Audit, Assurance And Compliance For Insurance Australia Limited

Corporate Governance Principles

Discuss about the Asx Corporate Governance Principles.

The title of the report is Audit, Assurance and Compliance. As the title suggest, the report will revolve around the compliance matters that the company is required to follow and the auditing areas. In the compliance matters the report will consider only the corporate governance principles as listed by the Stock exchange of Australia and in the auditing and assurance matters, the report will consider the risk assessment. For the purpose of this report, the company that has been selected is the Insurance Australia Limited. The company is listed in the recognized stock exchange of Australia and is engaged in the business of the Insurance of all types since its inception which the year of two thousand and has currently now have been employing more than fifteen thousand employees. The report has two major aims. One is to discuss the corporate governance principles and second is to identify the risky areas where the material misstatement can occur. For the continuation of this report, the annual report of the company along with the corporate governance report for the year ending two thousand and seventeen has been considered. The report has started with the corporate governance principles as mentioned in the corporate governance statement. Each principle has been discussed with regard to its implication on the working of the company. There are eight principles as per the listed guidelines and accordingly the same have been discussed. Then the risk assessment has been done with regard to the identification of risk having the material misstatement in the financial statements. For this nature of the company has been discussed along with the analysis of the financial ratios including the balance sheet ratio and income statement ratio , audit risk has been discussed and strategy that the company has followed have been detailed. After discussing the corporate governance statement along with the risk assessment identified from the annual report, the appropriate conclusion of the report along with the recommendation has been given.

Australia Stock Exchange has prescribed the corporate governance principles and which is required to be followed by each and every company. The eight principles that the company has reported along with its implication have been discussed below:

The first principle is laying down the solid foundation for management and oversight. The company has bifurcated this principle under eight broad headings which are:

• The Board – As the board is accountable for securing the interest of the stakeholders as well as the shareholders of the company, the responsibilities of the same has been laid down in detail.
• The Chief Executive Officer – For the management of the overall operations of the company along with the financial results of the company, the board has delegated the power to the Chief Executive Officer.
• Appointment of Directors – The Board is wholly accountable and responsible for the appointment of the directors. They check the requisite qualifications and experience that the candidate shall possess himself and accordingly assess the candidates.
• Appointment Terms – The letter of an appointment specifies the role of the board of directors and the corporate governance principles that the company is require complying with.
• Company Secretary – The company secretary is accountable to the board for the purpose of ensuring and assuring that all the procedures related to the board meetings and the procedures have been complied with.
• Diversity, Inclusion and Belonging – Diversity is related to the employees of the company, partners and customers including the potential customers. Through this the company has focused on the flexible work, on the equality for all working in an organization and on the accessibility through which each employee or the customer can reach in time or access the products or services respectively easily.   
• Non executive directors and their performance measurement – The Company reviews the performance of the directors at the interval of every three years on an independent basis. It involves the completion of the review through the filling of the questionnaires by the non executive directors, their checking by the independent experts so appointed and thereafter the compilation of the results. The company has done the formal review in the year of two thousand and sixteen.  
• Chief Executive Officers and their assessment of performance – The chief executive officer reviews the performance of each member of the group leadership team and against the standards set in the group balance scorecard. The review has been detailed in the remuneration report for the year ending two thousand and seventeen (Company Official Website, 2017).           

The structure of the board shall be in consonance with the nature and size of the business. In Insurance Australia Group, following structure has been developed which have helped the company to add value to the business. These are:

• Nomination Committee – It helps the board in filling the statutory positions coupled with the fiduciary responsibilities with the assurance that these are appropriate for the company with regard to the nature and size of the business and secondly through the experience, skills, competence and knowledge that each member have in his or her specific field. This committee further helps the board through assessing the proposed candidate and referencing to the board for his appointment with the assurance that the company will be benefited through his services.
• Matrix – The board has specified the skills matrix and company currently has the eight non executive directors which are independent and Executive Director and Managing Director. The company has specified thirteen areas for which the board has laid down the skills matrix as per the experience including risk, finance, insurance, digital, strategy and so on.
• Board Members – It has been laid down that the members of the board are required to continue as directors only as long as they will have the confidence of the shareholders.
• Director Independence – The non executive directors so appointed are independent in the sense that their judgment does not depends upon their relationship. It is because their decisions are not affected.
• Chairman – He is an independent non executive director and fulfills its responsibilities towards the shareholders and the company. He holds the office up to ten years or extended with the permission of the board.
• Training and Induction – The board has encouraged the continuing professional education for all of the directors so as to keep the up to date with the issues prevailing outside the company.     

