Auditing and Assurance (ACC3AUD) Department of Accounting


Executive Summary 3

Areas of Operation 3

Governing Laws/Regulations 3

Competition Laws 4

Consumer Laws 4

Product Liability Regulation 4

Environmental Legislation 4

Privacy Laws 5

Major Competitors 5

Independent Grocers of Australia (IGA) 6

Harbor Town 6

SWOT Analysis 6

Strength 6

Weaknesses 7

Opportunities 7

Threats 8

Fraudulent Reporting 8

The Corporate Governance Arrangements 9

References 10

Executive Summary

Wesfarmers Group was established in the 1900s and has grown steadily ever since. The tremendous growth of Wesfarmers is attributed to its continuous acquisitions on companies involved in different businesses. These acquisitions have seen them climb the ladder of success until their listing in the Australian Stock Exchange (ASX). The company has done s o well in the retail stores segment that it made it to the list of 100 top global retail outlets in 2010 and 2016. The company ranked number 28 globally in 2010 and climbed to number 23 in 2016 globally (Farfan B. 2016).

The company has had to do with several legislations introduced by the Australian government, state and territory governments. These regulations touch on different areas including competition, consumers, product liability, environment and privacy. All these legislations are enacted to ensure a fair ground for the businesses and consumers (Australian Trade & Investment Commission, 2016).

The company has its internal and external factors that if properly exploited can make it continue positively on its growth path. There are however challenges on the way that would require the management to formulate competitive policies in order to remain relevant in the market. The recent years has seen a steady growth in the grocery retails and supermarket sector. This increase in competition calls for the adoption of new strategies to counter competitors (Hoovers Inc 2016).

Areas of Operation

Wesfarmers is regarded as the one of the largest Australian listed companies, having started as a Western Australian farmer’s cooperative, as stated in the Wesfarmers website. The company has its headquarters in Western Australia. It has a wide range of business operations which cover areas like supermarkets, liquor stores, hotels and convenience stores; office supplies; home improvements; departmental stores. There is also an industrial division that has businesses in chemicals, industrial and safety products, energy and fertilizers and coal. The company is one of the largest private sector employers. Its shareholder base numbers approximately 530,000 ( 2016).

Governing Laws/Regulations

Just like any other business entity anywhere in the world, Wesfarmers has to observe the laws and regulations put in place by both the Australian Government and State and Territory Governments. These laws and legislations seek to offer protection to the consumers, the community and the environment. These laws and regulations also promote fair business environment and competition. They also regulate the interaction between the business and other stakeholders like the suppliers, customers and other businesses. The laws can also be applied when conflicts arise between businesses or between business owners since they outline the rights of both parties. The laws include (Australian Trade & Investment Commission, 2016):

Competition Laws

The government of Australia has put up national statutory framework which ensures that there is fair trade between businesses and consumers. The Australian Competition and Consumer Commission (ACCC), has been mandated with the administration and enforcement of this framework. There are also various laws enacted by State and Territory Governments that regulate consumer protection. The state and territory governments have also installed fair trading offices in each state or territory to provide advice on matters business rights and obligations.

This law particularly dictates the manner in which Wesfarmers relates with the consumers and other businesses that conduct trade in the same industry. Any conflicts that may arise between these entities can be solved by applying the principles stated in this law. There may also be conflicts such as complaints lodged against the company by a consumer, probably due to a faulty product acquired from their stores.

Consumer Laws

The Australian Consumer Law (ACL) offers regulations on unfair contract terms, consumer rights guarantees, product safety laws, unsolicited consumer agreements, lay-by agreements and penalties as well as other areas (Commonwealth of Australia, 2016).

The law seeks to compel business entities to adopt policies which would give the consumer more insights on the products being offered to them. The business should also make the consumer aware of their rights and limitations to these rights and also the channels in which these rights can be exercised. Wesfarmers is bound by this law in that any transactions with the consumers must be done in the manner stipulated by the law.

Product Liability Regulation

The Australian government has put in place a national statutory framework that regulates the safety of a product and information standards. These standards aim to disallow the manufacture, import and sale of harmful and substandard products in Australia. Just like the competition laws, these regulations are implemented through the Australian Competition and Consumer Commission (ACCC). The state and territory government’s offices are also used to enforce the product liability regulation. These offices merely give assistance to the consumer.

The significance of this law is that it ensures that only those products that meet the set standards and threshold are allowed to enter into the Australian market. It is important to make sure that substandard products are not allowed to reach the consumer as some of them may cause unprecedented health problems. Some of them might not have undergone inspection and may cause the government a lot of funds in tax defaults. This law seeks to protect the consumer from dangerous products.

Environmental Legislation

The administration of environmental protection is jointly done by the Government of Australia, the state and territory governments and the local governments. The Australian Government deals with legislations governing assessment process and approval of national concerns on culture and environment. The legislations by both state and territory legislations are implemented on individual businesses or specific business activities.

This particular legislation is designed to ensure that the activities of a certain business do not impact negatively on the environment and the culture of the neighboring communities. All the concerns that would be raised on the activities of a business are assessed and necessary measures are taken. Negative impact on the environment can be through emission of toxic gases, pollution of water bodies, excretion of harmful compounds, noise pollution, radio-active emissions and any other forms of environmental impact.

