Significance Of Corporate Governance Principles In Australia – Woolworths Limited Case Study

ASX Corporate Governance Principles

Discuss about the ASX Governance Principles.

The corporate governance principles refer to the essential principles that have been established for the purpose of execution of the smooth business operations that is facilitated by the corporate entities. The governance of the essentialities of business is a key factor that contributes effectively to the success of business. In case of the corporate firms, the governance principles are imposed and controlled by the Board of Directors. However, it must be mentioned here that the indirect stakeholders of business also hold an opinion in case of the structuring of the principles.

In order to evaluate the significance of the corporate governance principles in Australia, the particular corporate entity that has been chosen for the purpose of this study is of the name Woolworths Limited. The corporate governance statement and the annual report of Woolworths Limited has also been analyzed and studied for the financial year of 2017, in order to understand the significance of the principles.

The ASX Corporate Governance Principles apply to all the listed entities and irrespective of the fact whether they have been operating inside or outside Australia. The phrase corporate governance principle can be described as the framework of rules, systems and other processes that helps in exercising the required degree of authority within the operating structure of the firm. Moreover, the eight essential principles that seek to promote the central principle of corporate governance has been as follows:

• Laying down of the strong foundations for oversight and management – it has been cited by the ASX Corporate Governance Principles that an entity that is listed will have to lay down and effectively disclose the responsibilities of its Board of Directors and management and the particular way in which their job is being monitored and evaluated. The corporate governance statement that has been presented by the entity in the financial year of 2017 essentially reflects the fact that the administration of the company has essentially adhered to the first principle by disclosing the essentialities of the body of the Board of Directors along with the particular roles that they play. Moreover, enough information has also been provided in regards to the meetings the regulatory authority as well as the structure of the Board (Beekes, Brown and Zhang 2015).
• Structure of the Board should be focused upon in order to add value – the value of the Board should be focused upon in regards to the composition of the Board. The administration of the Woolworths Group has also successfully adhered to the norms in regards to the particular composition of the Board. It has been mentioned in the corporate governance statement of the company that the Board of Directors consists of a majority of independent non-executive directors who with the CEO possess an appropriate mixture of skills (Beekes, Brown and Zhang 2015).
• Actions that have been restricted to ethics and responsibility – it has been further mentioned by the ASX Corporate Governance Principles that it is the primary duty of the listed corporate entities that they act with a standardized degree of integrity and ethics. This has also been successfully maintained by the corporate entity of Woolworths Limited (Beekes, Brown and Zhang 2015).
• Safeguarding the degree of integrity in regards to a financial report – the financial report that has been prepared by a company or a listed entity should reflect a certain degree of clarity and integrity so that the stakeholders and the other users of the financial statements get a true image in regards to the financial position of the firm. As per the annual report of the Woolworths group, it has been mentioned in the financial report of the company that the financial statements have been prepared on the basis of the accounting standards established by the Australian Accounting Standards Board. This means that the financial report holds optimum degree of integrity and clarity (Clarke 2018).
• Balanced and timely disclosures – the disclosures that have been presented by a corporate entity in the financial statements of the companies should reflect the essential procedures and material effects on the price or the value of the securities. This has also been successfully adhered to by the corporate entity of Woolworths Limited. This means that the corporate entity has disclosed enough financial information in the annual report of the company in the form of notes to the financial statements (Clarke 2018).
• Providence of the required degree of respect to the rights of the security holders – A listed entity should give the respect to the rights of the security holders by facilitating them with the appropriate information and facilities for the purpose of allowing them to exercise the rights effectively. This has been mentioned in the financial statements of the companies that the annual report has been prepared in the prescribed format as mentioned by the Australian Accounting Standards Board. Moreover, the auditor’s report has also seconded the fact that the annual report of the company has been prepared in accordance to the Australian Accounting Standards Board. Therefore, the welfare of the stakeholders of business has been ensured by the utilization of the prescribed format as established by the accounting standards of Australian Accounting Standards Board (Clarke 2018).
• Recognition and the management of risk – the listed entity that has been operating in the market should lead to the establishment of a sound risk management framework that facilitates the periodical review of the effectiveness of the framework. The corporate entity of Woolworths consists of a risk management framework that has been mentioned in the annual report of the company with the name material business risks. The essential dynamics that have been considered in regards to the management of wealth are strategic risks, financial risks, compliance risks and operational risks. This further ensures the fact that the management of the firm has strictly adhered to the corporate governance principles.
• Remuneration should be fair and responsible – the remuneration structure of a business entity should be fair and responsible and should be sufficient to retain and attract directors of the highest cadre. Moreover, a good remuneration structure should also provide motivation to the high quality senior level executives. Moreover, it also facilitates the alignment of the interests of the management of a corporate entity with the welfare of the stakeholders of business. In case of the particular entity of the Woolworths Limited it has been mentioned in the corporate governance statement of the firm that the particular firm has adhered to the corporate governance principles (Tricker and Tricker 2015).

The auditor is required to perform risk assessment procedure in order to obtain a reasonable understanding of the entity. The risk assessment procedure is necessary because it helps in assessing the risk of material misstatement and develop further procedure. The company Woolworth Group is one of the largest retail company in Australia. The Woolworth is a leading player in the retail sector and it has noticed increased customer satisfaction by 5.2%. It can be seen that the overall customer satisfaction of the company has increased by 3 points to reach 78%. The overall retail market is growing and Woolworth is leading the growth. The business is governed by general business and civil law. The main strategy of the company is to focus on the Australian Supermarkets. The aim of the company is to provide good quality and variety products ate cheap prices.  

