ASX Corporate Governance Council ahs developed standard framework of corporate governance to provide guidance to the business entities regarding the ways of carrying out their business operations as per the highest ethical standards (ASX Corporate Governance Council, 2014). General Motor, an American multinational company involved in manufacturing and distribution of vehicles and its associated parts also regularly develops and publishes its corporate governance statement. The company has a manufacturing unit in Australia known as GM Holden Car manufacturing wide range of engineered models of it scars such as Suzuki, Toyota, Chevrolet and other car models. Thus, as the company operates in Australia and therefore it is necessary to comply with ASX principles. The implications of the ASX Corporate Governance Statement in developing an effective corporate structure in the company are discussed as follows:
The company as per ASX principles and recommendations need to establish the respective roles and responsibilities of board and management. Also, there should be presence of effective processes and systems for evaluation of the performance of board and management (Fleckner and Hopt, 2013). General Motor has stated the mission and responsibilities of Board in its corporate governance statement. The board is the ultimate decision-making body of the company and also oversees the functionalizing of the senior management. There are distinct roles and responsibilities of Board and management as per the corporate governance statement. The management personnel are directly accountable to the Board and hold the responsibility of monitoring the day-to-day activities of the company. The performance of the Board is monitored by the use of a self-assessment process that is governed by the governance committee and the Chairman. The valuation of the performance is made on the basis of contribution of Board to the growth and development of the company (General Motors Company Board Of Directors Corporate Governance Guidelines, 2018). The performance of the management is reviewed by the Board on an annul basis at the time of determining their remuneration. Therefore, it can be said after analyzing the board and management foundations in the company that its governance policies is similar to that of ASX Council principle and recommendations (Plessis, McConvill and Bagaric, 2005).
This ASX principle states that board should be composed effectively having diverse range of skills, experience, and qualifications and competencies. The Board holds the responsibility of electing the new members and the governance committee and Chairman are responsible for assisting in the process of selecting board members. The board members are selected by the governance committee against the standard skills and expertise. This is required to maintain a diverse structure of Board so that it can effectively meet its roles and responsibilities as per the ASX principles. Also, the company adopts the use of a Governance committee for implementing an orientation process developed by the management for providing knowledge to the new director’s appointed about the business and strategic plans of the company. Thus, the ASX principle of marinating an effective composition of Board is also followed by General Motors to a large extent as examined in its corporate governance statement (General Motors Company Board Of Directors Corporate Governance Guidelines, 2018).
The business entities also need to develop a standard Code of Conduct and principles for ensuring that all the operational activities are carried out in an ethical and responsible manner (Nordberg, 2010). In this context, the company has adopted to the policy of ‘Winning With Integrity’ for determining the standard values and guidelines for the conduct of the employees. The Board in the vent of recognizing nay illegal activity from any of its team members issues a termination letter for the concerned person. Also, there are strong policies related to maintaining of confidentiality of information by the directors and employees. Also, the regulator compliance such as trading laws and regulations is essential for employees and business directors as per the ethical policies maintained by the company. Also, directors have the obligations of maintaining the confidentiality of information after resigning form the service of the Board. This is because the confidential information if accessed by any third party can prove to be benefit for the competitors. The presence of responsible business practices in the company also disclosed in its corporate governance statement. There is presence of strong policies and programs in relation to preventing the occurrence of any unethical practices such as bribery, offering any gift to third parties and reporting the relevant information to the shareholders. As such, the ASX principle of ethical and responsible way of acting is effectively followed by the business company as there is no adequate disclosure regarding the ethical and responsible way of doing business (General Motors Company Board Of Directors Corporate Governance Guidelines, 2018).
The company for ensuring the integrity in corporate reporting has developed a finance committee. The finance committee is responsible for maintaining integrity in corporate reporting. It holds the responsibility of recording and disclosing the financial information honestly and accurately to the investors. The company ahs adopted its own distinct Accounting standards to Comply that the finance committee is responsible for complying at the time of developing and reporting the financial information. Thus, the company has also effectively followed this ASX Council principle and recommendation (General Motor: Corporate Governance, 2018).
ASX Council has also stated the business companies to provide timey and balanced information about its performance to the stakeholders that can have an impact on the price of the securities. The company has complied with this standard principle by providing all required financial and non-financial information to the stakeholders by developing its annual report and sustainability report. The annual report and the information regarding the governance structure of the company can be accessed on the online website of the company. The annual report encloses all the general purpose financial statements of the company to provide all the relevant financial information to the shareholders. Also, the sustainable strategies adopted by the company for promoting its long-term growth are provided in the sustainability report (General Motor: Corporate Governance, 2018).
The company as per this standard corporate governance principle provided by ASX has disclosed all the required information of the investors on its online website under a separate section of the Corporate Governance. It encloses all the documents related to governance policies and strategies adopted by the company for promoting the interests of the investors. Also, the shareholders are provided the opportunity to discuss any of their issues in writing to the director by providing the corresponding address for the same on its online website. The company secretary is responsible for reviewing the compliance of the company with the corporate governance policies (General Motor: Corporate Governance, 2018).
