ASX Council has mandated to all the business companies that are listed on stock exchange for developing and presenting their governance policies and guidelines. This is mainly done by ASX for increasing transparency and reliability in the business operations and meeting the different needs and expectations of the stakeholders. In this context, JB Hi-Fi, a retail company in Australia involved in retailing of consumer goods and is publicly listed on the stock exchange. As such, the company needs to comply with the ASX Corporate Governance Principles and develop its governance statement as per the Council recommendations (ASX Corporate Governance Council, 2014). The extent of JB Hi-Fi compliance with the corporate governance statement of ASX is depicted as follows:
The primary role of Board is to promote the long-term value of the shareholders and control the business operations on the behalf of the shareholders. The board responsibilities include evaluation of executive performance and carrying out the business operations in an integrated manner (Plessis, McConvill and Bagaric, 2005). The different roles and responsibilities of Board are disclosed in the Board Charter published on the website of the company in the investor and governance section. The management personnel carry out the role of being accountable to the Board and reporting them about the daily activities of the company. The performance of executives and directors of Board is reviewed by his committee and the Chairperson. The results obtained are presented to the Board and it includes an assessment of the financial and non-financial measures to evaluate the contribution of each member of Board to achieving its overall roles and responsibilities. The review of the performance of Board is carried out by the remuneration committee during the time of determining the remuneration provided to the key management personnel (JB Hi-Fi Limited, 2017).
ASX listed business companies need to properly structure the board so that it is effectively composed with presence of wide range of skills, experience and knowledge to add value to the Board (Nordberg, 2010). In this context, it has been depicted from the corporate governance statement of the company that it places large emphasis on maintain an effective composition of Board so that there is presence of adequate range of skills, experience, diversity and knowledge. This is essential so that Board is able to effectively govern the business, improve its operational efficiency and add value to the company by quick decision-making for resolving complex issues. The company has maintained a large proportion of non-executive directors in the Board and also ensures that all of its directors carry out their roles and responsibilities independently (JB Hi-Fi Limited, 2017).
As per this ASX principle, the company has maintained an effective Code of Conduct for ensuring that all people working in the company carries out their roles and responsibilities as per the highest ethical standards of corporate behavior (Bazley, Hancock and Robinson, 2014). The Code of Conduct ahs provided the key principle for the business leaders and the employees that they need to comply to ensure that the business activities are carried out as per the ethical standards of honesty and integrity. It has also recognized the importance of diversity within the workplace and its importance in achieving competitive advantage for the company. It has also maintained adequate provision and policies for resolving the conflict of interest that can occur between the business leaders and the management. Thus, the company has in place adequate procedures and policies for ensuring its ethical and responsible way of acting (JB Hi-Fi Limited, 2017).
JB Hi-Fi as per the ASX principle has also implemented a rigorous procedure for safeguarding integrity in its corporate reporting. The procedures are developed as per the Corporations Act and the ASX Recommendations have stated that the financial statements developed should represent a true and fair view of the entity’s financial position (Horngren and Harrison, 2012). Also, the statement is developed on the foundation of an effective system of risk management and internal control. The company is required to disclose all the information that have a material effect on the price of the securities. The overall process is monitored and controlled by the audit and risk management committee and the subsequent information is also presented on the website of the company (JB Hi-Fi Limited, 2017).
The continuous disclosure policy section of the governance statement has provided the details in relation to the policies adopted for providing the relevant information to the shareholders on a timely basis.. The policy is developed for ensuring that all the material price sensitive information is provided by the Board to the stakeholders as per the Corporations Act and ASX Listing Rules. All the relevant information is disclosed to the ASX by the Chief Executive Officer and the Chairman of the company. The annual report provides timely information to the stakeholders and the information about the governance policies and structure is provided on the company website on an annual basis (JB Hi-Fi Limited, 2017).
The company in order to respect the rights of shareholders has provided all the relevant information in the consumer matters and investor section on the website of the company. The section provides relevant information to the shareholders about the market announcements, all the significant details about its directors and executives, board committee and its charters, a calendar of future issues, summary of its dividend policy and details regarding the ways by which an investor can contact the company. Shareholders are also provided the right to receive the information required by them with the use of electronic means from the share registry of the company. They are provided a communication channel to interact with the company and receive the response of their queries with the use of electronic means. The annual general meeting carried out by the company is held in presence of all the shareholders where they can gain an appropriate response to all the material issues. In addition to this, the investor relations program involves conducting regular meetings with the present and potential investors to gain their trust and confidence by providing them adequate knowledge of the business operations (JB Hi-Fi Limited, 2017).
The presence of an effective risk management framework is essential in a business entity as per ASX principle and recommendations. Also, it is essential to review its effectiveness of a continual basis for identification and management of risk in advance (Fleckner and Hopt, 2013). The balance of risk and reward is maintained by the company with the adoption of a risk management framework. Also, the audit and risk commitment is present for ensuring that all the operations are carried out in a manner to adequately manage the risk and protecting the people, environment and its assets. The risk management policy of the company aims to identify and control the economic, environmental and social sustainability risks related with the company’s operations. The Risk and Assurance Manager is also appointed by the company for attending all the meetings of committee in relation to identification and management of risk. The risk management policies and guidelines as per the ISO 31000 that enables it to identify and managing the risk adequately.
