The paper "Auditing and Assurance at Woolworths Holdings Limited" is a great example of a finance and accounting assignment. 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 have no impact on the hedging 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 the investment made abroad Investment is 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 of 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 is 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 another cash equivalent.
The rate can be either fixed or floating exchange rate so that a 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 the 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 the annual financial statement Deals with different concerns and complaints Provides information to the Board with matters concerning accounting policies, controls and reporting.
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