Corporate Governance And Risk Assessment As A Tool Of Auditing

The ASX Stock exchange’s principles of good corporate governance

Discuss about the Corporate Governance And Risk Assessment Analysis As A Tool Of Auditing.

The report has been prepared using the title Corporate Governance and Risk Assessment as a tool of Auditing. The report has been prepared to analyzed and examine whether the company under consideration is following all the requirements of corporate governance principles and also is there any material risk factor involved in the working of the company. The report has been structured under major five heads. The first heads defines the intention of preparation of the report. The second head define the structure of the report. The next head defines the implication checking by the auditor for corporate governance principles. The next head defines the different factors which can create the risky situations for the company. The report has been ended with proper conclusion and recommendations. OZ Minerals Limited Company listed in Australian Stock Exchange has been selected for the purpose of the analysis. The report has been prepared with using primary and secondary sources of information along with the annual reports and corporate statement available on the company official website.

The ASX Stock exchange has laid eight principles of good corporate governance which has to be followed by the company listed in ASX stock exchange. The analysis of the corporate governance principles by OZ Minerals Limited has listed below:

This Principle describes the board of the company, its appointment and composition. It also describes the board members will be appointment in the company along with their term of appointment. In the give company the board detail has been mentioned in corporate statement along with details of roles of chief executive officer, company secretary and their performance management. The company has created EXCO for the defining the role of the company board (Company Official Website, 2017).

The structure board of the OZ Minerals Limited is comprises of nomination committee, board committee, board members, chairman and other people. The company has focus on the training and induction of the people who is going to be the member of the board.  The company is enhancing the professional knowledge of the members of board so that management of the company can become efficient.

The company has define the directions according to which the member and board along with its committee has to perform their roles and responsibilities. The company has given more focus on defined actions for each type of work so that all legal formalities can be fulfilled and results of actions can be assessed with the plan result. This nature of the company helps the different stakeholders to assess the investment return in advance and create the trust effect among them about the affairs of the company.

The implication of corporate governance principles checked by the auditor

The integrity and effectiveness of financial statements can be assesses with three committees which the company has created. The first committee is Audit committee which helps in analysis of the transactions of the company along with audit requirement on timely basis. The second committee is Human Resource and Remuneration committee and the third is Sustainability committee.

The company has been following the market and dividend policy which is in addition with continuous disclosure so that the all the information can be externally communicated to the different stakeholders. The company has framed disclosure committee to ensure that all the disclosure are accurate and on timely manner. These polices has been reviewed by board on continuous basis.  

The company has introduced the investor’s relation program so that the communication with shareholders can taken place without any interruption. For example, The Company has developed the website www. Ozminerals.com to communicate all the information’s to its shareholders. The annual report of the company is self explanatory helps the shareholders to understand the financial and non financial growth of the company.

To assess and mitigate risk, the company is following different risk assessment policies. The company has developed internal control framework along with internal audit so that risk factors can be identified at right time and right action can be taken to protect the company from harm created by them. The company EXCO policy is the best to ensure that risk mitigation can be started at the right time. Also the MD and CEO declaration helps in the assessing the genuineness of the internal control procedures.

The company is involved in development of its employees and formed the people committee along with gender diversity policy. The industry has very less no of women employees but the company is adopting the different polices through which the no of women employees have been increased over years in the company.

Assessment of risk factors is the major auditing step with is required to done by the auditor before framing an opinion as per Standard on Auditing laid down by ASSB. The assessment of risk factors can be done with the help of analytical tools or assessing different aspects of the working of the company (ACCA, 2016; Abidin & Baabbad, 2015). The following factors has been identified in the given company so that whether risk is involved in the same can be assessed: (AASB, 2009; Weiss, 2014 and Mock, 2015)

The different factors which can create risky situations for the company

The company involved in international business from 2008 when it has been formed with the merger of two major players i.e. Oxiana Limited and ZInifex Limited. The company world’s second largest zinc producer and also involved in production of copper, gold, lead, silver and is registered in Australia. The company is expanding in gas pipeline projects as well (Company Official Website, 2017). The diversity in company’s operations in very short span of life of the company is creating the risk on the wealth of the shareholders. The nature of company is such that it is prone to high risk (Capital Markets Advisory Committee Meeting, 2013).

The major controlling regulator for the company is natural resources reservation board which directs the company to have certain principle so that environment protect can be done (Company Official Website, 2017 and Vasarhelyi, 2014). For example, the company ahs health and safety policy for its employees so that the company can provide safe and disease free workplace to its employees (Cooper, 2015). Second authority is Corporation Act, 2001 whereby the basic principles of conceptual framework along with continuous disclosure has to adopted so that company can run in Australian market (Baird,, 2015).  

The company has two strategies which helps the company to create value and achieve its objectives. The first is Customer Focus in which the company has focus to become global player in removing impurities from iron and form copper ore by having highest customer base across the globe. The second is multiple assets in which the company is expanding business in pipelines as well. Losing the funds in long run is the major risk in the above two strategies (Kharisova, 2014).

Analytical procedures in audit can be used with Ratio analysis (Glover, 2014; Ullah, 2014).