The company has mentioned that the ethics has been taken by the company in their policies as very serious matter. The company expects that all the officers and employees of the company will be directed to do the work and behave in the defined patters as mentioned in the code of conduct and that too in accordance with the rules and regulations of the relevant statutes under which the company operates. With this the company will have the adequate decision making.

Corporate Governance Statement

For safeguarding the integrity in financial reporting, the company has mentioned three major heads in the governance statement. These are:

• First is the audit committee. It helps in monitoring the financial information and the transactions on the quarterly or monthly basis and is comprised of the five non executive directors which are competent of handling the financial issues and have sufficient and appropriate skills and experience in the field of finance and risk.
• Second is Assurance. Three major heads – Chief executive officer, chief financial officer and chief risk officer provides the assurance that the company has the sound internal control system and takes into consideration of all the financial risk.
• Third is the auditor. He gives the opinion on the financial statements of the company on the basis of which stakeholders and the shareholders of the company invest in the company.

The company has clearly mentioned in the governance statement that the company follows the continuous disclosure policy which includes three major aspects. One is as to how the information is going to be disclosed, second is as to what type of information is required to be disclosed and at the last when the information shall be disclosed. The company ensures the timely and correct disclosure of the information. For instance they provides quarterly results, half year results, yearend results and boards report, etc.  

The company has mentioned the four major aspects under this principle. First is the information and governance under which it is mentioned that all the policies and the procedures have been listed and detailed on the website of the company – www.iag.com.au. Second is the investor relations program under which the shareholders can write an application to the chairman for any issues they are facing or else they can write an email at the [email protected] Third is the required participation of all the shareholders in the general meetings of the company. This is way where shareholders can put their all issues on an open basis and get their solution in the meeting itself. Last is the communication through electronic means. It includes sending of an email for the notice of the general meeting. Approximately 13% of the shareholders have registered their email id in this portal.  

The company main aim is to manage all the risks present in the business on an optimal basis rather than keeping themselves in the process of avoiding of all the risks. The statement has considered four major aspects under this principle. These are:

• First is the risk committee. It comprises of five non executive directors and all have relevant experience. It is formed for the purpose of providing the list of risks to which the company is exposed and how the monitoring shall be done for the company’s compliance with the risk management strategy so as to ensure the independence of the chief risk officer of the company.
• Second are the Risk management framework and its review. It is done by the committee at the end of every year in order to ensure that the framework continues to be sound.
• Third is the Internal Audit function through which the company evaluates the effectiveness of the internal control system that is present in the company.
• Last is the risk. Risk has further been classified into three major heads – environmental, social and economical. The company has formed the Shared Value advisory council in 2014 to assess and judge the sustainability of the company and reconciliation action plan to assess the results of the company with the commitments made by them.

The company has formed the people and remuneration committee. It is very necessary because of the fact that it helps in monitoring the development and implementation of the strategies of the employees and helps in providing the assurance to the company that the company’s group remuneration policies are effective in accordance with the nature and size of the company.

For the purpose of apprising the stakeholders and the shareholders of the company, the group remuneration policy have been designed and detailed in the remuneration report. It provides the structure of the remuneration and how it is affected by the performance of the particular directors.

Last is the basis of remuneration. The company has mentioned that the director receives the equity based remuneration depending upon the value of the shares and the quantum of shares vested to the directors.  

In this manner, it is exhibited that the principle as adopted and laid down by the company ensures that the impact on the company is positive and continuous which will make the company to survive for future years.

