Woolworths Group, a significant Australian retail conglomerate that operates in grocery, liquor, hotels,

and gaming domains, has a strong commitment to sustainability and charitable endeavors. The
impairment of non-financial assets, which refers to the reduction in the value of non-financial assets, is a
complex and subjective matter that demands considerable managerial judgment. The company's
management must assess the asset's recoverable value, necessitating the estimation of the receivable
asset value. To determine the recoverable amount of assets, Woolworths Group employs a discounted
cash flow model, and the outcomes of the evaluation can significantly affect the financial statements.
When assessing the impairment of non-monetary assets, there is a heightened probability of audit risk
due to ambiguous assumptions regarding future inflows, growth rates, and other external factors.

Woolworths Group

Key Operations:

Woolworths Group, a preeminent retail conglomerate with roots tracing back to 1924 as a solitary store
in the bustling city of Sydney, currently conducts business in several distinct sectors such as grocery,
spirits, accommodations, and gambling amenities. With an unparalleled stronghold in the marketplace,
the organization stands as the largest merchant in Australia concerning earnings, boasting over one
thousand supermarkets and almost thirty thousand diligent individuals in its employ.

The establishment's fundamental enterprise is its supermarket sector, which runs under a multitude of
brandings such as Woolworths, Countdown, and Metro. The Woolworths retail shops furnish a
comprehensive assortment of wares, comprising but not limited to fresh crops, meats, confectioneries,
and household prerequisites. Additionally, the corporation has extended its goods and services to
encompass internet-based food shopping, residential delivery, and hand-pick-and-go facilities.

Woolworths Group, a prominent Australian retail company, has a significant presence in the liquor
industry through its ownership of Dan Murphy's and BWS stores. As the biggest liquor retailer in
Australia, Dan Murphy's boasts an extensive selection of domestic and international wines, beers, and
spirits. In contrast, BWS stores offer a narrower range of alcoholic beverages. In addition, Woolworths
Group has a sizable hotel and gaming business, which manages over 300 hotels and 12,000 poker
machines across the country. The company's loyalty program, the Woolworths Rewards program, is also
part of this segment, enabling patrons to amass points for purchases made at Woolworth's
supermarkets, BWS, and certain Caltex establishments.

Woolworths Group has espoused the cause of sustainability by proactively instituting numerous
initiatives to alleviate the environmental burden. The conglomerate's resolute stance against plastic
waste and its endeavors to augment energy efficiency across its stores serve as testaments to its
unflagging commitment. Additionally, the organization fervently supports various charitable causes,
including disaster relief efforts and food rescue programs. To sum it up, Woolworths Group commands a
diverse retail portfolio and exerts considerable sway in the Australian market, with its manifold business
divisions spanning supermarkets, liquor, hotels, and gaming services. The enterprise's unimpeachable
reputation for offering top-notch products and services resonates deeply with its ardent supporters.

Financial reporting issue identified:

I have identified “Impairment of Non-Financial Assets” as the reporting issue that requires the
exercise of significant management judgment. Significant management judgment and estimates
are required to determine impairment of non-financial assets because it is a complex matter and
can be very subjective.

Reason to choose the issue

The debilitation of non-monetary assets constitutes a momentous accounting principle that
impinges upon a corporation's financial statements and necessitates substantial management
discretion. Such assets encompass tangible assets as well as intangible assets like trademarks,
patents, and copyrights. Debilitation pertains to a noteworthy decrement in the worth of an asset
that is not anticipated to recuperate in the foreseeable future. According to International
Financial Reporting Standards (IFRS), corporations must subject their non-financial assets to an
impairment test annually or whenever there is an indication of impairment. The process entails
approximating the receivable sum of the asset greater than its fair price reduced by the expenses
associated with selling it. The fair price signifies price at which asset could be traded in an open
market, while the price in use is the current price of the probable future cash flows resulting from
the asset.
The evaluation of an asset's recoverable amount necessitates a substantial amount of managerial
discretion, as it entails postulations about forthcoming economic conditions and cash flow
projections. This process of estimation can prove to be intricate and highly subjective, and the
resulting outcomes can put a profound influence on the financial reports of a corporation. Should
the assessed recoverable amount fall below the carrying value of the asset, it becomes impaired,
and company is obligated to acknowledge a loss in the profits statement. The recognition of an
impairment cost has a potential to significantly influence a company's financial performance and
position. We can say that impairment losses have the capacity to diminish the worth of assets and
equity, amplify losses, and lower earnings per share. In addition, impairment losses can also
potentially affect a company's ability to comply with debt covenants, trigger default provisions,
and adversely affect the company's credit rating.
Impairment of non-financial assets is a significant accounting notion that requires considerable
managerial discretion. This procedure entails estimating the recoverable amount of an asset
which can be complicated and subjective and may possibly have a substantial influence on a
corporation's financial reports. Caution must be exercised when estimating recoverable amounts
to ensure transparent and credible information is provided to stakeholders.

