Identify major business risks of woolworths

Reference no: EM132628276 , Length: word count:3200

Assignment

This assignment has two parts.

Part A: Background

You are currently studying several corporate failures happened in the World that caused a major creditability crisis in the accounting and auditing profession. The collapse of Bearings Bank has drawn your attention.

Barings Bank was one the world's oldest merchant bank. Barings decided to open a Future and Options office in Singapore. The bank appointed Nick Leeson as a general manager, who was sent over to head both front office and back office operations. Leeson was able to settle his own trades, bypassing the bank's own internal controls.

After moving to Singapore to execute and clear transactions on the Singapore Exchange, Leeson began making unauthorised trades, which initially made large profits: £10 million in one week for Barings. This humongous profit accounted for 10% of Barings' annual profit, which caught the attention of other staff members in the bank. In particular, Mike Killian, the head of Global Equity Futures and Options Sales, knew that Barings was making about £200 million for the whole year. Killian was cynical that if Leeson carried on making such profit throughout the year, it would be a £1billion a year profit. According to some sources, Killian claimed that if Leeson is doing the amount of business for the amount of profit, then they should shut down the rest of the bank because they were just overheads.

Due to Leeson's rogue trading, Barings declared bankruptcy in February 1995. The report of the collapse of Barings Bank is available on Moodle.

1. Mike Killian was cynical that one person alone was making more money than all the rest of Bearings Bank staff. Questioning the reliability of information and being alert to conditions that may indicate possible fraud is an attitude expected from auditors. In your view, what is the name of the professional attitude for auditors and explain the concept of this professional attitude.

2. Using your knowledge of APES 110 Code of Ethics for Professional Accountants to identify and explain the potential type(s) of threats to Nick Leeson's independence. Suggest what safeguard(s) should be instituted to reduce the threats to independence.

3. Before going insolvency in 1995, Barings Bank had received an unmodified audit report. In your view, what does this mean regarding the audit expectation gap? How does an unmodified audit report relate to the collapse of Barings? Page 5 of 5

4. Explain the concept of reasonable assurance, and how reasonable assurance is determined? Discuss the three reasons why an auditor cannot offer absolute assurance.

(1,200-1,500 words)

Part B: Based on the 31 December 2019 Annual Report for Woolworths Group Limited (available on Moodle), prepare a planning memorandum for the audit partner which includes the following:

Required:

1. Identify four major business risks of Woolworths and provide a detailed explanation of why each factor is identified as a risk to the business.

2. Results of analytical procedures. It is recommended that you prepare a trend analysis and prepare key ratios (Examples of a trend analysis and ratio analysis are available on Moodle). Identify and explain which changes in the trend analysis and ratio analysis would trigger further investigation in the audit for Woolworths. (Please include your workings in the Appendix).

3. Identify four inherent risks that you identify from business risks and analytical procedures in parts 1 and 2. (Note: business risks are not the same as inherent risks).

4. Identify a key account and a key related assertion at risk of material misstatement based on the inherent risks you identify in part 3. (Note: Identify a key account and a key assertion for each of the four inherent risks identified in part 3).

5. Calculate planning materiality in a $ amount. You must include a breakdown of your calculation and a justification of your choice of base, the percentage used and your assessment of detection risk. Assume control risk is high. (1,800-2,000 words)

Attachment:- AUDITING ASSIGNMENT.rar

Reference no: EM132628276

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