Start with the introduction of Metcash Limited and then answer this following questions;
1. You are a part of the team responsible for planning the Metcash (parent and the consolidated economic entity) audit engagement for 2017. You have been assigned to gather relevant background information and prepare a report for a meeting with your audit partner and audit managers. Your report must address the following issues:
a. What are the areas in which Metcash conducts its operations?
b. Which particular laws/regulations (other than financial related categories which include legislations such as: Corporation Act 2001, Australian taxation laws, etc.) affect its operations? You need to identify at least FIVE laws/regulations.
c. Who are its primary competitors?
2. Identify and explain FIVE significant business risk factors that the auditor needs to consider for the Metcash group engagement.
Metcash is the largest food and alcohol wholesaler in Australia. The company has a turnover of 12.6 billion US dollars annually and a market capitalization of 3.1 billion US dollars. The company has 5000 employees working in its different sections of operation (Hay & Murdoch 2013). Metcash has two major divisions. These are Australian Liquor Marketers and Metcash Food and Grocery.
Areas of operation
The main area of operation for Metcash is Australia. The company operates in all regions in Australia. It has 3,100 stores all over Australia which it uses to distribute its products to consumers. The company has also liaised with supermarkets and independent stores such as Foodland, IGA, Campbells, and The Friendly Grocer to distribute its food and grocery products across the country (Hardy & Laslett 2014). For the Australian Liquor Marketers division, the company acts as a liquor wholesaler where it supplies over 12,000 hotels, restaurants, liquor stores, and other licensed businesses throughout. Metcash has also a presence in New Zealand although on a smaller scale (Wallace 2011). For example, the company has a fully owned subsidiary company known as the Tasman Liquor Company which it uses to supply its liquor products in New Zealand.
Laws/regulations which affect the company’s operations
There are a number of laws and regulations which affect how Metcash operates in Australia. One of them is the law on competition. Australia has laws which ensure that there is fair trading for consumers and businesses (Schaffer et al., 2011). One of the fair trading laws is the Competition and Consumer Act. This law seeks to promote fair trading, competition and protection for consumers. The operations of Metcash are also affected by consumer laws. There are various laws in Australia which aim to protect consumers against exploitation by businesses as well as promote consumer rights. One of the consumer laws is the Australian Consumer Law (Levie & Autio 2011). This law spells out consumer rights that businesses need to observe when dealing with their customers. These rights include rights to a repair, refund, replacement, and compensation for loss and damages.
Other sets of laws which affect how Metcash operates in Australia include environmental laws, health and safety laws, and trade measurement laws. One of the environmental laws that affect how the company operates is the Environment Protection and Biodiversity Conservation Act. This laws aims to protect the environment against pollution and it prohibits businesses from engaging in activities that adversely affect the environment (Levie & Autio 2011). These activities include disposing hazardous waste in the environment and unsustainable use of natural resources such as trees and water. One of the health and safety laws that affect how the business operates is the Work Health and Safety Act 2011. This law provides a framework that ensures protection of the health, welfare, and safety of all workers in their places of work as well as all individuals who are likely to be affected by the activities carried out by a business. This law states that the health and safety of workers is the primary responsibility of the organization for which the employees work for (Schaffer et al., 2011). As such, Metcash has to put in place structures which ensure employee safety as well as avoid engaging in activities which are likely to jeopardize workers’ safety and health. Trade measurement laws, on their part, aim to curb businesses against false measurement practices. One of the trade measurement laws is the National Measurement Act 1960. This law establishes a system of standards and units of measurement as well as provides for uniform use of these units and standards by all businesses. The law also provides for a system that is used to verify utility meters used in trade (Schaffer et al., 2011). Metcash is compelled to observe these requirements and this affects how it carries out its activities.
The primary competitors for Metcash are Coles Group Limited, ALDI GmbH & Co., and Woolworths Ltd. Coles Group is a large food retailer with over 740 supermarkets that are run under the Bi-Lo and Coles’ banners, 785 liquor stores, and 620 convenience stores and combination gas stations (Hardy & Laslett 2014). It is one of the biggest competitors for Metcash. ALDI GmbH & CO. is also among the biggest grocery chains in Australia. It has over 10,000 stores worldwide and offers about 2,000 food items. It offers its customers deeply discounted prices for its products. Woolworths is a diversified retailer which operates 3,200 stores in New Zealand and Australia. It also operates liquor stores in the two regions as well as sells gasoline. These three grocery chain stores offer stiff competition to Metcash.
Significant business risk factors
Businesses normally face various risk factors which threaten to negatively affect their operations and profitability. The significant business risk factors that need to be considered by the auditor for the Metcash group include over trading, decline in demand, increase in production cost, increased competition, and loss of profitability (Hay & Murdoch 2013). These risk factors can affect make the company to run into financial problems and eventually face liquidity problems.
Metcash is the largest food, grocery and alcohol
wholesaler which operates mainly in Australia and New Zealand. The company’s
operations are affected by a number of laws and regulations which include
environmental laws, health and safety laws, trade measurement laws, and
consumer laws. The company’s primary competitors are Woolworths, ALDI and Coles
Group while the risk factors faced by the company include overtrading,
increased production cost, and increased competition. All these factors need to
be considered during auditing.
Hardy, CA & Laslett, G 2014, ‘Continuous auditing and monitoring in practice: Lessons from metcash’s business assurance group,’ Journal of Information Systems, vol. 29, no. 2, pp.183-194.
Hay, GA & Murdoch, EJ 2013, ‘A tale of two cities: From Davids Holdings to Metcash,’ Cornell Legal Studies Research Paper, (13-10)
Levie, J & Autio, E 2011, ‘Regulatory burden, rule of law, and entry of strategic entrepreneurs: An international panel study,’ Journal of Management Studies, vol. 48, no. 6, pp.1392-1419
Schaffer, R Agusti, F Dhooge, LJ & Earle, B 2011, International business law and its environment, Cengage learning, Boston.
Wallace, P 2011, ‘Supply chain score card,’ Waste Management and Environment, vol. 22, no. 11, p.37