Corporate Governance Compliance Principles Of Treasury Wine Estates

Adherence to ASX CGC Risk Evaluation Process

The report is focussed on offering an effective attempt in evaluating the corporate governance compliance principles related with ASX (ASX CGC) within Treasury Wine Estates. Along with that, the report intends to recognise the key business along with audit risk of the company as well as the methods to deal with such risks (Abs.gov.au. 2018). Treasury Wine Estates is a renowned Australian organization that has its business operation within wine production, marketing, selling and distribution.  The first section of the report indicates the compliance of Treasury Wines Estates with the principles of ASX CGC and the findings indicates the overall compliance of the company with such principles. The section of the report indicates the details related with regulatory surrounding, industry overview along with the company’s strategies (Albu, Albu and Alexander 2014). The last section of the report encompasses in proposition of certain analytical techniques for the risk reduction.

Auditing can be explained as the process to analyse the financial statements of business organizations for recognising certain material misstatements in them. At the time of statement auditing, the auditors have responsibility in considering the key risk related with material misstatement along with taking vital steps for decreasing them (Asx.com.au., 2018). In addition, Australian Security Exchange (ASX) has offered the organizations with certain principles for implementing better mechanism of corporate governance. All the ASX listed organizations are required to comply with such ASX corporate governance principles. The report focussed on analysing the adherence of AS CGC risk evaluation process along with principles of one of the major ASX listed organizations. For this report, Wine Treasury Estates is selected. The major objective of the wine company is to serve the Australian consumers through sustaining a low-cost production facility with better distribution network.

ASX introduced the “Corporate Governance Council Principles” along with necessary recommendations for facilitating the organizations in focussing greatly on their corporate governance practices (Auasb.gov.au., 2018). The similar feature can be observed in case of Wine Treasury Estates as the organization is also is required to abide by the ASX CGS standard. The discussion below indicates implementation of ASX CGC principles related with Wine Treasury Estates Company:

Principle 1: Based on this principle, the organizations must establish as well as disclosing responsibility and roles of the board along with management (Auasb.gov.au. 2018). This also ensures the ways in which the organization measure and maintain performance monitoring.

(Source: Austrade.gov.au. 2018)

The discussion above indicated that Wine Treasury Estates has maintained roles and responsibilities meant for the company’s board. Along with that, the organization employs balanced scorecard as annual key performance indicator for measuring and monitoring their performance.

Compliance with ASX CGC Principles

Principle 2: The organizations must have boards of suitable size, skills, commitment along with composition for fulfilling all their responsibilities (Brown, Preiato and Tarca 2014). Based on the 2017 annual report of Wine Treasury Estates, the organization has six members within board along with that the organization has offers the necessary skill sets for them.

(Source: Chen, Ding and Xu 2014)

Along with the same, Wine Treasury Estates also discloses the necessary skills, qualifications along with the director’s experience for promoting corporate governance within the organization.

Principle 3: Organizations are needed to act in a highly responsible and ethical manner and within the company existence of an effective structure of policies associated with values as well as code of ethics can be observed (Christensen, Lee, Walker and Zeng 2015). Based on such code of ethics, it is needed for the directors, executives along with other staff to act in an ethical manner.

(Source: Goodacre, Gaunt and Henry 2017)

The organisation has evidenced a code of business conduct along with ethics which is observed within the website of the company and all its employees are required to follow such ethics-based codes. All the organizational employees, key directors and contractors of Wine Treasury Estates are required to sign a compliance certificate that has code of conducts (Firth and Gounopoulos 2017).

Principle 4: Organization must have a formal process in order to safeguarding along with verifying the corporate reporting-based integrity. It can also be observed that Wine Treasury Estates follows the required principles such Corporations Act 2001, Australian Accounting Standard, Australian Accounting Standard Board (AASB), IFRS and IASB to sustaining corporate accounting integrity. All such aspects make sure of the true and fair representation of the accounting statement of Wine Treasury Estates (Howieson 2017). Along with the same, financial managers of the business unit are needed to meet the corporate finance team representations for maintaining an understanding of all the financial aspects of the organization so that the integrity of financial reporting might be maintained.

Principle 5: Organizations might consider maintaining timely along with balanced disclosure of every vital information. It requires to be considered that Wine Treasury Estates has used a long-established structure that can offer important and prompt information to its stakeholders.

(Source: Linnenluecke, Birt and Griffiths 2015)

Principle 6: Organizations are needed to respect the shareholders right through offering them with all the necessary information.

Principle 7: Organizations are needed to maintain an effective risk management structure in order to decrease the risks. Wine Treasury Estates has considered implementing efficient risk management structure for decreasing such risks. The key factors within the risk management structure of Wine Treasury Estates includes audit and risk committee, workplace health, safety along with environment and safety committee with senior management team.

