Hi6026 Audit | 8 Principles Assessment Answers

Download a company annual report which is listed in ASX and must be present in ASX S&P 300 index, along with this annual report, student should download corporate statement of same company.

 

Structure of your research report:

 

1. Executive Summary of the assessment

 

2. Focus in each headline the implication of ASX Corporate Governance Principles from your selected company (reference link B). Conceptualize and explain how to your selected company implements ASX CGC principles (read carefully from reference link A.3 and A.4 to follow)

 

3. Risk assessment (When performing an audit, you use risk assessment procedures to assess the risk that material misstatement exists. This step is very important because the whole point of a financial statement audit is finding out if the financial statements are materially correct. How exactly do you assess audit risk?) There are various steps of risk assessment procedures, but your report will focus mainly: Recognizing the nature of the company, what’s the company’s market overview? Who (if anyone) regulates the client? What’s the company’s business strategy? Computation of income statement and balance sheet ratio, and Development of common-size financial statements and focus on relevant audit risk and potential steps to reduce risk (reference link C).

8 Principles of Corporate Governance 

Analysis of the declarations released by the firm Amcor Limited reveals the fact that the company Amcor Limited complies with the stipulations laid under the ASX Corporate Governance Council’s Corporate Governance Principles along with recommendations of the 3td edition. Also, the assertion also incorporates different disclosures necessary for conformation with the principles laid down by ASX (Simpson et al.  2016).

Principle1: “ Foundation/Basis for proper management along with oversight”

The board of directors of Amcor Limited is liable for the corporate governance of the firm. The Board itself guides and at the same time monitors different business affairs of the firm primarily on behalf of the shareholders of the entity by whom they are in actual fact elected and are accountable to (Vasarhelyi et al. 2018). Responsibilities that are delegated to the firm’s managing directors as well as the chief executive plus the executive management are in line with the Group’s Delegated Authority Policy and these entrustments are monitored on a regular interval. The responsibilities of management include:

• Development of business plans, formulation of strategies for budgets approved by the firm’s board and implementation of formulated plans
• operation of business within the established parameters set by the firm’s board  and keeping the board well informed regarding different material developments related to the business
• identification and management of business risks that might perhaps materially affect the operations of the business (William Jr et al.2016)
• management of financial as well as other mechanisms of reporting for making certain that these mechanisms are running effectually to cover all the pertinent information
• Undertaking all feasible steps to make certain that board of the corporation is delivered all the correct as well as adequate information as regards operations of the firm in a well timed manner
• Implementation of different policies, procedures along with codes of conduct sanctioned by the board

Accountabilities of board

Some of the accountabilities include the following

- Overseeing overall management (Zhao et al. 2017)

Delivering strategic direction for business strategies

- Delivering oversight as regards occupational health as well as safety policies

-Tracking operational along with financial position

-Ensuring reporting mechanisms are adequate and appropriate (Zhou et al. 2016)

-Identifying principle risks encountered by the firm and undertaking corrective actions for mitigation of the same

Principle 2: Board Framework for adding value

 Analysis of assertions proniounced by the firm reveals the fact that Amcor sets out report specifying details of the board, experience of members of the board, their qualifications, status of independence along with terms of office. All these are slated in the director’s profile and therefore is said to abide by the principle of ASX CGS (Enekwe 2015)

The report also explains composition of the entire board that shows that composition of the board is ascertained based on factors established in Company Constitution as well as the Board Charter

Principle 3: Promotion of ethical and at the same time accountable decision making

Dealing with Conflict of interests

As mentioned in the company’s report, directors have the need to keep the board informed regularly regarding any kind of interests that in turn can potentially be in conflict with that of the corporation (Griffiths 2016)

Code of conduct as well as ethics

The core principles of honesty, fairness as well as integrity are enshrined in values of  the company and the same are encapsulated in the Corporate Code of Conduct of Amcor Limited. The company has a whistleblower policy as well as Whistleblower Committee Charter that encourages their employees to report about any kind of wrong doing particularly in good faith (Gitman et al. 2015). Also, the company has a anti-bribery policy as well as corruption policy that necessarily prohibits both bribery as well as corruption in process of business dealings. Additionally, the company has a Share Trading Policy that outlines requirements/laws of trading as per ASX Listing Regulations.