The remuneration committee has been entrusted with the responsibility by the Board to manage the issues related to compensation provided to the members of the board and management team. The details of the remuneration paid to the directors nada mangers is provided in the remuneration report that also adequately provides the information in relation to the criteria used in determining the amount of fixed and variable part of compensation provided to the key management personnel (JB Hi-Fi Limited, 2017).
The auditing standard ASA 520 developed by the Auditing and Assurance Standards Board is used by the auditors to identify the material misstatement risks. The analytical procedures need to be implemented by the auditors for preventing the occurrence of any risk related to material misstatement in the financial information provided to the auditors for carrying out the audit process. The audit process is used by the business corporations for ensuring that financial information provided to the end-users is free from any materialistic error. The auditors in order to ensure that financial statements does not have any significant risk of occurrence of materialistic error in the future need to adopt the use of analytical or risk assessment procedures as provided by the ASA 520 (Auditing and Assurance Standards Board, 2009). The steps involved in the analytical procedure for identifying and overcoming the audit risk by the auditors of JB Hi-Fi can be described as follows:
The step involves examining the operational nature of the selected company for identifying the threat of occurrence of any risk related to its business nature (Putra, 2010). JB Hi-Fi as such is a public listed company carrying out its operations a highly competitive retail environment of the country which can impact its future growth potential. The company has maintained an effective governance structure as per ASX principle which minimizes the chances of occurrence of any risk in relation to governance structure. The financial transactions are carried out as per the standard accounting rules and regulations provided by AASB and Corporations Act 2001. There is also sufficient disclosure in the annual report of the company about its related party transactions determining the relation between the parent entity and equity interests in related parties.
The Company provides its product and services mainly in Australia and faces stiff competition from the expanding retail industry of the country. However, the presence of a stable political and legal environment minimizes the risk related to its future growth potential in the country.
The company aims to drive its future growth and properly by effectively meeting the competitive challenges and achieving customer satisfaction. The solid strategic aim of the company ensures that it has effectively identified its future goals and objectives to be achieved (JB Hi-Fi: Annual Report. 2017).
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Financial Data on JB HiFi |
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|
Particulars |
2016 |
2017 |
||
|
Net profit |
$ 152.00 |
$ 172.00 |
||
|
Gross Profit |
$865.00 |
$1,231.00 |
||
|
Revenue |
$3,954.00 |
$5,628.00 |
||
|
Total Assets |
$992.00 |
$2,452.00 |
||
|
Long term Debts |
$110.00 |
$559.00 |
||
|
Shareholder’s Equity |
$405.00 |
$854.00 |
||
|
Current Assets |
$703.00 |
$1,171.00 |
||
|
Current Liabilities |
$447.00 |
$886.00 |
||
|
Income Statement Ratios |
Formula |
Interpretation |
||
|
Net Profit Ratio |
Net Profit/Revenue |
3.84% |
3.06% |
The increase in net profit ratio shows that profitability of company has slight increased in current year when compared to previous year. It is an indication of positive growth in the company. |
|
Gross Profit Ratio |
Gross Profit/ Revenue |
21.88% |
21.87% |
There is no much change in gross profit of the company. |
|
Return on Assets |
Net Profit/Assets |
15.32% |
7.01% |
The increase in return on assets ratio shows that profitability of company has slight increased in current year when compared to previous year. It is an indication of positive growth in the company. |
|
Balance Sheet Ratios |
||||
|
Debt Equity Ratio |
Debt/Equity |
0.27 |
0.65 |
The financial risk of company has been reduced in the current year because company has reduced the debt capital amount in the current year as compared to previous. |
|
Fixed Assets Turnover |
Revenue/Total Assets |
3.99 |
2.30 |
Efficiency of company to earn the revenue through fixed has been increased in current year |
|
Current Ratio |
Current Assets/Current Liabilities |
1.57 |
1.32 |
Liquidity risk has been reduced slightly in the current year |
The operational activities of the company are subjected to different type of materialistic risk that can cause the occurrence of material misstatement within the information presented to the auditors. These can be stated as follows:
References
ASX Corporate Governance Council. 2014. [Online]. Available at: https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-recommendations-3rd-edn.pdf [Accessed on: 3 May 2018].
Auditing and Assurance Standards Board. 2009. Auditing Standard ASA 520 Analytical Procedures. [Online]. Available at: https://www.auasb.gov.au/admin/file/content102/c3/ASA_520_27-10-09.pdf [Accessed on: 3 May 2018].
Bazley, M., Hancock, P. and Robinson, P. 2014. Contemporary Accounting PDF. Cengage Learning Australia.
Fleckner, A. and Hopt, K. 2013. Comparative Corporate Governance: A Functional and International Analysis. Cambridge University Press.
Horngren, C., and Harrison, W. 2012. Financial Accounting. Pearson Higher Education AU.
JB Hi-Fi Limited. 2017. Corporate Governance Statement. Appendix 4E Preliminary Final Report.
JB Hi-Fi: Annual Report. 2017. [Online]. Available at: https://www.jbhifi.com.au/Documents/2017%20Annual%20Report.pdf [Accessed on: 3 May 2018].
Nordberg, D. 2010. Corporate Governance: Principles and Issues. SAGE.
Plessis, J., McConvill, J. and Bagaric, M. 2005. Principles of Contemporary Corporate Governance. Cambridge University Press.
Putra, L. 2010. The Use Of Analytical Procedures In Auditing. [Online]. Available at: https://accounting-financial-tax.com/2010/04/the-use-of-analytical-procedures-in-auditing/ [Accessed on: 3 May 2018].
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