Risk assessment is considered as the very important area in the audit (Leung, 2015). It is because it helps in assessing and identifying the areas which are more prone to the material misstatements in the financial statements. Although there has been the long procedure for the risk assessment which includes the identification of the risks and assessment thereof but in this report the main emphasis will be on the few steps which includes the following and accordingly the risk assessment have been done (ACCA, 2016; Abidin & Baabbad, 2015). With these steps the analytical procedures are also being applied so as to assess the risk and which in turn will help in an effective and efficient audit (AASB, 2009; Weiss, 2014 and Mock, 2015). These are:

Risk Assessment

The company is situated in Australia and has expanded its operations throughout the World. The company is in the business of providing insurance services. It has different products and services through which millions of businesses, houses and lives of the human being can be saved. The company is into the very risky business. It is because of the fact that insurance is done to protect from the uncertainty that can happen in future and future is always unpredictable. Therefore, the chances of having the risk are high in this kind of business. Also one of the major companies HIH Insurance has been collapsed because of the nature of the business in which the company is (Capital Markets Advisory Committee Meeting, 2013). Hence, the nature of the company plays the very important role in assessing the risk factor (Company Official Website, 2017).      

The main regulator of the company is Insurance Regulatory authority. All the guidelines that are being issued by the authority are very necessary to be done. In case the any of the requirement is not met then the company will have to face the high level of penalty (Company Official Website, 2017 and Vasarhelyi, 2014).                  

For instance, there shall be no cases of the under or over insurance, life insurance shall be done only after having the proper medical checkup and test report. It is because there may be the cases where the insurance gets done of the person suffering from the chronic disease. Second main regulator is the Corporations Act and the Australia Stock Exchange (Cooper, 2015). For instance if the company does not have the adequate committee as listed in the corporate governance statement then the company name can be struck off from the register of companies or else huge amount of penalty can be levied (Baird,, 2015). 

The company has identified and listed the three key strategic priorities. These are listed as below:

• Customer – Its main focus is to provide better services to the customers through the automation process and second focus is to develop an innovative approach which enables the customer to think positively.
• Simplification – Its main focus is on simplifying the technology platforms so as to provide the ease to the customers.
• Agility – It strives to build the talent pipeline which is based on the skills and experience.

The strategies may have areas where the companies are prone to the high risk. For instance innovative approach may lead to the customer dissatisfaction (Kharisova, 2014).

The ratio analysis is the part of the analytical procedures (Glover, 2014; Ullah, 2014).

The above ratio depicts that the net profit margin has been considerably increased from 9.33 to 11.87 and thus it signify that the company has entered into high risky areas and which can lead to collapse of the business of it is not properly managed (AASB, 2009 ; Anastasia, 2015; Chen, 2017). 

The main way to reduce the risk is to put in place such a system where the company shall have:

• The good corporate governance
• The good and sound internal control system
• The Good monitoring system
• The good leadership team (Gary, 2017, Mao, 2014))

Conclusion And Recommendation

Corporate governance is very important for every type of business. Insurance Australia Group is engaged into the insurance business and with its nature it is more prone to risks and therefore the risks shall be calculated and identified very clearly and properly. In order to conclude, the company shall have the good corporate governance.

It is recommended to identify the risks including the potential risks and ways to mitigate the same.

References

AASB, (2009), “Analytical Procedures – ASA 520”, available on https://www.auasb.gov.au/admin/file/content102/c3/ASA_520_27-10-09.pdf  accessed on 19-04-2018.

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”, available on https://www.accaglobal.com/vn/en/student/exam-support-resources/professional-exams-study-resources/p7/technical-articles/analytical-procedures.html  accessed on 19-04-2018.

Anastasia, (2015), “Financial Statement Analysis : An Introduction” available on https://www.cleverism.com/financial-statement-analysis-introduction/   accessed on 19-04-2018.

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” available on https://www.ifrs.org/Meetings/MeetingDocs/Other%20Meeting/2013/March/AP%203%20conceptual%20framework.pdf  accessed on 19-04-2018

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”, available on https://www.iag.com.au accessed on 19-04-2018.

Cooper S, (2015), “A Tale of Prudence”, available on https://www.ifrs.org/Investor-resources/Investor-perspectives-2/Documents/Prudence_Investor-Perspective_Conceptual-FW.PDF   accessed on 19-04-2018.

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” available on https://leaccountant.com/2014/12/08/asa-300-summary-planning-an-audit-of-financial -statements/  accessed on 19-04-2018

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” available on https://bschool.huji.ac.il/.upload/Seminars/Faithful%20Representation%20October%202014.pdf    accessed on 19-04-2018

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