There should be a presence of an effective framework for identifying, measuring and controlling the significant risk that can occur due to company’s nature of operations as per the ASX principle. The company has developed a risk committee established by the Board for identification, assessment and managing the major strategic and operational risks faced by the company. The committee established the risk management framework of the company that details the structure followed for identification and control of the material risk impacting the performance of the company in the long-term (General Motor: Corporate Governance, 2018).Therefore, it ah effectively followed the respective ASX principle of developing a risk management framework for mitigating the risk in advance (Bazley, Hancock and Robinson, 2014).
There is also a presence of a compensation committee to ensure that fair remuneration is provided to the company directors, executive and key management personnel as per the ASX principle and recommendation. The committee is responsible for developing the policies and activities to determine the remuneration of key management personnel (General Motor: Corporate Governance, 2018).
The presence of an effective risk assessment procedure is essential for a business entity to ensure that information provided to the stakeholders is reliable and accurate. In this context, it is essential that company carries out the auditing of its financial reporting process on a continuous basis and provide them accurate formation for reviewing (Putra, 2010). In this context, relevant auditing standards has been established by the standard auditing Board in Australia, that is, ASA 50 for ensuring that materialistic information provided to the auditors is free from any error and is completely reliable. The standard has provided an analytical procedure to be used by auditors to identify the presence of any material misstatement (Auditing and Assurance Standards Board, 2009). The analytic procedure stated has the followings steps:
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Financial Data on Woolworth Group |
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Particulars |
|
2016 |
2017 |
|
|
Net profit |
$9,268.00 |
$330.00 |
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|
Gross Profit |
$30,047.00 |
$30,719.00 |
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|
Revenue |
$166,380.00 |
$145,588.00 |
||
|
Total Assets |
$221,690.00 |
$212,482.00 |
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|
Long term Debts |
$9,585.00 |
$10,987.00 |
||
|
Shareholder’s Equity |
$43,836.00 |
$35,001.00 |
||
|
Current Assets |
$76,203.00 |
$68,744.00 |
||
|
Current Liabilities |
$85,181.00 |
$76,890.00 |
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Income Statement Ratios |
Formula |
Interpretation |
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|
Net Profit Ratio |
Net Profit/Revenue |
5.57% |
0.23% |
There is decrease in profit that shows that risk of profitability will increase |
|
Gross Profit Ratio |
Gross Profit/ Revenue |
18.06% |
21.10% |
There is increase in gross profit that shows that risk of profitability will decrease. |
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Return on Assets |
Net Profit/Assets |
4.18% |
0.16% |
There is decrease in profit that shows that risk of profitability will increase |
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Overall there is risk of profitability position of the company in the future years |
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Balance Sheet Ratios |
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Debt Equity Ratio |
Debt/Equity |
0.22 |
0.31 |
Capital Structure has been increased with debt capital |
|
Fixed Assets Turnover |
Revenue/Total Assets |
0.75 |
0.69 |
Efficiecny has been reduced that shows lower ultisialtion of resources |
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Current Ratio |
Current Assets/Current Liabilities |
0.89 |
0.89 |
No change in current ratio |
|
Overall there is risk of liquidity in the company and capital structure is also not good. |
General Motors carries out its operations in a number of countries and therefore exposed to wide range of financial risks. GM seeks to fund it operations in each country with the use of local sources for minimizing the currency and country risk. It is exposed to high rate of foreign exchange risk that can occur due to fluctuations in the exchange rates as company conducts it operations across global level. Therefore, such fluctuations can cause material misstatement provided to the auditors for reviewing purpose and can potentially impact the outcomes of the process. As such, the company adopts the use of secured and unsecured credit facilities and funding the operations in domestic currency for mitigating the currency risk effectively.
Also, it faces high operational risk that can materially impact the results of its financial reporting process. The operational risk is unavailability of the company to develop a technological competent model for customer attraction and its inefficiency in delivering the new products in time to the customers. This can impact the sales volume of the company and can cause material misstatement. Also, it has to comply with the diffident laws and regulations in different countries and the failure to do can impact its financial results to a large extent. All such operational risks that can cause material misstatement for the company is provided in its annul report and the auditors need to review the business activities appropriately for identifying their chances of occurrence. The company has also not disclosed the strategies implemented for their reduction in its annual report and thus these risks can have a high materialistic impact on the outcomes attained from the audit process. Therefore such risk present within the company can cause the material misstatement and need to be taken into account by the auditor during the time of audit of the company so that stakeholders are provided with reliable and accurate information for decision-making (General Motor: Annual Report, 2017).
References
General Motor: Annual Report .2017. [Online]. Available at: https://www.gm.com/content/dam/gm/en_us/english/Group4/InvestorsPDFDocuments/02-pdfs/10-K.pdf [Accessed on: 1 May 2018].
General Motor. 2018. Corporate Governance. [Online]. Available at: https://www.gm.com/investors/corporate-governance.html [Accessed on: 1 May 2018].
General Motors Company Board Of Directors Corporate Governance Guidelines. 2018. [Online]. Available at: https://www.gm.com/content/dam/gm/en_us/english/Group4/InvestorsPDFDocuments/Corporate_Governance_Guidelines.pdf [Accessed on: 1 May 2018].
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: 1 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: 1 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.
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: 1 May 2018].
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