Financial Reporting Assignment: Analysis On Financial Performance Of Dominos

Question

Task:
Financial Reporting Assignment Task:
Part A: Analytical Procedure
Obtain a copy of a recent annual report (2019) from ASX Top 300 listed companies list (most companies make their annual reports available on their website). Perform analytical procedures of the Statement of Financial Position and of Financial Performance over the two years (2018 and 2019) using appropriate ratios and/or metrics.

Required:
Measure and discuss income statement, balance sheet and cash flow ratios from your selected company and How does this affect your assessment of materiality, detection risk and overall auditRisk? Provide a brief explanation in the report. This should be presented in a table format.

Part B: Audit Committee Effectiveness

1. “Audit committees do not prepare financial reports, nor do they conduct audits. But they have an essential role to play in ensuring the integrity and transparency of corporate reporting”. Explain this statement? Who should be members of the Audit Committee? Is there an association between Audit committee effectiveness and audit quality after IFRS adoption?
2. Explain your selected company’s (same selected company from part A) and prepare the following responses about the application of audit committee effectiveness recommended by ASX Corporate Governance Council (CGC) principles using Corporate Governance Principles and Recommendations (4th Edition) was released on 27 February 2019?
   1. Members of the audit committee meet all applicable independence requirements.
   2. The audit committee demonstrates appropriate industry knowledge and includes a diversity of experiences and backgrounds.
   3. Audit committee members have the appropriate qualifications to meet the objectives of the audit committee‘s charter, including appropriate financial literacy.
   4. Discuss about audit committee size and members profile.
   5. Discuss about meeting arranged by audit committee chairman and whether member participates actively?
   6. The audit committee monitors compliance with corporate governance regulations and guidelines.

Answer

Executive Summary
The main motive of financial reporting assignment is to highlight the analytical process of the financial statements of the chosen company, i.e., Dominos, its financial performance over the financial years of 2018 and 2019 with the use of appropriate ratios or metrics. The paper will be measuring the income statement, balance sheet, and cash flow ratios of the chosen firm and their effect on the materiality, detection risk, and overall risk of the firm. The second part of the assignment will be discussing the audit committee and the adoption of IFRS in Australia. Additionally, concerning the chosen firm, the paper will be elaborating on the adaption of corporate governance principles by Dominos.

Introduction
The assignment describes the effectiveness of the auditing board in preparing financial reports. The financial reports are instrumental in attracting stakeholders and investors in the future investment potential of Dominos Enterprise. The role of the auditing board is effective in ensuring integrity and transparency in corporate financial reporting. The selected company here is Dominos Pizza Enterprise, and the details of its financial reporting and accounting procedures are explained in the report. The first part deals with the calculations regarding the variables like the profitability and liquidity ratios and the ratios related to asset management. The calculations regarding these variables are provided that can provide a clear picture of the various factors that are instrumental in calculating the net profit margin of the company. The second part of the report deals with the company's adherence to the ASX principles of corporate governance. Detailed information regarding the various aspects of the principles that are instrumental in maintaining the good market reputation of Dominos Pizza Enterprise is mentioned in the second part of the report that helps in attaining a picture of the various factors that are necessary for maintaining a fair and justified accounting and financial reporting procedure.

Part A
Economic position and performance of the company
The year 2018-19 turned out to be a very profitable year for the company as it saw a considerable increase in gross sales and revenue. The financial position, as well as the performance of the brand, has constantly been on the rise ever since the organization began its expansion drive. The global distribution of this particular brand has helped them generate a fourfold jump in gross profit and sales, and the projections for the future are very good in terms of profitability and branding. The core business prospects in UK and Ireland continued to deliver a strong financial performance of the brand in the fast-food market. There has been a significant 3.7 % increase in sales in the UK, with digital online sales contributing to a rise of 8.8% in the sales figures. The average growth rate in the sales figure of Dominos in the European country stands out to be 5.3 % which proves as a significant opportunity to capitalize on the European market (Jimoh et al., 2016 pp. 2340-2366). However, the external environment of Dominos was not favorable for conducting business operations that are profitable and feasible. The beginning of the COVID 19 pandemic has potentially caused great loss to the food industry and the fast-food industry. A global player like Dominos managed to cope up with the negative effects of the pandemic due to their global presence and wide distribution network. The number of stores that the company globally operates determines the size and structure (Dominos, 2019). The provision of franchisees had proved to be a game-changer in terms of profitability against investment. The huge number of franchisees helped the company in gaining worldwide recognition in the fast-food market. It offers great profitability against very low capital costs and is considered one of the most viable and feasible business operation techniques for global companies. The innovative online platforms provide the company the desired sales figure that they wanted in the European continent (SAYAVARANONT and PIRIYASURAWONG, 2019 pp. 1461-1468). Moreover, the Australian subcontinent also offers the company great feasibility in sales and revenue owing to the growing number of young age population who are expanding in the country. The financial position of Dominos can be measured by calculating some variables that are integral to the sales ratio.