Key Business and Audit Risks of Treasury Wine Estates

(Source: Miller and Oldroyd 2018)

Nature and Market Overview

Wine Treasury Estates is observed to operate within the Australian wine industry and is involved in production, selling, marketing and distribution of wine. Wine portfolio of the company encompass commercial, mistime along with luxury wine brands all over Australia and New Zealand (Miller and Oldroyd 2018). The wine industry of Australia is observed to perform better each year through growth in “masstige” brands that became better by 16% and 20% respectively. This industry is observed to be one of the major Australian industries that attained drastic growth of 0.4% with more than $250 billion revenue. It needs to be mentioned that an increasing number of demands has impacted the overall performance of wine industry.

Regulatory Authority and Strategy

Moreover, Wine Treasury Estates also complies with the Australian Competition and Consumer Commission regulations along with maintaining the regulation of Australian Security and Investment Commission (ASIC). For maintaining effective financial reporting, Wine Treasury Estates abides by the regulations related to Corporations Act 2001, Australian Accounting Standards, International Accounting Standards Board (IASB), International Financial Reporting Standards and Australian Accounting Standards Board (AASB) (Navarro?García and Madrid?Guijarro 2014). Within the business conducts of Wine Treasury Estates, the existence of five vital business strategies were observed. The first strategy considers strengthening along with investing within people and businesses. Second strategy is focused on offering smarter, easier and fine quality wine. The third strategy is to develop the design and adapt to the changing wine business operation environment. The fourth strategy is to ensure quality, taste and variety of finest wines. The fifth strategy is to develop aa positive impact on consumers regarding Wine Treasury Estates.  

Income Statement and Balance Sheet Ratios of Wine Treasury Estates

From analysis of the charts and tables of the company’s ratio indicated above it has been gathered that the net margin of Wine Treasury Estates has attained increased income n the year 2017. This is because of decreased tax along with interest expenses and this is considered within the revenue that has caused the company not to attain enough returns on the shareholders capital amount within the same year. Based on the current and quick ratio analysis, the company’s liquidity position has considerably enhanced as it has produced wine products through suitable anticipation of market demand (Nguyen and Gong 2014). This is carried out by sustaining adequate inventory base.

Wine Treasury Estate Company’s efficiency position is gradually becoming better with years for the reason that the products are released from the inventory base in a rapid manner as observed through analysing the company’s inventory turnover in days. The company considered clearing all its short-term obligations by means of making early payments to all its creditors. From analysing Wine Treasury Estates solvency position it can be gathered that the company is highly relied on debt for attaining its funds for investment. Conversely, it attains enough ability to pay off its finance costs with operating income (Preiato, Brown and Tarca 2015). For this reason, it can be evidenced that Wine Treasury Estates is sustaining its competitive position within Australian wine industry.

Methods to Deal with Business and Audit Risks

Relevant Risks

In annual report of Wine Treasury Estates in the year 2017 has explained certain vital business risks which the organization deal with carrying out the business conducts. Wine Treasury Estates experiences currency risk because of increased fluctuations within international US Dollar price as well as the currency (Schaltegger and Burritt 2017). The effect of certain vital competitive forces such as international local suppliers along with new technologies can be observed in Wine Treasury Estates. This generates the risk related with preparing fine quality wine in suitable climate conditions. Within Wine Treasury Estates, risks can be observed within wine manufacturing services employed by wine companies as absence of such wine maturing locations might affect the revenue of the company.

Another risk is associated with climate change and for the same, the organization has to adhere by certain government regulations for decreasing the effects of the business operations on the business surrounding. Non-compliance with such emulations might generate material impact within the business of Wine Treasury Estates (Tweglobal.com. 2018). Other than these risks, Wine Treasury Estates is deemed to experience three key financial risks such as credit, liquidity and market risk. Credit risk takes place in case the financial instruments fail within their contractual obligations. Within Wine Treasury Estates, the liquidity risk takes place in case the organization does not have enough finds in addressing financial obligations at the time they are due. Wine Treasury Estates also experiences market risks at the time it gets exposed to commodity prices of Wine that rakes place from the sales of on contractual basis. These are vital risks within Wine Treasury Estates.  

