Audit, assurance as well as compliance are necessarily formulated to add value to overall business and make certain that the firm satisfy the compliance obligations. The primary objective of the current study is to critically evaluate extent of conformation of the selected firm Commonwealth Bank to the ASX Corporate Governance Principles. In essence, the study at hand explicates whether the firm adheres to all the obligations of the ASX CGS principles. Moving further, the study also analytically evaluates diverse risks related to the company by means of different dimensions namely key financial ratio, analysis of trend as well as market.
Establishment of strong foundation for particularly management as well as oversight:
The primary accountability of the board of the firm corporation Commonwealth Bank is to oversee into the matters of business affairs, establish different financial as well as strategic organizational aims, investigate and monitor the entire process of implementation of strategic moves for attainment of the stated objectives. In addition to this, the board also has the need to track the performance of the entire management and endorse the adoption of chief corporate policies of the corporation (Knechel and Salterio 2016).
Structure and composition of the board for enhancement of value
The board of the firm intends to make sure that it can operate independently and has suitable mix of skills and expertise along with diversity to effectually discharge all the roles and accountabilities (Chan and Vasarhelyi 2018). As per the annual report of the firm, there are 12 members in the board of the company. Diverse skills as well as experience are possessed by the directors of the firm CBA that in turn can help in enhancement of overall value. Collective important skills along with experience of the board are hereby mentioned in the table below:
Table: Skills and Experience of the board
(Source: Commbank.com.au 2018)
Undertake business practices ethically as well as responsibly
CBA acts ethically as well as responsibly by focussing on its commitments, managing conflict of interests, setting in policy of absolutely zero tolerance for specifically bribery and acts of corruption. Also, the firm undertakes ethical and responsible practices by following Securities Trading Policy prohibiting people of the firm to engage in security dealing, hedging and any kind of insider trading. The firm also has a Whistleblower policy in place for fostering the culture that inspires individuals to talk about diverse issues as well as conducts that are a matter of concern to them (Commbank.com.au 2018). Furthermore, CBA also publishes a Slavery and Human Trafficking Statement in conformation to the UK Modern Slavery Act and regularly reviews and updates the Supplier Code of Conduct for the purpose of enhancing human rights. The foundational policy of code of conduct of CBA reflects the commitment of the firm. This sets expectations of the group, counting directors, various senior executives along with employees at the time of engaging and balancing diverse interests of the stakeholders of the firm. The firm has eight different commitments that are hereby mentioned below:
Preserve integrity in particularly corporate reporting
The code of conduct policy of the firm CBA can be said to be critical to the firm attaining the vision of particularly excelling at augmenting and securing overall financial well being of individuals, communities as well as businesses. The management of the firm lives its values of integrity, excellence, accountability along with collaboration (Griffiths 2016).
According to the recommendations presented in ASX listing rules as well as Corporation Act of the year 2001, the management has formulated controls for assuring integrity of corporate reporting (Commbank.com.au 2018). As per the viewpoints of the chief executive officer as well as chief financial officer of the firm, the firm has maintained financial report of the firm according to the Corporation Act. In addition to this, pecuniary reports along with various disclosures are presented as per the accounting standards that in turn present both true as well as fair view of financial health and performance of the firm and adhere to the accounting standards (Messier et al. 2015). Also, there is internal control as well as risk management that is effectually operated. In addition to this, pecuniary assertions of the firm are essentially subject to yearly audit by specialised and at the same time independent auditors. In this way, the firm intends to preserve the integrity of particularly corporate reporting.
Carry out well timed and at the same time balanced disclosure
The company CBA has a writ policy for conforming to the obligations of disclosure stipulated under the Australian Corporation Act of the year 2001 and the Listing Rules of ASX. The firm declares all the available material information at a timely manner as part of compliance to the policy of communication between CBA and shareholders (Chou 2015).
Respect security holders’ rights
The firm CBA considers the shareholders of the firm as the owners and at the same time values the need for carrying out communication with them clearly. The company respects the rights of the shareholders and intends to deliver them specific information that is well timed, of superior quality and pertinent to processes of investment (Rezaee et al. 2018). In addition to this, management of the firm also engages in the process of keenly listening as well as responding to the feedback of the shareholders. Also, the firm also encourages attendance of shareholders in the annual general meeting and this is why it rotates the location of the AGM for facilitating attendance of shareholders. In the pertinent notice of AGM, the firm delivers the entire material information to their shareholders that are relevant to a particular decision (Commbank.com.au 2018).
Detect and manage risk
The area of concentration of the board includes material risk assessment along with prioritisation (Soh and Martinov-Bennie 2015). The board of the firm reviews the same on particularly an ongoing basis and thereafter adjusts the same to replicate both the strategic as well as operational requirements of the firm (Baylis et al. 2017). There is also a non-executive director “Chief Risk Officer (CRO)” responsible for the task of detection as well as management of risks of the firm. In addition to this, there is also a risk committee that aids the board of the firm in fulfilment of accountabilities as regards risks by
-Assessing the Risk Management Framework of the Group and reporting as regards effectiveness of the same (Cheung 2014)
– Appraising Risk Appetite Statement of the firm as well as Risk Management Strategy and tracking implementation of various policies of management
-Assessing the risk profile by tracking adherence to various policies of risk (Du Plessis et al. 2018)
-Overseeing matters related to appointment, performance, specific objectives along with removal.