Privacy Laws

There are national policy legislations enacted by the Australian Government that are implemented by the Office of the Australian Information Commissioner (OAIC). These privacy laws regulate how businesses can collect, access, and store personal information and communication. This law was necessitated by the need to safeguard sensitive information such as medical records. This legislation by the national government covers different activities and sectors. Other support legislations can also be enacted by the state and territory governments. These ones can apply in the work place and can also affect how people do business in every jurisdiction.

The Privacy Act affect specific areas that include the Australian Privacy Principle, the handling of tax file numbers, creation of privacy regulations, credit reporting provisions and the handling of personal information for medical research. Such are the information that the OAIC treats as confidential and cannot be disclosed to any other party unless the law stipulates so.

Major Competitors

Wesfarmers operates in a country where major retail stores engage in similar activities and this has resulted to stiff competition especially in the retail sector. Two of the major retail chains that compete directly with Wesfarmers are (Findouter n.d):

Woolworths Limited

This is a supermarket chain that has its headquarters in Bella Vista, NSW. The company has over 3,000 stores distributed throughout Australia and Newzealand. The stores employ more than 180,000 people. It engages in the retail of products such as food and grocery, petrol, general merchandise, liquor and consumer electronics.

Caltex Australia Limited

This is the largest refiners and retailers of petroleum products in the whole of Australia. The company is headquartered in Sydney, NSW. With a nationwide presence, Caltex Australia Limited runs a network of over 2,000 service stations bearing the Caltex and Ampol brands. On top of these, the company operates more than five hundred Star Mart and Star Shop convenience stores.

Two of the minor competitors of Wesfarmers Limited include:

Independent Grocers of Australia (IGA)

Although this has been termed as the largest independent grocery brand in Australia, it still fairs dismally as compared to Wesfarmers limited, according to Australia Stock Market. The retail store runs a chain of more than a thousand stores in the format of Supa IGA, IGA and IGA X-press. The retail store engages in products such as ice cream, deli platters, milk, pasta, bacon, vegetables and many more.

Harbor Town

This entity is headquartered in West Beach, SA 59950 and it deals mostly with purpose-designed direct outlet shopping destinations. The various retail outlets are strategically located in Gold Coast in Queensland, Adelaide, Perth and Melbourne. These outlets stock products such as lingerie, dresses, furnishings, jewelry, jackets, perfumes and linen.

SWOT Analysis


Strong Brands

Since its inception in 1914, the company has embarked in acquisition spree, netting some of the famous Australian business entities. Some of the acquired entities include(Wesfarmers Limited 2016): Gascoyne Trading, which is a transporting company, in 1924; acquisition of fifty percent of Gresham Partners, an investment bank, in 1985; CSBP & Farmers, which deals with the sale of petroleum, in 1986; Western Collieries, a coal mining company, in 1989; Federation Insurance, which is an insurance company, in 1991; acquisition of Bunnings in 1994; acquisition of Westrail Freight Business and Curragh coal mine, both in 2000; acquisition of Crombie Lockwood and OAMPs Ltd in 2006; acquisition of Coles and Linde Gas in 2007; acquisition of Workwear Group in 2014. These are some of the major acquisitions that the company has been engaging in since it was found. These acquisitions have enabled the company to diversify into markets initially not invested in as it also sought to kill competition. This diversification into other markets has contributed enormously to the growth of Wesfarmers. This has kept it above other competitors.

Strong marketing team

The marketing team of Wesfarmers is decentralized, that is, every acquired entity operates independently with minimal interference from the mother company. This has seen the sales in Wesfarmers grow rapidly. The decentralized marketing units ensure that each subsidiary designs its own marketing strategies. The marketing team can thus design strategies most suitable to the particular subsidiary. This makes them appealing to clients.

Experienced Business Units

In its acquisitions, Wesfarmers has mainly targeted the best performing businesses or that business which hold higher chances of revival. The companies acquired include those in the mining sector. This is a sector that has seen constant growth since the ages of industrial revolution. The company has thus been able to turn some of the almost collapsed loss making companies in to profit making ones. Some of these units have been in existence for a very long period of time.


Small Business Units

Wesfarmers Group is made up of several small business units that were acquired in its quest for expansion. These businesses have their positive and negative sides too. On the negative, these businesses are vulnerable to economic turmoil. They can easily collapse when economy faces downfall. It is also possible that losses or fraudulent financial reporting can affect the businesses negatively.

Competitive Market

Most of the acquired businesses operate in industries with established competition. These entities have to adopt competitive strategies in order to remain relevant in the market. These businesses have also to invest heavily in their infrastructure to remain top of the competition. The heavy financial investments in these entities have left Wesfarmers with heavy liabilities.


New Acquisitions

Just recently, Wesfarmers Group acquired Homebase, which is a United Kingdom based retailer. This is an indication that there still exists opportunities whereby Wesfarmers can strive to expand in to new markets. The acquisition strategy can be good for the business as the company continues to expand on its revenue base.