Get to know “Impairment of non-financial assets”

In the realm of accounting, impairment of non-financial assets pertains to a notable decline in the value
of assets that are not of financial nature. This decrease happens when the estimated receivable value of
the asset is higher than value of its fair price less prices to sell and its value in use is lesser than the
carrying value of the asset. The impairment of non-financial assets can significantly affect a corporation's
reports, and its resolution necessitates the administration's expertise in approximating the receivable
value of the asset. The appended notes of account for impairment of non-financial assets from
Woolworths Group's annual reports delineate how fair value is reflected in reports and how the
identification process is carried out.
Analysis of Extract:
The financial reports of Woolworths Group provide evidence on the accounting guidelines used
by the company in its impairment testing of non-financial assets. The company allocates its
unlimited life intangible assets to its cash generating units (CGUs) based on the functioning
sections and groups them at the bottom level where the assets are observed for in house
supervision commitments. When CGU provides an indication that it may be impaired then the
goodwill allocated CGU is tested annually for impairment.
The company calculates the receivable value of an asset, which is the superior of its price in use
and its fair price less prices to dispose. The price in use is measured at the CGU level, which is
the lowest set of assets producing cash inflows free of other CGUs that profits from the usage of
the particular asset. An impairment cost is recognized in the Profit or Loss Account every time
the carrying value of an asset or its CGU surpasses its receivable value.
Assessment of the devaluation of non-monetary assets requires a considerable amount of
discretion from the administration as it is based on presumptions regarding forthcoming inflows,
growth velocities, and deflation ratios. These conjectures are ambiguous and may be influenced
by variations in trading circumstances, economic constituents, or other outer factors. Hence, the
organization's financial rules with respect to the evaluation of the devaluation of non-monetary
assets are of paramount importance in the context of financial reporting.
Woolworths Group's financial statement notes are a valuable source of information regarding the
company's accounting policies, particularly with respect to the testing of non-financial asset
impairment. The corporation relies on a discounted cash flow model for determining recoverable
amount of assets and assigns its intangible assets of indefinite life to its cash generating units
based on operational segments. The company conducts impairment testing at multiple levels, and
the outcomes of such assessments can significantly impact the financial statements.
Audit Risk related:
When discerning devaluation of non-monetary assets, the likelihood of an audit risk coming to
the forefront is heightened by several factors, such as the intricacy of the impairment assessment
process, the subjective nature of the suppositions employed to determine the recoverable sum of
assets, and the likelihood of partiality or fraud from management. To mitigate these risks,
auditors frequently utilize a risk-centered strategy, which involves identifying and assessing the
diverse hazards related to the audit, and designing suitable audit methods to tackle them.
Auditors must take into account three distinct forms of risk when assessing the impairment of
non-financial assets, according to a risk model perspective: inherent risk, control risk, and
detection risk. Inherent risk originates from the nature of the enterprise, the intricacy of the
transactions, or the subjectivity of the evaluations used to calculate the recoverable amount of
assets. Control risk pertains to the possibility that internal controls concerning the impairment
testing procedure are inadequate in preventing or identifying significant misstatements.
Detection risk is the probability that the auditor is unable to identify a substantial misstatement in
the financial statements even after conducting the appropriate audit procedures.
Inherent Risk:
The determination of non-financial asset impairment poses an inherent risk due to various
factors. Complexities may arise in the impairment testing process, which relies heavily on
management's judgment to determine receivable amount from asset. The assumptions in
establishing the recoverable amount, such as upcoming cash flows, discount rates, and
continuing growth rates, are subjective and therefore susceptible to bias or error. To mitigate
these risks, auditors should assess the inherent risk associated with the impairment testing
process and implement appropriate audit procedures. These procedures may entail obtaining a
comprehensive understanding of the impairment testing process, assessing the assumptions used
in determining the receivable value, and analyzing the possible influence of market conditions or
other factors on the recoverable amount of assets.
Control Risk:
Control risks may arise if the internal controls implemented for the impairment testing process
do not function effectively in preventing or identifying substantial misrepresentations while
determining the impairment of non-financial assets. Auditors must scrutinize the internal control
system's design and implementation for the impairment testing process and conduct control tests
to assess their adequacy. This includes gaining an understanding of the internal controls
governing the impairment testing process, assessing their design and implementation, and
performing control tests to validate their efficacy.
Detection Risk:
Detection risk may surface when an auditor's attempt to identify substantial errors in financial
statements fails. Such errors may cause impairment of non-financial assets. To mitigate this risk,
auditors must develop appropriate procedures that can effectively detect substantial errors. This
may include performing analytical procedures to assess the reasonableness of the assumptions
utilized in determining asset recoverable amounts, executing detailed tests to validate the
correctness and inclusiveness of the facts used in the impairment testing procedure, and assessing
the adequacy of financial statement disclosures related to impairment of non-financial assets.
Overall, ascertaining impairment of non-financial assets is a convoluted process that entails
substantial management discernment and subjective presumptions. To mitigate the audit hazards
interconnected with this process, auditors ought to utilize a risk-based modus operandi that
includes identifying and evaluating the sundry hazards linked with the audit and devising
pertinent audit methods to rectify those hazards. This could involve scrutinizing the inherent
hazard linked with the impairment testing process, gauging the efficacy of the internal controls
over the impairment testing process, and devising pertinent material methods to uncover
significant fallacies in the financial statements.
Reactions to above audit matters:
Based on the identified audit risks related to the determination of impairment of non-financial assets
the auditor is suggested to use a mix of control reliance and predominant substantive approach as the
audit strategy.