Principle 4: Protecting integrity in monetary reporting

Audit as well as Compliance Committee

The company has Audit as well as Compliance Committee that has prepared a charter validated by the board and is essentially subject to regular assessment. The charter declares that all the members of this committee need to be non-executive members and need to satisfy the independence necessities (Knechel and Salterio 2016). This Committee also assists the board in satisfying the accountability of overseeing overall quality as well as integrity of particularly accounting, auditing as well as financial reporting procedures of the corporation. Also, this Committee is liable for appointment, retention as well as compensation of firm’s external auditors and oversees independence of auditors. The company Amcor Limited also has appointed an external auditor PricewaterhouseCoopers in the year 2007.

Principle 5: Timely as well as balanced disclosure

 The company Amcor has instituted policies as well as procedures that count a Disclosure Policy. This Disclosure Policy includes recognition of various matters that might perhaps have a material influence on prices of securities of the firm, notifying the same to Stock Exchange, presenting pertinent information on website of the firm and presenting media releases (Messier et al. 2015). The company also has Shareholder Communication Policy that contains the following

- Presentation of annual report containing all relevant information regarding operations of the entire consolidated business entity, financial information and alterations in circumstances

-Half as well as full year results presented to ASX are made available to shareholrders through webistes

- Different ASX pronouncements, pecuniary information as well as media releases

- Live webcast of firm’s Chairman’s speech during Annual General Meeting

Principle 6: Due respect to the shareholders’ rights

The company gives due respect to the shareholders of the firm by encouraging their participation in the annual general meeting (Omar et al. 2014). This can make certain higher level of accountability of the director to all their shareholder and shareholder recognition with the strategy as well as goals of the company.

Principle 7: Detect and manage identified risks at once

Risk Management Structure

Amcor has a Risk Management Committee that has an established approach or tactic that incorporates varied principles of effectual risk management. This is established as per the requirements of International Risk Management Standard (that is ISO 31000, COSO standard of Internal Control that is an Integrated Structure). The risk management framework of the firm contains three different elements namely Appetite as well as Tolerance along with Strategy and Policy. In addition to this, the company Amcor’s Business Continuity as well as Crisis Management Program intends to enhance resilience of the corporation to different exceptional incidents and contribute towards stable performance of the firm. Also, the company has an internal audit that aids the Board to make certain conformation with Internal Control as well as risk management programmes (Rezaee et al. 2018)

Principle 8: Fair as well as responsible Remuneration Plan of Amcor

Amcor’s Human Resource Committee analyses and presents recommendations to the company’s board on particularly packages of remuneration along with policies that are applicable for Amcor’s Managing Directors as well as CEO, non-executive directors of the corporation. Also, this committee is accountable for managing policies as well as procedures for retention of firm’s senior management, schemes of incentive, leadership development of executives along with succession planning (Rezaee et al. 2018). The company has a Human Resource Committee Charter that helps in assessing the remuneration of the corporation.

Risk Appraisal

Background Information on Amcor Limited

Amcor Limited is well-known Australian-based transnational Packaging Corporation. The company manufactures flexible as well as rigid packaging, primarily for food, health care, tobacco segments along with sectors, as well. In addition to this, the company Amcor’s products safeguards food, different pharmaceutical  equipments, personal products, home and personal care goods,  beverage, medical equipments.

Regulators

The Australian Stock Exchange and the Corporate Governance Council Governance is said to be regulating the firm.

The Company Amcor Limited

Business Strategies

- Developing growth potential of the firm sustainably

-Differentiating by standing out as well as standing ahead

Risk Appraisal using key financial ratio

- Debt equity ratio is said to be 4.35 in 2016, however, the figure is said to have declined to 4.23 in 2017. This reflects comparatively low debt financing in comparison to equity financing in 2017. However, the standard debt equity ratio is 1 (Omar et al. 2014). Therefore, this figure essentially reflects higher amount of debt financing, higher leverage along with greater trouble of interest of the firm. Although the figure has declined in the FY 2017, the figure is much higher than 1 replicating undesirable financial condition.

