Corporate Governance Of AGL: Principles And Practices

Management Foundation and Oversight

Discuss about the Auditing and Financial Ratio of AGL.

The statement of corporate governance of the chosen ASX listed company AGL has made a commitment to act in accordance with framework, obligations and practices set by the Council of Corporate Governance of ASX. AGL board of director believes in sustainable performance. Therefore, they practice the best corporate governance supported by ASX rules.

Enforcing a sturdy and efficient management foundation and oversight:

The management of the AGL includes the boards of directors who are responsible for the mainlining the various interest of the company and its stakeholders (Craneand, Matten2016). The corporate governance of the company is also maintained by them.  The board of directors has the duty of approving and supervising the company’s strategies along with its performance.  They also set the budget plan as well recruits the CEO of the company.

Development of a proper Director board for enriching its value:

The integrated energy business AGL has a sound composition and structure of the board that consists of the audit and the risk committee, nomination committee, people and performance committee and a committee for sustainability, safety and corporate social responsibility (Masonand Simmons 2014). Each of the committee performs their assigned duty along with sound coordination in order to achieve the organizational goal. The number of directors and their operations are determined in the annual meetings that are set in the Directors attendance mentioned in the Annual report.

As per the statement of sustainability re approved by the ASX committee, the AGL maintains a sound code of conduct thatis applicable to its stakeholders that includes the directors, contractors and the employees engaged in its operations.  The code is a collection of   the ethical conduct and a standard of responsibility for its members who are related to the company (Bowie 2017). According to the code thereare a setof rules abide by them that induces the members to act with integrity and honesty along with maintaining a sound professionalism in their operations (William Jr et al. 2016). In addition to that they set the internal standards, commitments and the various laws along with maintaining confidentiality in their operations

The various financial report of the organization is maintained and regulated by the Board of directors. The committee of audit and risk management takes care of the financial statements and the reporting practices (Shimeld, Williamsand Shimeld2017).They also provide confirmation that these opinions have been formed on the basis of a sound system of risk management and internal control, which is operating effectively. Before the Board approves the financial statements for a financial period, the CEO and CFO provide declarations to the Board that, in their opinion, the financial records of AGL have been properly maintained and that the financial statements comply with the Accounting Standards and give a true and fair view of the financial position and performance of AGL.

Proper Director Board for Value Enrichment

Analysis of the corporate governance statement aptly illustrates corporate governance structure, strategies along with practices. During the entire period of financial year 2017, the Corporate Governance arrangements of AGL are in agreement with Corporate Governance Principles along with recommendations (referring to 3 rd Edition) of principles laid down by Australian Stock Exchange. This is published by the Corporate Governance Council of ASX that helps in providing a checklist for cross referring to the principles of ASX to the pertinent disclosures. AGL’s code of conduct can be referred to as vital factor of the firm that can aid in attaining excellence and securing complete financial soundness, societies as well as businesses. Management of the corporation follows the values of maintaining integrity, higher merit, and accountability along with maintaining alliance (William Jr et al. 2016). The recommendations mentioned in the Corporate Governance Regulations states that Listing rules along with directives of Corporation Act introduced in the year 2001 helps in the understanding the fact that administration has devised several controls for maintaining integrity of system of reporting. The financial assertions of the firm are also prepared as per the accounting standards leading to presentation of true along with fair view of financial information. Disclosures are also presented as per recommendations stipulated under ASX CGS. This in turn can help in preservation of reliability as well as veracity of system of reporting pecuniary matters (Messier et al. 2014).

AGL has a continuous disclosure principle in place. AGL has a External Communication Policy that elucidates about the continuous disclosure necessities of the company. The board of the firm AGL intends to make certain that all the shareholders along with the market are fully informed regarding all credible information along with price sensitive advance along with alterations that can probably affect overall operations, financial outcomes along with business prospects. The continuous disclosure necessities can help in making certain that all the requisite information is divulged to the entire market in a well timed as well as effective manner (Vasarhelyi et al. 2018). This is done by means of internal system of reporting along with monitoring procedure of standard information. The company AGL presents periodic reporting that delivers financial statements prepared by the firm to the shareholders as well as other interested parties. In addition to this, the company delivers important functional in addition to different financial performance indicators to the users of information. 

Code of Conduct and Ethics

The board intends to safeguard and shield interests and at the same time promote sustainable value creation whilst taking into consideration rational shareholder’s interests (Leung et al. 2014). The board of the company has the intention to approve significant pronouncements made by AGL to particularly ASX as well as other reports to the firm’s shareholders as per suggestions of Corporation Act as well as other pertinent regulations (Leung et al. 2014). The chairperson of the company AGL preside board meetings along with shareholder’s meetings. Thus, in this specific manner, the company can provide material information to shareholders.

In connection to risk management, the board of the firm AGL assesses and at the same time recommends Risk Appetite Statement along with various material strategic risks (Simpson et al. 2016). In addition to this, the study also reviews and tracks execution of various policies along with procedures for detecting, evaluating, tracking as well as handling risks. In addition to this, AGL’s board also presents Audit & Risk Management Committee (also referred to as ARMC). Board of the company also presents risk management structure and there is a risk management model in place in the company (Zhou et al. 2016). Essentially, AGL encounters various types of risks owing to nature as well as characteristics of operations. Management of the firm is necessarily committed towards appropriate risk management. The “Audit, Compliance and Risk Committee” aids the firm’s board in effectual discharge of accountabilities in relation to financial affairs counting treasury risks as well as practices, monitoring of business risks (Hiltz and Pierce 2018). This committee also aids the board in detection of main financial along with compliance risks encountered by the firm and assesses the steps for implementation of specific control and processes for mitigating risks (Arens et al. 2015).