Profit margin

1. Margin of profit= net revenue/ amount of sale = 28.0
2. Invested capital= profit after tax returns/ Total capital invested *100= 86.7

Ratio of liquidity

1. Present ratio
   Present assets/present company liabilities for 2020= $0.96B/0.49B

   =1.96

   =$0.16B/$0.42B=1.44 for the year 2019

   Quick ratio
   = (Present assets – Prepaid costs-Inventory)/ Present liabilities for 2020

   = ($0.89B)/$0.49B =1.82

   = ($0.55B)/$0.42B = 1.32 for the end of 2019

   Asset management ratio

   Ratio of asset turnover

   =Revenue/ Aggregate of gross asset for 2020= 2.6183

   =3.7833 for the end of 2019

   Ratio of profitability

   Margin of EBITDA for 2019= 17.3928

Asset management ratio
The conversion from invested capital to the net profitability of the company is known as the asset management ratio. The figures of this variable are very favorable in terms of gross revenue and profit, so it can be said that the company had been utilizing the resources to the maximum extent to increase profitability.

Ratio of liquidity
The management of present assets in comparison to the present liabilities of Dominos has been very impressive, and that is why there is a positive outcome of the liquidity ratio that is beneficial for the company (Gruenberg et al., 2016 pp. 189-218). The financial position and company presentation have been quite impressive, according to the reports.

Profit margin
The higher the ratio, the better it is for the company in terms of gross sales. The assets of the company are utilized for attracting the stakeholders of the company for future potential investments. The company experienced steady growth in terms of profit margin in the year 2019.

Return of capital employed
The return profit against the capital investment proved very profitable for the years 2018 and 2019. Dominos Pizza Enterprise has effectively used the investments to generate good profits and revenue.

Calculation of economic statements
Detailed analysis and evaluation of the revenue declaration, balance sheet, and cash flow ratio are provided in the table.

Balance sheet
The table shows the items that increased over a certain time frame, and the gross assets have considerably increased for Dominos in comparison with the balance sheet of 2018, and this is a positive sign for the future of the company (Dominos, 2019). The organization can expect a projection of increased sales and distributed network of franchisees if the company generates profits at the current rate. A projection of 25 billion dollars of yearly sales is expected in the upcoming year ahead.

Statement of Income:

Therefore, it can be noticed that there has been a substantial rise in the profit margins and revenue of Dominos in the year as compared to the previous year. The gross revenues increased by an average of 68.2 billion us dollars in the fourth quarter of 2019. Although covid 19 has negatively affected the food industry, Dominos did not suffer any substantial losses as the company has a wide distribution of franchisee networks that are spread across the globe. The global increase in revenue and sales can be attributed to increased global outlets and stores, resulting in a considerable increase in the supply chain and global franchise revenues (Day and Stemler, 2019 pp 61-106). There was a significant impact on the sales for a short period due to the negative impacts of currency exchange rates. However, this particular issue subsided within a few days, and the operations were back on track for Dominos.

The company had a fourth-quarter global net store growth rate that comprised 492 stores, with 141 in the USA and the rest 351 across the globe. In the year 2019, the company opened 1106 stores across the world, with 250 of them in the USA and 856 in other countries in the world. The huge distribution and expansion program of the brand makes them one of the best and biggest fast-food chains in the world. The projection of the sales growth rate for the year 2019 was far better than the projection of 2018 (Dominos, 2019). Likewise, if the business grows and expands in this way, the company can expect better returns in 2020 than the year 2019. However, there are a few internal and external factors that are responsible for the sales comparability index of Dominos, apart from the exponential sales index and potential store expansion. The financial results of Dominos can significantly be affected by the capital structure amendments, effective tax rates, portfolio changes, and adoption of new accounting procedures. Recapitalization of investments has primarily generated the most desired figures related to the sales and growth of the brand, which is considered one of the leading fast-food brands in the world.