RATIOS ANALYSIS
S. NO.	PARTICULARS	31ST DECEMBER 2017	31ST DECEMBER 2016
1	NET MARGIN
	Net Margin After Tax	231.1	107.8
	Revenue	1023.1	822.9
	Net Margin Ratio	22.59%	13.10%
2	CURRENT RATIO
	Current Assets	1148.1	944.3
	Current Liabilties	227	174.8
	Current RATIO	5.06	5.40
3	DEBT TO EQUITY
	Total Liabilities	310	276.3
	Total Equity	2516.3	2354.3
	RATIO	0.12	0.12
4	EQUITY
	Total Equity	2516.3	2354.3
	Total Assets	2826.3	2630.6
	RATIO	0.89	0.89
5	DEBT TO ASSET
	Total Liabilities	310	276.3
	Total Assets	2826.3	2630.6
	RATIO	0.11	0.11
6	Interest Coverage Ratio
	Profit before Interest and Tax	320.7	127.2
	Interest Expense	3.8	4.8
	RATIO	84.39	26.50

The above analysis of ratios shows that the company is open to risky situations as the Net profit has been jumped nearly twice i.e. 22.59% as compared to 13.10% in 2016. The interest coverage ratio is also increased from 26.50 times to 84.39 times which is also indication of either growth situation or high risk involved in company’s working (AASB, 2009 ; Anastasia, 2015; Chen, 2017). 

The company can reduce the risk by applying different policies and procedures. The company should assess and make its internal control system so strong that errors and frauds cannot take place. The good corporate governance along with applying government regulations on timely basis also reduces the risk factors and their impact. The company should have continuous or internal audit so that the errors and frauds can be detected on early step and corrective actions can be taken (Gary, 2017, Mao, 2014))

The conclusion and recommendations

Conclusion And Recommendation

Risk Assessment along with analysis of Corporate Governance application analysis for any company by the auditor is very good tool to present his/her opinion that the true and fair view has been shown from company’s financial statement.  It is recommended to assess the risk involved in the operations of the company over particular time interval.

From the above report, it has been concluded that OZ minerals has adopted all corporate governance principle in effective manner but the nature of business makes the company to more open towards risk.

References

AASB, (2009), “Analytical Procedures – ASA 520”, online available on https://www.auasb.gov.au/admin/file/content102/c3/ASA_520_27-10-09.pdf  accessed on 25-04-2018.

Abidin, S., & Baabbad, M. A. (2015), “The use of analytical procedures by yemeni auditors”,Corporate Ownership & Control, 12(2), 17-25.

ACCA, (2016), “Analytical Procedures”,  online available on https://www.accaglobal.com/vn/en/student/exam-support-resources/professional-exams-study-resources/p7/technical-articles/analytical-procedures.html  accessed on 25-04-2018.

Anastasia, (2015), “Financial Statement Analysis : An Introduction” online  available on https://www.cleverism.com/financial-statement-analysis-introduction/   accessed on 25-04-2018.

Baird, I.S, (2015). “Toward a contingency model of strategic risk taking”, Academy of management Review, 10(2), pp.35 – 47

Capital Markets Advisory Committee Meeting, (2013), “Conceptual Framework” online available on https://www.ifrs.org/Meetings/MeetingDocs/Other%20Meeting/2013/March/AP%203%20conceptual%20framework.pdf  accessed on 25-04-2018

Chen, S., (2017), “Refer to Materiality as a Legal Concept”. Journal of Corporate Accounting & Finance, 28(2), 55-61. 

Company Official Website, (2017), “Annual Report”, online available on https://www.ozminerals.com accessed on 25-04-2018.

Cooper S, (2015), “A Tale of Prudence”, online available on https://www.ifrs.org/Investor-resources/Investor-perspectives-2/Documents/Prudence_Investor-Perspective_Conceptual-FW.PDF   accessed on 25-04-2018.

Gary S., (2017), “The Importance of Inherent Risk Factors: Auditor’s Perceptions”, Australian Accounting Review, Vol 3, Pp 38-44. 

Glover, (2014), “Between a Rock and a Hard Place: A Path Forward for Using Substantive Analytical Procedures in Auditing Large P&L Accounts: Commentary and Analysis”. Auditing: A Journal of Practice & Theory, 34(3), 161-179.

Kharisova, F. I., (2014), “Applying the category of Assertions (or preconditions)» in audit of financial statement”. Mediterranean Journal of Social Sciences, 5(24), 180

Leung P, (2015), “Modern Auditing and Assurance Services”, Wiley John and Sons, Ed. 6, Pp 425-463, 582-684.

Mao, M., (2014), “Experimental Methods of Materiality Judgment on Auditor’s Experience and Performance” In 3rd International Conference on Science and Social Research  (ICSSR 2014) Atlantis Press.

Mock, T. J, (2015). “Auditors’ Risk Assessments: The Effects of Elicitation Approach and Assertion Framing” Behavioral Research in Accounting, 28(2), 75-84.

Ullah A, (2014), “Planning and Audit of Financial Statements” online available on https://leaccountant.com/2014/12/08/asa-300-summary-planning-an-audit-of-financial -statements/  accessed on 25-04-2018

Vasarhelyi, M. A., (2014), “Embracing the Automated Audit: How the Audit Data Standards and  Audit Tools Can Enhance Auditor Judgment and Assurance” Journal of   accountancy, 217(4), 34.

Weiss D, (2014), “Faithful Representation” online available on https://bschool.huji.ac.il/.upload/Seminars/Faithful%20Representation%20October%202014.pdf    accessed on 25-04-2018.