The company has an Enterprise Risk Management system and a framework for control that includes different controls that include the following:

As per the recommendations of the ASX CGS, AGL has a Remuneration and Nomination Committee that can support the entire Board in effectual discharge of the accountabilities in relation to remuneration of both executives as non-executive directors (Ahmed Haji and Anifowose 2016). Also, this committee oversees system of recruitment as well as processes of retention of particularly management. In addition to this, this committee also looks into various aspects of composition of board counting diversity of board as well as succession planning (Zhao et al. 2017). In a bid to remunerate fairly as well as responsibly as per suggestions of principles, the board assesses remuneration policy of the corporation to make sure that it inspires management to undertake strategic priorities of the business and is correlated to performance. Also, the committee assesses diversity policy, requisite skills for effectual discharge of duties on a regular basis and policies for remuneration of directors (Messier et al. 2015)

Financial Management and Reporting

Background of the company

The selected company for the study is AGL. AGL is 180 year old publicly traded corporation listed under the ASX. The company operates in energy industry and is involved in generating as well as retailing of products such as gas as well as electricity for both household plus commercial uses.

Details of regulation

The c bodies include Australian Stock Exchange (ASX), Australian Energy Market Operator (AEMO) that necessarily handles supply as well as demand and potential as per applicable regulation. The regulatory authorities also include the Australian Taxation Office as authorised and validated by law.

Overview of the market in which AGL operates

The company AGL has a market share of approximately 90%. This company deals in power as well as energy generation and at the same time retailing of the same for over and above 150 years. AGL is primarily driven by two different strategic essentials that include intention to develop in a carbon controlled future and to develop customer support with evolving expectations of customers .

Business Stratagems of the company AGL include

– Sustainable usage of company resources:

– Investment for better generation, storage and sharing of energy

-Development of advanced technologies for maintenance of low levels of emissions and framing sustainable practices (Cohen  and Simnett 2014)

Analysis of risk using key financial ratio and trend analysis: (refer to appendix for calculations)

– Debt equity ratio calculated for the firm AGL stands at 0.90. A ratio greater than 1 essentially reflects high leverage and greater burden of interest on the part of the firm. Therefore, AGL is said to be at a favourable financial condition in terms of leverage (Griffiths 2016).

-The liquidity ratios namely (in this case, current ratio and the quick ratio) of the firm AGL is registered to be around 1.32 and roughly 1.19 respectively. Standard current ratio is observed to be 2:1 (Almamy et al. 2016). Therefore, the company has a lower current ratio indicating poor liquidity condition of the firm. In addition to this, the firm has low quick ratio as well, reflecting lower potential of the firm to repay short term obligations using quick assets (Chambers and Odar 2015)

-Return on firm’s shareholder’s equity is registered to be 7.12%, while operating margin stands at 6.07 % and net profit margin of AGL stands at 4.28%. Although the return on equity shows a favourable condition, both the profit margin ratio does not signify efficiency on the part of the firm AGL to acquire higher returns (Hines et al. 2015)

Continuous Disclosure Principle

-Again, analysis of trend reveals that the firm has an upward moving trajectory in terms of revenue, while assets of the firm has declined during the financial year 2017 as compared to the year ago period. On the other hand, liability of the firm has increased during the said period. Again, equity has also declined by 4.65% during FY 2017 in comparison (Omar et al. 2014)

Audit Steps to mitigate the risks:

-Reviewing current ratio, checking register for cash and reconciling the same with bank statement

-Receivables can be substantiated with days permitted for disbursement, probability of bad debt

-Debt document can be checked for comprehending sources of finances of the firm and attempt to lessen payment obligations for debt

-In a bid to increase profit, expenses can be minimised and all vouchers linked to expends can be verified

References

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Almamy, J., Aston, J. and Ngwa, L.N., 2016. An evaluation of Altman’s Z-score using cash flow ratio to predict corporate failure amid the recent financial crisis: Evidence from the UK. Journal of Corporate Finance, 36, pp.278-285.

Arens, A.A., Elder, R.J., Beasley, M.S. and Jones, J., 2015. Auditing: The Art and Science of Assurance Engagements. Pearson Canada.

Chambers, A.D. and Odar, M., 2015. A new vision for internal audit. Managerial Auditing Journal, 30(1), pp.34-55.

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Hiltz, A. and Pierce, S., 2018. Quality assurance program for a nuclear pharmacy. The Canadian journal of hospital pharmacy, 44(1).

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Leung, P., Coram, P., Cooper, B.J. and Richardson, P., 2014. Modern Auditing and Assurance Services 6e. Wiley.

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Omar, N., Koya, R.K., Sanusi, Z.M. and Shafie, N.A., 2014. Financial statement fraud: A case examination using Beneish Model and ratio analysis. International Journal of Trade, Economics and Finance, 5(2), p.184.

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