Implications of corporate governance practices
Biotech capital Ltd has followed the requirements of ASX Corporate Governance Principles and Recommendations into its framework for enhancing its organizational effectiveness. The different principles accounted for by the company are as follows:
The responsibilities and role of the Board and their committees are well-defined by the company in the board charter and other charters of nomination and remuneration committee, and audit and risk committee that are also established by the Board. Further, newly appointed directors undergo an induction process that includes the offering of information associated to the company and the governance requirements, operational information, and policies of the board (Lapsley, 2012). The Board charter also provides delegated responsibilities to the CEO for day-to-day operations and management of the company’s business. Besides, the chairman is liable for overseeing and leading the Board’s operations and assisting individual directors to fulfil their own roles. In addition, the performance of senior executives is also reviewed regularly in contrast to the performance indicators reflected by the Board (Biotech capital , 2017). Hence, such principle has been properly accounted for by the company.
The present board membership consists of five directors who are non-executive. The skills and expertise has been clearly mentioned in the statement. The Board also intends to appoint a second independent and external director. The company has framed a special program for inducting new directors and offers appropriate professional development measures for them to maintain and develop the knowledge and skills required to perform their duties as directors efficiently (Ferris et. al, 2010). Besides, every director may in effective circumstances and with the permission of the executive chairman gain independent professional recommendations at the expense of the company.
The Board of the company has designed a code of conduct as a major part of its framework of corporate governance to offer a cohesive set of principles that the company has to abide by as a company, in dealings and businesses with the stakeholders (Biotech capital , 2017). Such code of conduct is applicable to all the employees of the company including the senior executives and directors. The Board has also adopted a diversity policy within its framework that assists it in acting morally in the entire corporate environment (Parrino et. al, 2012). Besides, a securities trading policy is also present that is designed to ensure compliance or adherence with the listing rules of ASX. Such policy ensures employees and other directors in becoming aware of the lawful restrictions in dealing with the securities of the company, while such an individual is in possession of information that is unpublished price sensitive in nature (Carmichael & Graham, 2012).
The Board has designed an audit committee into the framework of the company to abide by effective corporate governance approaches. The duties of such committee are set in their respective charter that also includes setting procedures for the appointment, selection, and rotation of external auditors. Such committee regularly intimates the Board on its activities and brings any material issues recognized to the attention of the Board on a timely basis. Further, the Board also receives from the CFO and the CEO a declaration that in their suggestion, the company’s financial records are properly maintained and such financial statements comply with the required accounting standards to offer a true and fair view of the performance and financial position of the company (Biotech capital , 2017).
The Board of the company has adopted a continuous disclosure policy within its framework that establishes processes aimed at ensuring that the management and directors are aware and fulfil their duties in association with timely disclosure of significant price-sensitive information. With such policy, the company has properly abided by the principle of making timely and balanced disclosure.
The Board has framed a communications policy within the company’s framework regarding communications with shareholders so that material information can be quickly communicated to them to assist them in effective decision-making processes (Biotech capital, 2017). Furthermore, the policy of shareholder communication is also made available on the website of the company. Besides, such communication approaches can assist the company in fulfilling the requirements of shareholders, thereby facilitating in respecting their rights.
The Board has a risk management committee and risk management policy within the company’s framework that allows it to manage and recognize risk. Further, details of such policy are also provided in the company’s website. The role of such committee includes the overseeing of processes of non-financial and financial risk management and compliance. Moreover, senior management reports often to the board in relation to management of material business risks in the company.
The Board has a remuneration and nomination committee comprise of matters associated with remuneration practices and policies of the company. Besides, the remuneration of senior executives is reviewed on a yearly basis and details of the directors’ remuneration for their non-executive roles is also disclosed by the company to facilitate fair and responsible remuneration (Biotech capital , 2017).
Risk assessment
Biotech capital has various businesses relating to consumer staples like cheese, butter, dairy products, etc. Besides, the company consists of various other segments that deal in such health and nutrition matters. Overall, the company has been a significant player in such industry and therefore, it has secured its position in the ASX 300 company list (Biotech capital , 2017). However, the company functions in a market that is exposed to various risks like operational risks, financial risks, etc that can interrupt its smooth flow of operations. This is why it has framed a risk management policy to mitigate such risks.
