Discuss about the Corporate Functional and International Analysis.
ASX has developed the corporate governance principles and recommendations that the business entities listed on ASX need to comply for developing their corporate governance statement. The analysis of the corporate governance statement of AGL Energy in accordance with ASX rules is carried out as follows:
As per ASX Corporate Governance Statement (CGS), the business corporations of Australia listed on ASX need to develop the respective roles and responsibilities of the board and management. AGL Energy Limited has established a solid framework for management and Board as analyzed from its corporate governance statement. The role of Board is to be responsible for the governance of the company and protecting the interests of the shareholders. The major responsibility of Board is to develop and continually review the strategic direction, business plan and budget of the long-term goals and objectives of the company. The Board has assigned the role of the key management personnel (KMP) to monitor and regulate the daily operational activities of the company. The performance of the Board is continually reviewed and monitors through assessing the performance of its individual directors by the board itself in support of an independent consultant. The review process sis carried out in support of the director’s and members of the executive team of the Board. Board has also developed a remuneration committee to asses the performance of the management people during the tie of making decisions over their incentives and rewards (Fleckner and Hopt, 2013).
The business entities listed on ASX need to develop an effective board structure having diverse skills and competencies by appointing and recruiting a team of qualified personnel’s. This is required so that Bard members possess high expertise to ensure that its roles and responsibilities are carried out adequately. AGL Energy Limited has also maintained an adequate board structure comprising eight non-executive directors, managing director and Chief Executive Officer (CEO). The Board Skill Matrix provided in the corporate governance statement has provided a detailed description of the necessary skills and expertise possessed by the Board members to carry out its roles and responsibilities (2017 Corporate Governance Statement, 2017).
AGL has developed and established its sound and effective corporate governance policies for ensuring that it carries out its business operations in an ethical and responsible way. Its code of conduct has stated the responsibility of its directors, employees and contractors as per the ethical standards of confidentiality, integrity and honesty. The company has developed an ethical panel for overseeing the application of the Code of Conduct and ensures whether the operations are carried out as per ethical guidelines. The employees are provided training as per the rules and policies of Code of Conduct in their induction program. The company has also developed a compliance management policy for ensuring that it carries out all its operations activities as per the standard rules and regulations (2017 Corporate Governance Statement, 2017).
The business entities as per ASX rules also need to have a presence of rigorous process for verifying and safeguarding the integrity in the corporate reporting. AGL Energy Limited board holds the responsibility of approving the financial statements accuracy to the Board before these are disclosed to the end-users. Board also provides assurance that the financial statements are developed as per the accounting standards and the opinions are developed on the basis of effective system of risk management and internal control (2017 Corporate Governance Statement, 2017).
As per ASX principle, the company also places strong emphasis on providing timely and relevant information to the stakeholders impacting the prices of its securities. The company has established a Market Disclosure Committee who holds the responsibility for providing market sensitive information to the ASX. In addition to this, it also makes disclosures about its financial performance in the financial statements and non-financial information in the sustainability report on an annual basis (2017 Corporate Governance Statement, 2017). Therefore, the company has maintained appropriate procedures and policies to provide timely and balanced disclosure of relevant information to the end-users for facilitating in decision-making (Bazley, Hancock and Robinson, 2014).
ASX listed entities also need to protect the rights of security holders through providing them all the appropriate information and authority to exercise there rights (ASX Corporate Governance Council, 2014). The company has also developed Securities Dealing Policy outlining the rights of the employees who may deal in the company securities. The policy has implemented rules against the use of derivatives by directors, executives and employees to any unvested securities. Also, it has developed an investor relation program for improving the communication flow between the investors. The program is developed to provide information to the shareholders about all the relevant information related to their issues or concerns. It conducts investor briefings, asset tours and webcaster all the events that can impact the materialistic information. It also regular conducts meeting with the shareholder representative bodies for developing an understanding of the expectations of the market on important topics such as ESG and remuneration (2017 Corporate Governance Statement, 2017).
The corporate governance statement developed by AGL also has described the nature of its risk management. It faces wide variety of risks due to nature of its operations such as economic, environmental, sustainability and financial risks. As such, the company has developed and implemented an effective risk management framework that determines the role of different personnel in regard to monitoring and controlling the risks. It has implemented risk management principles in its strategy development process so that daily risk can be successfully managed and controlled. The framework has also established risk management standard to provide guidelines to the employees about the ways of conducting risk assessment so that the identified risk can be mitigated properly (O’Donnell & Perkins, 2011).
ASX listed entities also need to maintain an adequate remuneration structure for attracting, retaining and motivating high quality senior executives to align their interests with value creation for security holders. The Board has developed and appointed a remuneration committee working actively to provide fair remuneration to its senior executives (2017 Corporate Governance Statement, 2017). The remuneration structure comprises of fixed and variable remuneration part comprising of short term and long-term incentive plans (Plessis, McConvill and Bagaric, 2005).