Remunerate fairly as well as responsibly
As per the obligations of the ASX CGS principles, the company CBA has the intent to remunerate fairly as well as responsibly. Essentially, the firm has a remuneration committee that aids the board of the firm in satisfying all the accountabilities as regards the following:
-Significant alterations in the remuneration policies of the group as well as structure of remuneration (Christensen et al. 2015)
-remuneration arrangements along with outcomes for particularly CEO, finance personnel, risk along with other personally whose roles might perhaps get affected by the financial health of the company
-equity plans of employees, superannuation funds, definite termination payments along with other important benefits (Commbank.com.au 2018)
The firm CBA also presents a remuneration report that divulges information that can help in analysing performance of CEO as well as that of other executives. In addition to this, the remuneration report also presents summary of governance arrangements, various policies along with practices
In the end it can be said that analysis of the assertions published by the firm reveals the fact that the firm is strongly committed to attainment of high standards of particularly corporate governance. The firm has a suitable corporate governance framework that essentially supports the entire long term performance, sustainability and at the same time protects and satisfies the interests of the shareholders (Gitman et al. 2015). In addition to this, it can also be hereby mentioned that the bank assesses its arrangements for corporate governance plus practices in order to make sure that they necessarily replicate developments in the area of regulation, market exercises along with expectations of the stakeholders. In this case, it can be observed that the firm has followed all the recommendations stated in the ASX Corporate Governance Council’s Corporate Governance Principles.
Commonwealth Bank is necessarily a firm that delivers integrated financial services. This includes retail banking, insurance services, investment along with stock broking products, institutional as well as business banking among many others. The company is regulated by the Australian Stock Exchange and the same is included in the Morgan Stanley Capital Global Index, Dow Jones Sustainability World Index as well as FTSE 4 Good Index.
The company has a strategy of enhancement of domestic market shares particularly in the areas of home loans, retail deposit section, discount share trading, various personal loans and credit cards. Management of the company intends to successfully operate through its 1000 branches across the country.
Risk score can be regarded to be a pertinent dimension for assessment of demand of stocks in the market. Beta is necessarily a qualitative dimension of particularly volatility of stocks in comparison to particularly volatility of the market (Uechi et al. 2015). The value of beta as calculated for the study stands at 1.22. Thus, volatility of the firm can be said to be moderate.
Analysis of financial ratio of the firm CBA
The balance sheet ratio taken into consideration in this regard includes debt equity ratio, receivable turnover ratio and quick ratio.
-Debt equity ratio enumerated for the firm for FY 2015 and FY 2016 reflects declining trend. This shows that the debt equity ratio of the firm has decreased from 15.64 registered during 2015 to 14.4 in 2016. This necessarily indicates higher investor financing is utilized by the firm than the creditor financing over the specified period of time (Omar et al. 2014). As such, the low debt equity ratio recorded reflects greater financial stability and a desirable financial condition.
-Receivable turnover recorded for the firm for FY 2015 and FY 2016 replicates an increasing trend. In essence, this reveals that the receivable turnover of the firm has increased from 1.81 recorded during 2015 to 2.12 in 2016. Higher ratio can be considered to be a favourable financial condition of the firm as it reflects greater capability of the firm to effectually collect firm’s receivables. As such, the higher ratio replicates that CBA is efficiently collecting all their receivable in a more frequent manner (Enekwe 2015).
-Quick Ratio calculated for the firm for FY 2015 and FY 2016 shows a declining trend during the specified period. This reflects poor liquidity condition of the firm (Dodd 2017). Analysis of trend reflects the fact that the decrease in quick ratio is mainly due to the fall in quick assets (cash as well as cash equivalents) by around 31.88% and at the same time increase in liability of the firm by approximately 6.32% during the year 2016.
– Operating margin calculated for the FY 2015 and FY 2016 shows a decline during the definite period of time. The operating margin of the margin has decreased to nearly 52% in 2016 in comparison to the year ago figure of 53.28% recorded during 2015. This lower operating margin (%) reflects an unfavourable financial condition of the firm as this shows that the company is failing to generate enough money from particularly its ongoing operations to disburse diverse variable costs along with fixed costs (Tricker and Tricker 2015).
-Net Profit Margin calculated for the FY 2015 and FY 2016 shows a decline during the definite period of time. The net profit margin of the firm has decreased to nearly 37.5% in 2016 in comparison to the year ago figure of 38.29% recorded during 2015. This reflects an unfavourable condition of the firm as lower ratio indicates that the company is making lower net income out of the generated sales of the firm (Armstrong et al. 2015).
– Return on equity calculated for the FY 2015 and FY 2016 shows a decline during the definite period of time. The return on equity has decreased to nearly 0.15 in 2016 in comparison to the year ago figure of 0.17 recorded during 2015. This lower ratio replicates an undesirable financial condition of the firm as it shows that the firm is making lower amount of profit from equity of their shareholders (Armstrong et al. 2015).
References
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