Control dependence must be restricted to situations where the danger of significant misinterpretation is
diminished, as in the evaluation of the recoverable quantity of an asset. The auditor can trust on the
company's in-house controls concerning valuation procedure, which includes the appropriate
assumptions and accuracy of the monetary information utilized to determine the recoverable amount.
The auditor is required to carry out control tests to guarantee that the controls are operating efficiently
and being applied persistently throughout the enterprise. Furthermore, the auditor is obligated to
consider the competence of the corporate's governance, risk organization, and in-house control systems
in determining and managing impairment risk.

Given the inherent subjectivity entailed in the determination of the equitable value of non-monetary
resources, and the potential for management bias, a significant substantive approach should be
employed to manage the risk of material misstatement. The auditor must obtain sufficient and pertinent
audit evidence to corroborate the values and revelations found in the reports. The auditor should utilize
various substantive procedures, including analytical procedures and tests of detail, to procure evidence
concerning the recoverable amount of resources and the precision of the impairment assessment.

The utilization of analytical procedures can aid in the evaluation of the plausibility of assumptions
utilized in determining the recoverable amount. It is the duty of the auditor to compare the company's
assumptions to industry standards, market data, and other relevant information. Furthermore, the
auditor should perform sensitivity analyses to evaluate the potential impact of alterations to the
assumptions on the recoverable amount. Tests of detail can furnish the auditor with a more
comprehensive understanding of the foundational data utilized in the impairment assessment, such as
market prices, cash flow predictions, and other pertinent data. The auditor must gather supportive
evidence from external sources and carry out meticulous testing of the fundamental data and
computations utilized in the impairment assessment.

In general, to manage the risk of material misstatement linked to the determination of impairment of
non-monetary resources, the auditor must rely on a combination of control reliance and a primary
substantive approach. Furthermore, the auditor must take into account the sufficiency of the company's
disclosures regarding impairment and guarantee that the financial statements furnish satisfactory and
pertinent information to users.

From all the information discussed above we can finally conclude that the impairment of non-financial
assets is a financial reporting issue that demands the exercise of significant management judgment. It is
a complicated process that requires estimation of the recoverable amount of an asset which is a
subjective task that requires considerable managerial discretion. Therefore, management must make
decisions based on informed judgment to ensure that the impairment assessment is appropriate and the
financial statements provide sufficient and appropriate information to users. This necessitates a
combination of control reliance and a predominant substantive approach to address the risk of material
misstatement related to the determination of impairment of non-financial assets.