In the current case keeping in mind the overall situation and the company the risk assessment tools that have been adopted are common size statement and ratios. The calculations are provided below:

Common Size Income Statement
Particulars	2013	2014	2015	2016	2017
Amount ($ mill)	Percentage	Amount ($ mill)	Percentage	Amount ($ mill)	Percentage	Amount ($ mill)	Percentage	Amount ($ mill)	Percentage
Revenue	58674	100%	60952	100%	60868	100%	58276	100%	55669	100%
Cost of revenue	42913	73%	44475	73%	44345	73%	42677	73%	39740	71%
Gross profit	15762	27%	16478	27%	16524	27%	15599	27%	15929	29%
Operating expenses
Sales, General and administrative	11380	19%	11962	20%	5511	9%	12964	22%	13134	24%
Other operating expenses	10765	18%	11172	18%	18567	31%	12033	21%	11686	21%
Total operating expenses	22146	38%	23134	38%	24078	40%	24997	43%	24820	45%
Operating income	-6384	-11%	-6656	-11%	-7555	-12%	-9398	-16%	-8891	-16%
Interest Expense	410	1%	278	0%	255	0%	246	0%	194	0%
Other income (expense)	10009	17%	10449	17%	10877	18%	11004	19%	11217	20%
Income before income taxes	3215	5%	3515	6%	3068	5%	1360	2%	2132	4%
Provision for income taxes	960	2%	1057	2%	930	2%	520	1%	650	1%
Minority interest	5	0%	7	0%	-9	0%	-1113	-2%	60	0%
Other income	5	0%	7	0%	-9	0%	-1113	-2%	60	0%
Net income from continuing operations	2255	4%	2458	4%	2137	4%	840	1%	1482	3%
Net income from discontinuing ops	10	0%		0%		0%	-3188	-5%	111	0%
Other	-5	0%	-7	0%	9	0%	1113	2%	-60	0%
Net income	2259	4%	2452	4%	2146	4%	-1235	-2%	1534	3%
Net income available to common shareholders	2259	4%	2452	4%	2146	4%	-1235	-2%	1534	3%

Common Size Balance Sheet
Assets	2013	2014	2015	2016	2017
Amount ($ mill)	Percentage	Amount ($ mill)	Percentage	Amount ($ mill)	Percentage	Amount ($ mill)	Percentage	Amount ($ mill)	Percentage
Current assets	6226	28%	7175	32%	7661	34%	7427	33%	6994	31%
Non-current assets	16024	72%	17030	77%	17676	79%	16075	72%	15922	72%
Total assets	22,250	100%	24,205	100%	25,337	100%	23,502	100%	22,916	100%
Liabilities
Current liabilities	6,866	31%	7,558	34%	9,169	41%	8,993	40%	8,824	40%
Non-current liabilities	6,084	27%	6,122	28%	5,036	23%	5,728	26%	4,216	19%
Total liabilities	12,950	58%	13,680	61%	14,205	64%	14,721	66%	13,040	59%
Stockholders’ equity	9,300	42%	10,525	47%	11,132	50%	8,781	39%	9,876	44%
Total liabilities and Equity	22,250	100%	24,205	100%	25,337	100%	23,502	100%	22,916	100%

Statement Showing Ratios
Particulars	Formula	2013	2014	2015	2016	2017
Balance Sheet ratio
Current Ratio	Current Assets/ liability	0.91	0.95	0.84	0.83	0.79
Debt equity ratio	Debt/ Equity	0.6542	0.5817	0.4524	0.2437	0.4269

The table above shows the common size Income statement and balance sheet. The calculation above shows the balance sheet ratios. It can be seen that liquidity of the company is declining as indicated by the current ratio. This could indicate an area of risk that should be considered. The analysis of the common size income statement indicates that the selling and administrative expenses is showing fluctuation over the years.  This indicates an area of risk that the auditor should focus (Tricker and Tricker 2015).

Conclusion

The conclusion that can be derived from the above discussions is that the corporate entity of Woolworths has successfully adhered to the principles of the corporate governance principles as established by the Australian financial entities. Moreover, the particular risk assessment procedure that has been undertaken reflect the fact that the firm has been sufficient amount of risk in regards to the liquidity of the company.

References

Beekes, W., Brown, P. and Zhang, Q., 2015. Corporate governance and the informativeness of disclosures in Australia: A re?examination. Accounting & Finance, 55(4), pp.931-963.

Christensen, J., Kent, P., Routledge, J. and Stewart, J., 2015. Do corporate governance recommendations improve the performance and accountability of small listed companies?. Accounting & Finance, 55(1), pp.133-164.

Clarke, A., 2018. ‘Culture’and its place in the corporate governance puzzle. Governance Directions, 70(1), p.10.

Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson Higher Education AU.

Poulton, E., Barnes, L. and Clarke, F., 2017. The labyrinth of international governance codes: The quest for harmonization. The Journal of Developing Areas, 51(3), pp.425-435.

Safari, M., 2017. Board and audit committee effectiveness in the post-ASX Corporate Governance Principles and Recommendations era. Managerial Finance, 43(10), pp.1137-1151.

Shimeld, S., Williams, B. and Shimeld, J., 2017. Diversity ASX corporate governance recommendations: a step towards change?. Sustainability Accounting, Management and Policy Journal, 8(3), pp.335-357.

Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices. Oxford University Press, USA.