Steps to Reduce Risks

After recognition of vital business along with audit risks, it is needed to maintain procedures for dealing ith such risks. It can also be gathered that Wine Treasury Estates has maintained risk along with audit committee in dealing with such risks (Schaltegger and Burritt 2017). This committee analyses the financial reporting system, internal control along with risk management process in development of several risk management strategies. In addressing the credit risk, Wine Treasury Estates has developed aa policy for approval of credit considering which the organization evaluates its new consumers in supervising their credit worthiness. In order to decrease the credit risks associated with derivatives, Wine Treasury Estates has sustained counterparty policy of credit risk. In addition, for dealing with the liquidity risks, Wine Treasury Estates considers attaining enough cash with bank balances with reserve borrowing abilities. This also considers regularly anticipating the forecast and real cash flows (Schaltegger and Burritt 2017). In order to decrease the market risk, Wine Treasury Estates has implemented a hedging strategy. In addition, for decrease in the audit risk, the organization is needed to implement analytical processes. For this reason, the strategy of Wine Treasury Estates is to implement the technique of “Account Balance Comparison”. This can facilitate the organization in comparing the amounts if trail balance in comparison to adjusted trail balance.

Analytical Techniques for Risk Reduction

Conclusion

The report focussed on analysing the adherence of AS CGC risk evaluation process along with principles of one of the major ASX listed organizations. For this report, Wine Treasury Estates is selected. It was gathered from the report that ASX introduced the “Corporate Governance Council Principles” along with necessary recommendations for facilitating the organizations in focussing greatly on their corporate governance practices. The similar feature can be observed in case of Wine Treasury Estates as the organization is also is required to abide by the ASX CGS standard. Moreover, Wine Treasury Estates needs to abide by certain vital regulations at the time of carrying out their business operations.

References

Abs.gov.au., 2018. Building and Construction – Australian Bureau of Statistics. [online] Available at: https://www.abs.gov.au/building-and-construction [Accessed 27 Apr. 2018].

Albu, C.N., Albu, N. and Alexander, D., 2014. When global accounting standards meet the local context—Insights from an emerging economy. Critical Perspectives on Accounting, 25(6), pp.489-510.

Asx.com.au. (2018). Corporate Governance Principles and Recommendations. [online] Available at: https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-recommendations-3rd-edn.pdf [Accessed 27 Apr. 2018].

Auasb.gov.au. (2018). Auditing Standard ASA 520 Analytical Procedures. [online] Available at: https://www.auasb.gov.au/admin/file/content102/c3/ASA_520_27-10-09.pdf [Accessed 27 Apr. 2018].

Austrade.gov.au. (2018). Australian business and environment laws – Austrade . [online] Available at: https://www.austrade.gov.au/International/Invest/Guide-to-investing/Running-a-business/Understanding-Australian-business-regulation/Australian-business-and-environment-laws [Accessed 27 Apr. 2018].

Brown, P., Preiato, J. and Tarca, A., 2014. Measuring country differences in enforcement of accounting standards: An audit and enforcement proxy. Journal of Business Finance & Accounting, 41(1-2), pp.1-52.

Chen, C.J., Ding, Y. and Xu, B., 2014. Convergence of accounting standards and foreign direct investment. The International Journal of Accounting, 49(1), pp.53-86.

Christensen, H.B., Lee, E., Walker, M. and Zeng, C., 2015. Incentives or standards: What determines accounting quality changes around IFRS adoption?. European Accounting Review, 24(1), pp.31-61.

Firth, M. and Gounopoulos, D., 2017. IFRS adoption and management earnings forecasts of Australian IPOs.

Goodacre, A., Gaunt, C. and Henry, D., 2017. Publication Records of Australian Accounting and Finance Faculty Promoted to Full Professor, Set within an International Context.

Howieson, B., 2017. The Phoenix Rises: The Australian Accounting Standards Board and IFRS Adoption. Journal of International Accounting Research, 16(2), pp.127-154.

Linnenluecke, M.K., Birt, J. and Griffiths, A., 2015. The role of accounting in supporting adaptation to climate change. Accounting & Finance, 55(3), pp.607-625.

Miller, A.D. and Oldroyd, D., 2018. An Economics Perspective on Financial Reporting Objectives. Australian Accounting Review, 28(1), pp.104-108.

Navarro?García, J.C. and Madrid?Guijarro, A., 2014. The influence of improvements in accounting standards on earnings management: The case of IFRS. Australian Accounting Review, 24(2), pp.154-170.

Nguyen, A.T. and Gong, G., 2014. Measurement of formal convergence of Vietnamese accounting standards with IFRS. Australian Accounting Review, 24(2), pp.182-197.

Preiato, J., Brown, P. and Tarca, A., 2015. A comparison of between?country measures of legal setting and enforcement of accounting standards. Journal of Business Finance & Accounting, 42(1-2), pp.1-50.

Schaltegger, S. and Burritt, R., 2017. Contemporary environmental accounting: issues, concepts and practice. Routledge.

Tweglobal.com., 2018. [online] Available at: https://www.tweglobal.com/-/media/Files/Global/Annual-Reports/2017-Annual-Report.ashx [Accessed 3 May 2018].

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