Determinants Of Financial Performance: A Case Study Of Wesfarmers Plc

Corporate Governance at Wesfarmers

Discuss About The Determinants Financial General Performance.

In this report, audit and financial risk of the Wesfarmers plc have been discussed. It is the Australian conglomerate company having its headquartered in Perth, Western Australia. Wesfarmers Limited is an Australian conglomerate, having its headquarters situated in Perth, Western Australia.  It is the biggest retail business organization which has made total turnover of AU$ 65.98 billion. This company has been listed on the Australian stock exchange and other international stock exchange (Wesfarmers.com.au. 2018).

The principle of corporate governance focuses on the applicable rules, regulation, laws, and principle sand corporate governance program which needs to be complied by the Wesfarmers plc for the sustainable future and its economic growth (Weygandt, Kimmel, and Kieso, 2015).   

There are several corporate governance principles which need to be complied by the Wesfarmers to increase the transparency of its business and sustainable future.

• Corporate governance of Wesfarmers plc focuses on the compliance program to maintain the effective board members and hiring of at least one independent auditor in its audit committee and board of directors committee.
• The third corporate governance principle focuses on the increasing the overall sustainability of the business and transparency of the business.
• This Audit principle of the company focuses on the increasing the integrity of the company to its reporting frameworks which increases the overall outcomes to the society.
• Proper disclosure in its reporting frameworks and notes to accounts of the financial statement will increase the overall outcomes of the society.
• The right to shareholders are kept safe with a view to increase the overall outcomes and holding general meeting as per the corporation act and corporate governance program
• The risk monument frameworks and corporate governance practice must be effectively followed to increase the transparency of the business.
• Wesfarmers have been following ASX rules and international corporate governance program to increase the overall efficiency of the business (Asx.com.au. 2014).

After evaluating the annual report of the company, it is observed that the Wesfarmers plc has complied with the international and domestic rules and regulation which have also increased the business output and efficiency of the business. The company has also complied with the listed and principles of the ASX on which the shares of the company has been listed. The above give principles have shown that company has followed all the applicable rules and regulation to strengthen its reporting frameworks and reduced its audit risk (Weygandt, Kimmel, and Kieso, 2015).

The corporate governance statement of the Wesfarmers reflects all the roles and responsibilities of the board of the directors of the company. It has also shown the possible responsibilities of the key managerial persons. . There are several duties of the directors of the Wesfarmers which have arisen due to the legal compliance of the Wesfarmers.

• It includes that all the directors will endeavor towards the meeting the set goals and objectives of the company.
• The Board of the directors of the Wesfarmers will follow all the legal and ethical compliance of company to strengthen its domestic and international reporting disclosure.
• The implemented corporate governance principles will require company to comply with the corporate integrity, ethical program and showcase the legal liabilities of the company towards the society. .
• The managers of the company will be responsible to handle day to day activities in all of company’s stores to increase the operating effectiveness of the company.

• Overseeing the financial and management plan to increase the overall outcomes of the business.
• Appointment of the employees in its different department to expand the busienss by following the market penetration strategy.
• Monitoring of the financial aspects, internal control system and implemented new plans to evaluate the financial and business performance of Company.
• Evaluating the growth functions and employees oriented strategic plans to win over the market.
• Implementing the international financial disclosure requirement to implement the strategic program and effective work functioning (Wesfarmers.com.au. 2017).

The Wesfarmers Company has been accompanied with the different and diversified board members who have high expertise, virtue and divergent thinking power to analysis the risk and opportunity available in market for the company. It is evaluated that the company has been directed by the instructions of the CEO of the company. However, there are several executive and non-executive directors who indulged in taking the strategic decision making for the organization.  The structure of the company is comprised for the 8 non-executive directors who are also referred as independent directors and rest of the employees are executive directors. In Feb, 2017 Company appointed Mr. Rob Scott as its Deputy CEO and he will be acting as director of the group which will eventually assists in increasing the overall outcome of the business (Weygandt, Kimmel, and Kieso, 2015).

Financial Performance of Wesfarmers

(Wesfarmers.com.au. 2017).

Skills and expertise of Board

• CEO working experience
• Formulation of the strategic planning and strategic work program
• Forming the regulatory and work program
• Evaluation of the capital market and implementation financial strategies
• Installation of the new management and financial work program
• International experience
• Knowledge about finance and banking.

The primary objective of the company is to increase the overall outcomes and efficiency of the business.  Company needs to follow all the rules and regulations to increase the overall outcomes and efficiency of the business.  This ethical and legal compliance program will increase the overall outcomes and efficiency of the busienss.

The Wesfarmers Company has followed the Whistle blower policies and arranged grievance program for its business. It will not only increase the overall outcomes but also increase the overall outcomes throughout the time.  The policies and program adopted by the Wesfarmers Company will increase the ethical condition and efficiency of the business at large (Weygandt, Kimmel, and Kieso, 2015).

The audit and risk committee of the Wesfarmers will assist in monitoring of the internal control program of organization and also increase the overall integrity of the business. It is observed that Wesfarmers Company needs to showcase that company needs to comply with the accounting and auditing standards on international level to strengthen the disclosure requirement in determined approach. It will eventually increase the overall transparency of the financial accounts of company.

There are several committees of the Wesfarmers such as internal control system, board committee and audit committee who takes all the imperative decisions to increase the business efficiency, legal compliance and ethical work of the Wesfarmers. The integrity, ethical work program and increased busienss outcomes are highly dependent upon the implemented strategic program undertaken by the Wesfarmers. This committee has direct connection with the internal and external auditors who undertakes the internal control system. The focuses are given as below (Deloitte Australia. (2017).

