporting of the corporations. One of the ASX top 100 listed organizations are selected which is Woolworths Group Ltd to prepare a comprehensive report. Woolworths Group Limited is an Australian based retail company. It is the second-largest revenue earning company of Australia with the largest retail liquor takeaway, gaming machine operator and hotel. Moreover, this company has a wide range of retail businesses in New Zealand also. This report will provide critical and in-depth analysis of the corporate governance compliance of Woolworths Group Ltd.

Discussion
Accounting Theory is a framework or assumptions or methodology, which can be applied for studying the application of various financinal reporting principles. This theory helps to find effective accounting and financial reporting. The assumptions and methodologies require the review of various accounting practices and also the regulatory framework. The Accounting theory is very useful for understanding the management of any organisation and also its performance measures. In the world of corporate finance, these statements should provide important information that gives sufficient information about the financial statements of the organization and thereby helping them to take business decisions that are beneficial for the organization. The Accounting also demands that all accounting and financial professionals of an organization operate in the aspect of four assumptions.

The Annual report 2018 of Woolworth considered in the present context of corporate governance assignment says that their sales increased by 3.4% from 2017 up to 56.7 billion that has been reflected upon the performance measure system of the company. This is a positive result on part of the organisation as their financial performances have been found to increase by some percentage. Such positive results indicate that Woolworth has long-term growth strategies have been converted into reality. The Accounting theory of Woolworth, which they use to enhance the financial performance of the organisation are the Harmonization theory and Normative theory.

The Harmonization Theory is the process of reducing minimizing redundant or conflicting standards that evolve in an independent manner. The relationship is highly influenced by the shareholders, agents and the principals. The principle of this theory is deputy to the authorities of decision-making present in the company as well as the agents. Woolworth is an organisation that holds up to 1000 stores in entire Australia. For increasing the value of the firm in such a large area, the organisation has to integrally design a compensation plan which would trigger the agent to perform in a manner that would be extremely effective to enhance the profit along with overall productivity of the organisation (Schroeder, Clark&Cathey, 2019). This theory is also accompanied by a few obligations which compel to take the shareholders into consideration. It has been seen that in Woolworths, auditing plays a crucial role, which solves the issues that are adopted mostly by the organisation. There are three auditors adopted by the organisation thus for the rectification of these issues. They evaluate the entire operations in Australia. In the second place, the structuring cost is an instance in the theory which undergoes all the procedures that are related to appointing members on the board from outside to the chart of reengineering and the board of directors of the firm. In the third place, the organisation Woolworth has a cost opportunity that are organised by their owner who introduces several issues of voting. It leads to limiting the capability of management system. Thus, with the help of these mechanisms, Woolworth can minimize the respected costs and also solve the problems of the overall agency. Normative theory is another theory used by Woolworth for accounting management in their organisation.This theory mentioned in the corporate governance assignment is a group of four press theories and it describes an ideal way for controlling a media system which can be controlled by the government, leader, public and authority. Woolworths enjoy much strengthwhere the company boosts the confidence of the employees through rewards and incentives. The management applies this theory to assemble work which is effective and helps to accomplish business goals. The theory fills up the gap which can enhance the employability skills and by providing sufficient amount of training and rewards the employees of the company (Kaya, 2017). The employees at Woolworth are motivated with a lot of concern and by this; the organisation tries to improve the ability of work for the business. It facilitates employees at the company to work according to their own will when different projects are established. All these efforts applied behind the motivation of the employees ultimately give rise to increase in productivity of the organisation. Employee turnover rate can be reduced and thus revenue generation of the organisation increases. It is certainly a profitable outcome for the company and the annual sales report can increase by certain percentage with the help of the application of this theory. Through the application of this theory, the leaders are required to analyse the real values of the employees in terms of rewards. There is a little amount of lack in understanding which proves that benefits of the employees at Woolworth are not being motivated. This issue needs to be resolved soon.

The corporate governance policy of Woolworths Group Ltd reflects an approach of sustainable growth and a prospect of high long-term growth in shareholder value. Good corporate governance is highly prioritized in the organizational structure. Responsible and ethical behavior is expected from all the team members and directors of the company. It has been observed herein corporate governance assignment that management of the organization is highly committed to the purpose of the group by providing high-quality services to internal team members, customers and other significant stakeholders. The Board of Woolworths Group Ltd has invested a substantial amount of time to get the insight of public opinion regarding corporate governance, analyzing the effect of Financial Services Royal Commission and APRA Prudential Inquiry and examine the managerial policy of non-financial risk management (Boyd, Gove &Solarino, 2017). This in-depth analysis has resulted in various significant changes in organizational oversight.