-Quick ratio of the firm is calculated to 0.14 in 2016 and 0.13 in 2017. Therefore, it can be said that the firm has a low quick ratio implying low capability of the corporation to disburse payments to meet payment obligations of the firm during short term period utilizing quick assets (Omar et al. 2014).

-Receivable turnover is recorded to be 7.88 in FY 2016 and 8.00 in FY 2017.  Thus an upward moving trajectory is evident from the figure calculated for the receivable turnover. Higher ratio reflects desirable financial condition as this reveals that the credit sales of the firm are more likely to be acquired than a firm with lower ratio (Omar et al. 2014).

- Operating margin is recorded to be negative as the operating income of the firm stands to be negative (Rezaee et al. 2018). However, the condition is seen to improve in 2017 with lower negative figure of operating income. However, the net profit margin is witnessed to increase from 2.5% to 6.5% in 2017 reflecting desirable financial condition of the firm. Again, return on equity of the firm is also recorded to have increased from 31.15% in 2016 to 72.59% in 2017, replicating higher potential of the firm to acquire returns from the available equity of the firm.

Risk Appraisal by way of analysis of trends

Analysis of trend of the firm reveals that the net income of the firm has improved by around 132% in FY 2017 as compared to the year ago period, although revenue sales figure of the firm has decreased by approximately 6.7%.  Again, total assets of the firm shows an upward movement trajectory and is said to have improved by around 1.009% in 2017. Also, total liabilities of the firm have also increased by approximately 0.9%.

Audit Procedures for mitigation of identified risks:

-assessing liquidity ratio of the firm and examining cash register for maintaining cash and reconciliation of the same with the company’s bank statement

-Again Amcor’s receivables can be validated with mainly the days that are allowed for for pay offs, analysing likelihood of bad debt (Rezaee et al. 2018).

-Maintenance of documents or account for Debt that can be checked time and again for proper comprehension of fund sources and try to decrease payment compulsion for particularly debt

-In a bid to increase profit, expenses can be minimised and all vouchers linked to expends can be verifie

References

Enekwe, C.I., 2015. The relationship between financial ratio analysis and corporate profitability: a study of selected quoted oil and gas companies in Nigeria. European Journal of Accounting, Auditing and Finance Research, 3(2), pp.17-34.

Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson Higher Education AU.

Griffiths, P., 2016. Risk-based auditing. Routledge.

Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Taylor & Francis.

Messier, W.F., Glover, S.M. and Prawitt, D.F., 2015. Auditing & Assurance Services: A Systematic Approach. Qing hua da xue chu ban she.

Omar, N., Koya, R.K., Sanusi, Z.M. and Shafie, N.A., 2014. Financial statement fraud: A case examination using Beneish Model and ratio analysis. International Journal of Trade, Economics and Finance, 5(2), p.184.

Rezaee, Z., Sharbatoghlie, A., Elam, R. and McMickle, P.L., 2018. Continuous auditing: Building automated auditing capability. In Continuous Auditing: Theory and Application (pp. 169-190). Emerald Publishing Limited.

Simpson, S.N.Y., Aboagye-Otchere, F. and Lovi, R., 2016. Internal auditing and assurance of corporate social responsibility reports and disclosures: perspectives of some internal auditors in Ghana. Social Responsibility Journal, 12(4), pp.706-718.

Vasarhelyi, M.A., Alles, M.G. and Kogan, A., 2018. Principles of analytic monitoring for continuous assurance. In Continuous Auditing: Theory and Application (pp. 191-217). Emerald Publishing Limited.

William Jr, M., Glover, S. and Prawitt, D., 2016. Auditing and assurance services: A systematic approach. McGraw-Hill Education.

Zhao, M., Vaartjes, I., Klipstein-Grobusch, K., Kotseva, K., Jennings, C., Grobbee, D.E. and Graham, I., 2017. Quality assurance and the need to evaluate interventions and audit programme outcomes. European journal of preventive cardiology, 24(3_suppl), pp.123-128.

Zhou, S., Simnett, R. and Hoang, H., 2016. Combined assurance as a new assurance approach: is it beneficial to analysts. In 26th Audit and Assurance conference-Thursday 5 May 2016.