The committee has a direct access to the external auditor and the internal auditor. Key focus is Ernst & Young who is the external auditor of the Wesfarmers who given qualified and non-qualified audit report in the financial statement of the company.

The role of E&Y is to attend the AGMs and prepare independent auditor’s report for the company (Wesfarmers.com.au. 2017).

The Wesfarmers have been following market disclosure policies which are followed to disclose all the key information with its stakeholders. The timely disclosure of this information assists organization to implement the strategic plans and work process which will eventually increase the transparency of the busienss and strengthen the market position.  The timely disclosure of the sensitive information is made by the office administrators appointed by the company. He is responsible for managing the group’s continuous disclosure (Weygandt, Kimmel, and Kieso, 2015).

Mitigating Audit and Inherent Risks

Wesfarmers Company has also used its official website to disclosure its imperative information with its stakeholders. It is evaluated that the investors relation and ASX announcement of company is highly based on the corporate governance program of company. This website is directly linked to the corporate governance procedure which needs to be complied by company to increase the overall effectiveness of the work (Mwangi, and Murigu, 2015).

This group disclosure and use of website has been used by the management of company to disclose the imperative information on timely basis to its stakeholders (Tseng, and Chiang, 2016).

The proper risk management frameworks have been used by Wesfarmers to enhance the risk management program which will includes the  code of conduct of business, divisional structures, a formal corporate planning process, compliance reporting system and many other procedures and policies used or managing and identifying several risk, to which the group is associated with.

The Wesfarmers Company has Remuneration Committee which is responsible to determine the fair remuneration and compensation for its employees (Wesfarmers.com.au. 2017).

Therefore, after analyzing the annual report, it could be inferred that Wesfarmers plc has complied with the all these ASX CGC principles in its business (Weygandt, Kimmel, and Kieso, 2015).

It is founded in 1914 and diversified its busienss in various busienss sectors. The group is leading organization in retail business and set up a strong shareholder base of 530,000 and employees over 220,000 (Wesfarmers.com.au. 2018).

The audit report of the Deloitte’ given in last year depicts that company has complied with the all the applicable rules and  it is having reporting plans and governance as compared to its other industry player such as TJX Companies Inc., UK department stores, American retailer, French leisure good retailer Décathlon and John Lewis and Debenhams. Wesfarmers has strong growth in these retail business sectors of the Australia (Deloitte Australia. 2017).

The busienss strategy of the Wesfarmers accompanied with the core values, growth effective strategic planning and business principles.

• The board of directors must emphasis upon the complying with the applicable rules and regulation.
• Sustainable business functions.
• Grasping growth opportunity (Wesfarmers.com.au. 2018).

(Financials.morningstar.com. 2018).

(Financials.morningstar.com. 2018).

There is several audit risk which have been faced by Wesfarmers such as detection risk, inherent risk, control risk. These risks could be mitigated if company keeps its financial reporting polices effective and follow international disclosure requirements (White, Sondh, and Fried, 2015).

Wesfarmers has several inherent risk which could be mitigated by company following proper internal control system, timely audit review and setting harmonization in its domestic and international reporting frameworks. In addition to this, company could also mitigate these risks by giving proper notes to accounts in its financial statement (Williams and Best, 2014).

Conclusion

After analyzing the annual report, it could be inferred that company has complied with the ethical and corporate governance principles. It has also strengthened its legal compliance and reporting frameworks to increase the overall outcomes in determined approach. It is observed that the profitability and capital structure of company is also very strong which reflect the positive outcomes to its long term business.  The main audit risk which Wesfarmers Company will face in its business is related to impartment loss. Company has to follow all the applicable accounting standard and rules of the international financial reporting standards which may reduce the overall outcomes of the business. However, impairment test will be useful to determine the true and fair value of the assets of the business.

References

Asx.com.au. (2014). Corporate Governance Principles and Recommendations. [Online] Available at: https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-recommendations-3rd-edn.pdf [Accessed 30 April 2018].

Deloitte Australia. (2017). 2017 set to be ‘fascinating’ year for Australian retail | Deloitte Australia | Global Powers of Retailing 2017. [Online] Available at: https://www2.deloitte.com/au/en/pages/media-releases/articles/2017-set-to-be-fascinating-year-for-australian-retail-240117.html# [Accessed 30 April 2018].

Financials.morningstar.com. (2018). Income Statement for Wesfarmers Ltd (WES). [Online] Available at: https://financials.morningstar.com/income-statement/is.html?t=WES&region=aus&culture=en-US [Accessed 30 April 2018].

Mwangi, M. and Murigu, J.W., 2015. The determinants of financial performance in general insurance companies in Kenya. European Scientific Journal, ESJ, 11(1).       

Tseng, F.M. and Chiang, L.L.L., 2016. Why does customer co-creation improve new travel product performance?. Journal of Business Research, 69(6), pp.2309-2317.

Wesfarmers.com.au. (2017). Annual Report 2017. [Online] Available at: https://www.wesfarmers.com.au/docs/default-source/reports/j000901-ar17_interactive_final.pdf?sfvrsn=4 [Accessed 30 April 2018].

Wesfarmers.com.au. (2018). The Wesfarmers Way. [Online] Available at: https://www.wesfarmers.com.au/who-we-are/the-wesfarmers-way [Accessed 30 April 2018].

Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & managerial accounting. John Wiley & Sons.

White, G.L., Sondh, A.C. and Fried, D., 2015. Analysis of Financial Statement. Analysis.

Williams, K.M. and Best, G., 2014. Short study tours abroad: Internationalizing business curricula. Journal of Teaching in Travel & Tourism, 14(3), pp.240-259.

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