The internal audit team has been established by the compliance committee, risk management and audit management to scrutinize the organizational governance practices and risk management against the standard stated in the report of Prudential Inquiry of APRA. It has also been found that the company was efficient and uncompromising in implementing the outcomes of the review of the audit team. The Board has identified few quantitative and qualitative factors regarding the relationship with customers, suppliers and team members. Various complaints reports which are submitted to the Board and ARMCC are reviewed thorough assessment of health checks. The Board has now incorporated periodical reporting in the relationship structure with the stakeholders. Woolworths Group Ltd has maintained all the recommendations and policies mentioned by the ASX Council of Corporate Government.

The long-term and sustainable interest of Woolworths Group Ltd is represented by the board members of the company. Board members are accountable regarding the performance and the strategic directions of the company to shareholders. Moreover, members are immensely attentive to achieve the goodwill as well as the trust of the stakeholders to get the sustainability in the organizational growth and increase the value of long-term shares (Sultana, Cahan&Rahman, 2020). Responsibility of board members includes the evaluation and approval of the methods, values, purpose and culture of the groups. Board members also scrutinized the business and strategic plan of the business. Board members along with the board committee members assess the efficiency of the compliances of risk management and critically examine the annual budget of capital and other expenses (Al-Sartawi&Sanad, 2019). Along with this, board members are responsible to analyses the overall financial and managerial performance of the organization. Regarding the financial responsibilities, annual and half-yearly financial statements are reviewed by the members and they are highly cautious about the integrity of the financial reporting process. Remunerations of executives and non-executives are dependent upon the approval of the board committee. The performance of board members and board compositions is evaluated annually to maintain its effectiveness. The Board also plays a crucial role in activities of leadership selection by recruiting CEO and measuring the performance. Board members set the standards to measure the effect of operation and activities of Woolworths Group Ltd on the ethical, social and environmental aspects. Outcomes are compared with the pre-decided standards to determine the efficacy of sustainability practices and goals.

Gordon Cairns is the current chairman of Woolworths Group Ltd.’s Boards. Detail analysis done in the corporate governance assignment has revealed various factors of the non-executive and independent chair of the organization.

• Gordon Cairns has been successful in establishing effective communication between shareholders and board members and appropriately communicating the position of the board to the shareholders.
• He is efficiently initiating constructive discussions and leading various functions and activities of the Board.
• The chairman of the company scrutinizes the developmental planning of directors and approves this.
• Efficiently monitor the performance of directors and provide valuable feedback on the individual contribution and usefulness of the decisions.

The presence of diversity has been identified in the composition and skill set of the board of Woolworths Group Ltd. Experience and skill set focused on various aspects of strategy, retail markets, social responsibility, financial acumen, digital technology, risk management, public policy and regulatory policy and standards of corporate governance. Board members are highly experienced in the aspects of international business as well as various cultural, political and regulatory factors. Board composition represents the equitable presence of gender diversity.

Image 1: Gender diversity of Board of Woolworths Group
(Source: Rose,2016)

Board of Woolworths Group Ltd consists of four board committees which are nomination committee, sustainability committee, people performance committee, compliance, risk management and audit committee.

The framework of risk management of Woolworths Group Ltd complies with the guidelines of AS/NZS ISO 31000:2009 (New Zealand and Australian standards of corporate governance). The risk management standard of the company reflects the overall responsibilities, standards and roles of risk management (Rose, 2016). It includes identification, assessment, response, management and reporting of risk exposure which impact the performance of operating plans and strategic growth objectives. It is observed that the company is eager to determine and improve risk opportunities. The design and the framework of risk management are endorsed and reviewed by the ARMCC.

ARMCC evaluates the internal audit regarding the performance plan of the assurance and risk team of the company. The company adopts a risk-based approach to provide objective and independent assurance regarding internal risk controls to the management.

Conclusion
The above discussion on corporate governance assignmentconcludes that Woolworths Group provides equal and timely access to information to relevant key stakeholders which display accountability and transparency in the process and foster the confidence of investors towards the integrity of the securities of the company.

Reference list
Al-Sartawi, A. M. M., &Sanad, Z. (2019). Institutional ownership and corporate governance: evidence from Bahrain. Afro-Asian Journal of Finance and Accounting, 9(1), 101-115.

Boyd, B. K., Gove, S., &Solarino, A. M. (2017). Methodological rigor of corporate governance studies: A review and recommendations for future studies. Corporate Governance: An International Review, 25(6), 384-396.

Kaya, ?. (2017). Accounting Choices in Corporate Financial Reporting: A Literature Review of Positive Accounting Theory. Corporate governance assignmentAccounting And Corporate Reporting, 129. Rose, C. (2016). Firm performance and comply or explain disclosure in corporate governance. European Management Journal, 34(3), 202-222.

Schroeder, R. G., Clark, M. W., &Cathey, J. M. (2019). Financial accounting theory and analysis: text and cases. John Wiley & Sons.

Sultana, N., Cahan, S. F., &Rahman, A. (2020). Do gender diversity recommendations in corporate governance codes matter? Evidence from audit committees.Auditing: A Journal of Practice & Theory, 39(1), 173-197.