Economic Growth

Economic growth in Australia has made it possible for the retail sector to witness growth in the recent times. The annual revenue from retail in grocery stores and supermarkets was recorded at $101 billion, while this segment has at the same time witnessed an annual growth of3.9 percent between the years 2011 and 2016 (Farfan B 2016). The retail grocery sector has also expanded to 2,022 retail stores and supermarkets in the year 2015 (Farfan B. 2016).


Government regulations

The government of Australia has introduced several regulations that have affected the way retail business runs. The regulations however, seem to favor small scale retailers. It is difficult to predict which kind of regulations the government would introduce in the future. It is thus dependent on the businesses to formulate ways to shield themselves against the impact of these regulations.

Growing competition and lower profitability

The growing retail grocery and supermarkets come with its own setbacks. The segment alone has more than two thousand players. Business has reduced considerably as the increase of the number of industry players has led to reduction in prices. Profits have been low in the recent times. This segment is expected to witness continued growth in future (Farfan B. 2016).

Increasing Costs

The scarcity of retail items has made the prices of these items to increase while the retail prices reduce. Business has reduced as clients seek other cheaper alternatives to the retail stores. The cost of doing business has also increased owing to the various legislations introduced by the Australian Government (Hoovers 2016).

Fraudulent Reporting

Inventory/Cost of goods Sold

This is the account where the amount spent on acquisition of raw materials is recorded. This account is susceptible to false reporting since the lower level accountants have been entrusted with the mandate of accurate recording of the received inventory and the ones paid for. Fraud in this account cannot be immediately detected and this makes it easier for manipulation.

Accounts Receivable/ Revenue Account

The revenue account indicates those items sold but yet to be paid for. The accountant can take the advantage of the fact that payment is done at a later date, to quote higher figures in collusion with the creditors. This can be done through quoting higher figures in the invoice.

Liability Expenses

These are the items or debts that the company owes to individuals or other businesses. The liability expense account is one that is paid probably at the end of the financial year. The accountant is likely to pay bloated amounts to creditors with the additional amount diverted to other personal accounts.

Depreciation and Amortization

The assets held by a firm are likely to depreciate at a certain given percentage every year. The rate of depreciation increases for some assets with continued use. It is therefore possible for an accountant to manipulate this account. The depreciation rate is determined by the state of economy at a certain given time.

Impairment Expenses

In the course of discharging their duties, employees are at risk of getting injured. The injuries are compensable as per the policies of Wesfarmers Limited. Accounts are opened for employees who have impairments in one way or the other. Such accounts as this can easily be manipulated since it is difficult to quantify compensation for each form of impairment.

The Corporate Governance Arrangements

Wesfarmers Limited is governed by various policies as stated in the Corporate Governance as stated in the corporate governance agreement. These policies ensure the smooth running of the company, since it clears out issues which are purported to be of great importance in the success of the company. The corporate governance policies are as stated below:

Code of conduct

The company has made commitments to impact positively on the economic, social and environmental policies of the societies they operate in. such activities would be conducted with utmost honesty, fairness and respect for all the parties involved. This code of conduct is the policy that the company will hold itself accountable when interacting with the external environment. A positive interaction with the external environment would spell good coexistence between the business and the surrounding community.

Whistleblower policy

Wesfarmers limited values good conduct and ethical behavior when conducting their activities. The culture of honest, ethical behavior, corporate compliance and corporate governance are at the core of business activities in Wesfarmers Limited. Any individual or entity that may have information about fraudulent, unethical, undesirable or illegal activities conducted by an employee of Wesfarmers or any of its businesses or business partners, should report such without the fear of victimization or reprisal. This information can be reported by either an employee or non-employee of Wesfarmers Group.

Anti—bribery policy

The commitment of Wesfarmers limited to work within the laws of the countries they operates in obligates it to work ethically, in a manner consistent with the principles of fairness, respect, integrity and honesty. Wesfarmers values condemn bribery and treat it as serious criminals for both the company and the persons involved. The laws under which such criminal acts can be punished are found both in Australia and the United States. The company would that rely on the government as the overall administrative unit to handle matters bribery according to the law of the land.

Market disclosure policy

This policy entails making available any information that a person would want to have. This information includes sensitive information held by the company. The company has formulated clear information flow protocol within the organization. The flow of any sensitive information from the company to any individual or entity outside the company must be sanctioned by the Board of Directors. This is because the business activities are affected by external forces as the information can also be used by competitors.

Gender diversity policy

The sole purpose of this policy is to facilitate gender agreement at all levels in Wesfarmers Group. This policy is adopted to make the company as representative as possible. The inclusion of women in the various activities of Wesfarmers would help the company benefit from ideas presented by diversified minds.

The erroneous recording of the revenue by the staff would amount to fraud. The false indications in the books of accounts would mean that the accounting process has to be readjusted to correct the error, that is, if it can be detected early enough. Unfortunately, such errors of commission are not easy to detect at an early stage in auditing. Since this fraud was committed in the first half of the financial year while auditing is conducted at the close of the books of accounts, detection would require a keen consideration. The detection of such a fraud would lead to several negative impacts that would call for the adjustments in the books of the whole Wesfarmers Group.


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