Part B
Audit Board
In general, the Committee refers to the individuals in the sub-group of the company under the board of directors who are accountable for the failure of the financial disclosure to be notified in the reporting procedure. The audit committee is not an auditor and does not play the role of auditors. Still, they work closely with the auditors to make sure that there are no conflicts of interest existing between auditors or any outside consulting firms employed by the company. To obtain success, the audit committee should be aware of the procedures and internal controls in the organization (Rani, 2018 (p 35)). The Committee also should cooperate with the independent auditors, management team as well as internal auditors to supervise the preference of accounting principles and policies and to make sure conformity with rules and regulations. In other words, it can be said that the auditing committee should be expressed as an assemblage of the least amount of three persons or more who is in charge of the truthfulness and excellence of the bookkeeping and reporting practices of the firm. The board of directors does the establishment of the audit committee where the Committee is said to be an official entity that is given legal responsibility for the entire supremacy of that firm for its proprietor, lenders as well as inventors (Erasmus and Coetzee, 2018 (p 93)).

The adoption of International Financial Reporting (IFRS) has been one of the most commonly used accounting standards as it is an effective and versatile transformation in the financial reporting history. However, the analytical view of the International Financial Reporting Standards (IFRS) in Australia has indicated that the implementation of IFRS was the most appropriate system that the Australian corporate could use in the financial system and its specific sections because the standard was suitable for both profitable and non-profitable business. It has been assumed that the influence of IFRS leads to inequity in the transformations and accounting surplus due to the local administration policy of accounting.

The IFRS was adopted by the corporate world of Australia in 2005, after which the overall accounting procedure in the business organization was largely improved and altered that helped most of the firm to improve its business operation as a whole. After the adoption of IFRS, the audit committee has been leading to effective accounting standard and financial reports in multinational companies in Australia. The chances of frauds to occur in the financial transaction of the companies have been less to an extreme level. The overall audit quality of the firm have been improved and augmented the massively with the help of IFRS. It has also been strengthening the credibility of the firms with their stakeholders (Muhammad et al., 2020 (p 188)).

Therefore, it can be said that the implementation of IFRS has been one of the effective accounting standard that enabled that business organizations to enhance their financial or annual report and manage the overall financial transaction in the firms. Additionally, the adoption of IFRS also has helped the Australian economy by helping the corporate world to manage their fiscal position in a better way (Habib, Md Borhan and Mostafa, 2019 (p 498)).

Application of audit committee effectiveness
The main motive of the corporate governance is to emphasize mainly the security of the business report reliability, and the standards are the suitable procedures for the organizations and the audit board to confirm the reliability and the clearness of the corporate statements of the company. There are numerous principles and recommendation of the corporate governance among of which few principles have been noted below:

Lay solid foundations for management and oversight: The registered company must specifically delineate the respective roles and responsibilities of its board as well as management and regularly review their performance.

Design the board to be effective and add value: The boards of the registered company must comprise a suitable and collectively have the talent, commitment and knowledge of the company and the industry in which it operates, to make them able to discharge its duties effectively and to add value.

Develop a culture of acting legally, ethically and responsibly: The registered company must implement and constantly reinforce a culture across the organization of acting lawfully, ethically and responsibly.

However, the appropriate process recommended and adopted by the chosen firm is that the council of corporate governance needs the business organizations to develop an audit committee with not less hat three members and must make sure that they are non-executive directors. As such, the mainstream must be the individual directors. However, in the firm of Dominos, the audit committee has been formulated with non-executive directors individually.

As per the analysis of the members of audit committee and their biography, it can be said that the members are from different backgrounds. As such, it is not possible to analyze the existing information of each member. Therefore, the members of the audit committee of Dominos are James A. Goldman, Diana F Cantor, and Cories S. Barry. As per the in-depth details, it has been identified that James A Goldman was ex-leader of the groceries and beverages sector at Campbell Soup Company.

Additionally, he was a senior consultant at McKinsey Company. On the other side, Diana F Cantor was the head of the audit committee and presently works in the form of partner to the Alternative Investment Management at LLC and perceives the position to the audit committee and acquiescence committee at Virginia retirement System. Another member, Corie S Barry, serves as the CEO of Best Buy Corporation that helps the business firm to meet the requirements of the suitable intelligence for a member and introduces variety to the Committee.