Company’s strategy
Biotech capital primarily concentrated in the following areas:
Focus on risks and methods to avoid the same
Audit risks can be evaluated through various methods like inspection, audit processes, analytical procedures, and management enquiries. In the inspection method, auditors can supervise and monitor the financial statements in a better way so that any material risk can be identified and corrective actions can be undertaken thereafter. Further, audit and analytical procedures can also be taken into consideration to identify major risks that may be inherent in nature or emerge as a result of the company’s operations (Roach, 2010). For such purpose, analytical ratios like net profit and gross profit ratio can be used to describe the earning capacity of the company. Moreover, auditors can also facilitate management enquiries to seek material misstatements or issues or risks in the financial records of the company.
ASA-570 is that auditing standard that can allow auditors to use various analytical processes to understand the nature and implication of various risks prevalent in the company’s operations. Such standard also describes how analytical processes can assist auditors in framing an opinion regarding the truthfulness and fairness of financial information in the financial statements of the company (Hoffelder, 2012). Few analytical processes used by auditors are ratios and their comparison with the past years, regression analysis, comparison of unadjusted amounts of trial balance with the past years, etc. In addition, the auditor can take the help of the financial ratios that will help to project the financial scenario. The ratios can be evaluated to signify the area that needs proper attention (Choi & Meek, 2011). From the computed ratios, it can be seen that the company has a high current ratio and quick ratio meaning the company has huge surplus of funds that can be used elsewhere to generate returns.
|
2016 |
2017 |
|
|
Gross margin |
69.64945 |
63.09711 |
|
Net profit |
54.42804 |
48.34646 |
|
current ratio = CA/Cl |
0.042174 |
0.037025 |
|
Quick ratio =Quick assets/CL |
0.042174 |
0.037025 |
Audit risks in the company
Biotech capital is vulnerable to various risks of operational risks, financial risks, etc. Operational risks comprise of factors like failure to meet safety standards, technological attacks, copyright issues, etc. Further, financial risks comprise of changes in forex rates, liquidity crisis, etc (Biotech capital , 2017). There are additional risks like compliance risks that also pose a threat to the company. For such purpose, auditors can hire internal auditors and experts in various fields so that issues can be avoided for the future. Further, the company must also adopt innovative technologies to get rid of financial risks.
Conclusion:
Biotech capital has properly complied with ASX corporate governance principles within its framework and this can be visible from its financial position. Besides, it has also implemented proper risk management strategies to get rid of risks for future development purposes. This can allow stakeholders rely upon the company and invest their resources for a good return in future. Moreover, the computation of ratios has also facilitated in a better understanding of the company’s scenario.
Biotech capital Ltd is listed on the Australian Stock Exchange and is engaged in processing, receiving, distributing, and manufacturing associated and dairy products. It is engaged in the business relating to development capital and management skills that pertains to Australian pharmaceutical companies. The main aim of the company is to provide active investment in business dealing with life science and other product development opportunities. It has the objective of long term success and strives to provide better health related services and enhancement for the shareholders (Biotech capital, 2017). The company has been effective in its strategies to fulfil the requirements of corporate governance strategies. This is the reason why it has tasted success over the years and enjoyed a better reputation in the capital industry.
Reference:
Biotech capital . (2017) Biotech capital annual report and account [online]. Available from: https://www.biotechgt.com/files/5415/1205/6919/The_Biotech_Growth_Trust_PLC_Half_Year_Report_2017-2.pdf [Accessed 2 April 2018]
Carmichael, D.R. and Graham, L. (2012) Accountants Handbook. Financial Accounting and General Topics, John Wiley & Sons.
Choi, R.D. and Meek, G.K. (2011) International accounting. Pearson .
Ferris, S.P., Noronha, G. & Unlu, E. (2010) The more, merrier: an international analysis of the frequency of dividend payment. Journal of Business Finance and Accounting. [online]. 37(1), pp. 148–70. Available from https://doi.org/10.1111/j.1468-5957.2009.02174.x
Hoffelder, K. (2012) New Audit Standard Encourages More Talking. Harvard Press.
Kaplan, R.S. (2011) Accounting scholarship that advances professional knowledge and practice. The Accounting Review [online]. 86(2), pp. 367–383. Available from https://doi.org/10.2308/accr.00000031
Lapsley, I. (2012) Commentary: Financial Accountability & Management. Qualitative Research in Accounting & Management. [online]. 9(3), pp. 291-292. Available from https://doi.org/10.1111/1468-0408.00081
Parrino, R, Kidwell, D. and Bates, T. (2012) Fundamentals of corporate finance. Hoboken, NJ: Wiley
Roach, L. (2010) Auditor Liability: Liability Limitation Agreements. Pearson.
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