Auditors adopt the use of risk assessment procedures for analyzing the reliability of financial information presented to them. This is important because the overall results from audit of an entity depends whether the information provided is materialistic correct or not (International Standard On Auditing 315, 2009). The Auditing and Assurance Standard Board (AUSAB) has issued Auditing Standard ASA 520 to develop the analytical procedures for improving the auditor efficiency through evaluating the nature of its operations, business strategy, reliability of financial statements and the risk assessment process used by an entity to identify and mitigate the financial risk (Putra, 2010). The risk assessment procedure that can be used for identifying and controlling the audit risk in AGL Energy Limited can be described as follows:
AGL is an Australian listed public company having ownership of large number of shareholders who are mainly Australian investment companies. The company is listed on ASX and has developed its corporate governance statement as per the standards and recommendations of ASX. The financial transactions are carried out as per AASB and Corporations principles and standards (AGL Energy Limited: Annual Report, 2017). It adopts AASB 124 in related party disclosures such as KMP related party for defining the transactions involving transfer of resources or services between the company and its related party (Auditing and Assurance Standards Board, 2009).
The company provides its gas and electricity services to about 3.6 million customers across Australia. The strategic aim of the company is to meet the energy needs of people across Australia through development of the country’s largest electricity generation portfolio (AGL Energy Limited: Our Company. 2017).
The company develops its common-size financial statement as per AASB and Corporations Act 2001 accounting standards and regulations. The financial growth and condition of the company can be assed through calculation of key income statement and balance sheet ratio as follows:
|
Financial Data on AGL Energy |
|||
|
Particulars |
2016 |
2017 |
|
|
Net profit |
-$ 407.00 |
$ 539.00 |
|
|
Gross Profit |
$ 3,034.00 |
$ 3,167.00 |
|
|
Revenue |
$ 11,150.00 |
$ 12,359.00 |
|
|
Total Assets |
$ 14,604.00 |
$ 14,458.00 |
|
|
Long term Debts |
$ 3,067.00 |
$ 3,143.00 |
|
|
Shareholder’s Equity |
$ 7,915.00 |
$ 7,574.00 |
|
|
Income Statement Ratios |
Formula |
||
|
Net Profit Ratio |
Net Profit/Revenue |
-3.65% |
4.36% |
|
Gross Profit Ratio |
Gross Profit/ Revenue |
27.21% |
25.63% |
|
Return on Assets |
Net Profit/Assets |
-2.79% |
3.73% |
|
Balance Sheet Ratios |
|||
|
Debt Equity Ratio |
Debt/Equity |
0.39 |
0.41 |
|
Fixed Assets Turnover |
Revenue/Total Assets |
0.76 |
0.85 |
The company ahs adopted a wide risk program as per the principles and requirements of ISO 31000, providing international standards for risk management. The key risk factors that can have a materialistic impact on the information presented and the mitigation actions taken for them are described as follows:
Asset Safety & Reliability: The Company need to effective manage its operational assets so that they are bale to provide estimate future economic benefit. This can be ascertained through implementation of health and safety plans to reduce the occurrence of any emergency conditions that can destroy the assets.
Optimization of Wholesale Energy Markets: It is necessary for the company to maintain its competitive advantage in the energy sector and involves assessing the alternative opportunities of obtaining gas supply such as LNG. It also involves advanced management techniques in order to comply with the government regulations. The company is placing continued focus on its gas contracting and transportation strategy to meet the energy requirements of its customers continually (AGL Energy Limited: Annual Report, 2017).
Conclusion
It can be said from the overall discussion held in the report that ASX listed entities need to maintain an effective corporate governance and risk management structure for complying effectively with the laws ad regulations of ASX. AGL Energy Limited has developed its corporate governance statement as per the principle of ASX to ensure its sustainable growth and development. It has also adopted an effective risk management procedure to identify the material risk and development of consecutive mitigation plans for risk reduction.
References
2017 Corporate Governance Statement. (2017). AGL Energy Limited. Retrieved 26 April, 2018, from https://www.agl.com.au/-/media/AGL/About-AGL/Documents/Who-We-Are/AGL-2017-Corporate-Governance-Statement.PDF?la=en&hash=7905AAC3A15D638CF7EF500483F9CDE3C8B2D7AC
AGL Energy Limited. (2017). Annual Report. Retrieved 26 April, 2018, from https://www.agl.com.au/-/media/AGL/About-AGL/Documents/Media-Center/ASX-and-Media-Releases/2017/170825-AGL-207-Annual-Report-ASX.pdf?la=en&hash=013E1C115D580D678CA009DF3D256C8C511F655C
AGL Energy Limited. (2017). Our Company. Retrieved 26 April, 2018, from https://www.agl.com.au/about-agl/who-we-are/our-company
ASX Corporate Governance Council. (2014). Retrieved 26 April, 2018, from https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-recommendations-3rd-edn.pdf
Auditing and Assurance Standards Board. (2009). Auditing Standard ASA 520 Analytical Procedures. Retrieved 26 April, 2018, from https://www.auasb.gov.au/admin/file/content102/c3/ASA_520_27-10-09.pdf
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.
International Standard On Auditing 315. (2009). Retrieved 26 April, 2018, from https://www.ifac.org/system/files/downloads/a017-2010-iaasb-handbook-isa-315.pdf
O’Donnell, Ed & Perkins, D. (2011). Assessing Risk with Analytical Procedures: Do Systems-Thinking Tools Help Auditors Focus on Diagnostic Patterns? Auditing; Sarasota 30 (4), pp. 273-283.
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. Retrieved 26 April, 2018, from https://accounting-financial-tax.com/2010/04/the-use-of-analytical-procedures-in-auditing/
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