Since Dominos is involved with the operation of the food and beverages industries, the audit committee of this firm must comprise intelligent members in terms of funding, capital, etc., because they are responsible for managing the finance and capital market of the firm. These requirements of the audit committee have been fulfilled, as the members are well skilled in terms of managing the financial report of the firm. It is because; the members were highly experienced by working in numerous multinational companies around the world.

Considering the statements explained above, the Domino's audit committee members involve three members where the president of the Committee is involved as well. These members bring one of the largely prominent accomplishments and experiences are the pose of CEO to sell massive Best Buy, partner to Alternative Investment Management and historical knowledge such as CEO of Govida Chocolatier Inc, Deloitte, McKinsey Company are prominent silhouettes of the audit committee members of Domino’s Pizza Enterprise Ltd.

Considering the ideology and recommendations of corporate governance, it has been identified that the audit members must disclose all their active participation in the firm’s audit contract whenever they come together for a meeting. It is recommended that the firm’s audit committee must hold a meeting every year after every quarter. Any of the members can conduct the meeting, and thus every member must be present at the conference as per schedule.

Hence, the Dominos audit committee conducts the accountability of positive the auditing practices beforehand, creates effective strategies for the firm, and look after the financial audit and development of the financial statement. This refers to the entire part of supervising procedure of the agreements with the rule and regulations according to the recommendation of the corporate governance. Therefore, it can be said that Domino Pizza considers all the legal recommendations and regulations of corporate governance. As such, it can be assumed that the firm contains a strong audit committee that has been helping the firm to have a better financial statement (Samanta, 2019 (p 852)).

Conclusion
The Dominos pizza company has developed into the largest fast-food companies with one of the widest distribution channels and networks. As per the firm’s financial report projects a tremendous growth rate for the company in the years to come, and it can expect a more significant expansion procedure in the future with integrations, mergers, and franchises. This report is a detailed evaluation and analysis of the fiscal position and performance of the Dominos Pizza enterprise. The significance of the audit committee is integral to the market reputation of the company. The stakeholders can get benefitted from the fair value of the company in the market. The company follows the corporate governance principles imposed by the ASX and carries a good reputation for conducting a fair and justified audit process.

References
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Dominos (2019). Domino’s Pizza, Inc. - AnnualReports.com. [online] www.annualreports.com. Available at: https://www.annualreports.com/Company/dominos-pizza-inc [Accessed 20 May 2021].

Erasmus, L., and Coetzee, P. 2018. Drivers of stakeholders' view of internal audit effectiveness: Management versus audit committee: Management versus audit committee. Managerial Auditing Journal, 33(1), 90-114. doi:http://dx.doi.org/10.1108/MAJ-05-2017-1558

Grueneberg, S.A., Schneiderman, J. And Chiu, L.Y., 2016. Drafting Franchise Agreements After Patterson v. Domino's: Avoiding the Minefield of Vicarious Liability and Joint Employment. Franchise Law Journal, 36(2), pp. 189-218. https://www.proquest.com/docview/1919092813/6314C2515D2D47D7PQ/3?accountid=30552

Habib, A., Md Borhan, U. B., and Mostafa, M. H. 2019. IFRS adoption, financial reporting quality and cost of capital: A life cycle perspective. Pacific Accounting Review, 31(3), 497-522. doi:http://dx.doi.org/10.1108/PAR-08-2016-0073

Muhammad, S. M., Jiang, H., Rahman, A., and Stent, W. 2020. Audit effort, materiality and audit fees: Evidence from the adoption of IFRS in Australia. Accounting Research Journal, 33(1), 186-216. doi:http://dx.doi.org/10.1108/ARJ-06-2018-0103

Oyewobi, L.O., Windapo, A.O., Rotimi, J.O.B. And Jimoh, R.A., 2016. Relationship between competitive strategy and construction organization performance: The moderating role of organizational characteristics. Management Decision, 54(9), pp. 2340-2366. https://www.proquest.com/docview/1826444078/80B49E1710964FC7PQ/1?accountid=30552

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Sayavaranont, P. And Piriyasurawong, P., 2019. Virtual Community of Practice using Human Performance Technology to Enhance Innovation Competency and Innovation for High-Performance Organization. TEM Journal, 8(4), pp. 1461-1468. https://www.proquest.com/docview/2330992176/80B49E1710964FC7PQ/2?accountid=30552