ASX Corporate Governance Council’s Principle: Clear Roles and Responsibilities of Board and Management
JB Hi-Fi is a widely recognized Australian retailer of consumer goods specializing in providing electronics consumers products such as home appliances, mobile phones, video games and others. The company is listed on ASX and therefore has to comply effectively with the corporate governance statement rules in accordance with the council principles and recommendations. The compliance of the company in accordance with the ASX CGC principles is carried out as follows:
This CGC principle of ASX has stated that business companies need to establish clear roles and responsibilities of the board and management. The primary role of Board as per the ASX principle is to create long-term value for the shareholders. Board is responsible for providing detailed information of the company performance to the shareholders and thus managing the business operations on their behalf. In this context, the Board overviews the company’s operations to ensure that all the procedures are carried out in an ethical and honest manner. The Chief Executive Officer, top management of the company, is accountable directly to the Board and holds the responsibility to manage, direct and promote the profitable growth and development of the company. In addition to this, as per ASX principles, the company also carries out regular monitoring of the Board performance and its various committees for ensuring that board carries out its function independently. Board has also established its nomination committee for selection, appointment and continuous evaluation of the performance of Chief Executive Officer ( ASX Corporate Governance Council, 2014).
The company in accordance with this ASX corporate governance principle should develop a board having an adequate size, composition, skills and commitment for carrying out its duties in an appropriate manner. Board composition consists of different members having required skills, knowledge and competency to effectively carry out their assigned duties and responsibilities. This ensures that there is presence of strong governance and decision-making within the company. There is presence of majority of non-executive directors in the Board including Chairman and six directors and executive directors that is CEO of the company. The board members excepting the CEO is re-elected by the shareholder on an average time-period of 3 years.
The company in response to this ASX principle ensures that there it carries out its business operations in a sustainable manner. It adopts the use of sustainable business practices for ensuring that it is responsible and ethical towards its stakeholders. It has developed an appropriate code of conduct to ensure that all its employees and business leaders comply with highest ethical standards in carrying out their roles and responsibilities. The code of Conduct provides guidance to the employees and the management regarding the acceptable behavior within the workplace and that should be maintained by them. The code of conduct is defined on the basis of the company and the employee separately. The code of conduct in relation to the company is providing a safe work environment, protecting employee rights, respecting customers and complying with all the relevant laws and regulations. In context of an employee, the code of conduct is to treat every customer with honesty, performing the job roles effectively, work accordance with the standard policies and laws and contribute actively towards the fulfillment of the company long-term objectives.
ASX Corporate Governance Council’s Principle: Adequate Board
The corporate governance statement of the company also discloses that the company has effectively recognized the importance of being responsible towards its shareholders, employees, suppliers and customers. It has developed effective programs for supporting the community development. In addition to this, the company has also disclosed its environmental statement provides a complete overview of all the measures taken by it to promote environment sustainability (JB Hi-Fi Limited, 2015).
As analyzed from its corporate governance statement, the company has implemented effective controls to ensure the presence if integrity in its financial reporting. This is essential so that the company complies with all the regulations in relation to corporate reporting. The corporate reports are developed as per the Corporations Act and ASX recommendations to ensure the presence of reliability and accuracy in the financial reports developed. The general purpose financial statements are developed as per the relevant accounting standards for providing a fair view of its financial position.
As per the ASX corporate governance principle, JB Hi-Fi seeks to make timely and balanced disclosure of all the materialistic information having an impact on the securities prices. In this context, the company annually prepares and discloses its financial results by the general purpose financial statements developed in accordance with the AASB standards. In addition to this, it also discloses non-financial information related to its sustainability measures in the sustainability report. This is because the sustainability performance has a large impact on the trust and belief of the stakeholders and therefore impacts the price value of the securities. The increases trust and confidence of the investors would promote them to make greater investment in the company and thus support their decision-making process (JB Hi-Fi Limited, 2015).
This ASX CGC principle directs the business entities to respect the right of the security holders through disclosing them adequate information so that they are able to exercise their rights effectively. In this context, JB Hi-Fi board has developed and implemented a Securities Trading Policy that has defined the rules and procedures applicable to the directors, officers and employees involved in trading of its securities. The website of the company also provides detailed information about the overview of the company performance. The investor section on the website provides detailed information to the shareholders in relation to market announcements, its dividend policy and other relevant details. The share registry of the company electronically provides finromtaion to the shareholders and thus gives them an opportunity for managing their account details and holdings (Plessis, McConvill and Bagaric, 2005).
ASX Corporate Governance Council’s Principle: Ethical and Responsible Practices
The company has also in place effective risk management policies for balancing the risk and reward to meet appropriately the shareholder expectations. The Audit and Risk Management Committee developed by the company works in order to ensure that all the business risk are mitigated properly for ensuring the protection of its people, environment and the assets of the company. The risk management framework developed by the company is in accordance with the ISO 31000 for enabling the company to identify and manage the risk properly (JB Hi-Fi Limited, 2015).
The company in accordance with these ASX principles has developed fair and responsible remuneration policies for attracting and retaining high quality directors. This is done to ensure that executive remuneration policies are able to attract, retain and motivate high quality senior executives for creating value for the security holders. For this purpose, the board has developed a remuneration committee for assisting in developing remuneration for executive nod non-executive directors (JB Hi-Fi Limited, 2015).
The Auditing and Assurance Standards Board (AUASB) has developed the auditing standard ASA 520 to be applicable in ASX listed entities for development of analytic procedures to identify the audit risk. The analytic procedures includes investigating the necessary fluctuations that reports inconsistency with the other relevant information (Auditing and Assurance Standards Board, 2009). The risk assessment procedures in accordance with the auditing standard applied by JB Hi-Fi can be evaluated as follows:
The company is listed on ASX and is publicly traded and conducts its operations across Australia and New Zealand through its various subsidiaries. As such, the company in accordance with the principle of consolidation develops and publishes its consolidated financial statements that provide integrated information about its performance as a single economic entity.
The company carries out its operations across Australia and New Zealand and as such has to comply with the AASB standard and Corporations Act 2001 for development and presentation of its general purpose financial statements. The auditors as such need to ensure that all the financial statement are developed as per the standard accounting policies and regulations (JB Hi-Fi Limited, 2015).
The company aims to become one of the largest entity within Australia involved in providing home entertainment products at economic process and thus attaining a competitive advantage in the consumer goods markets of the country. Therefore, the company aims to protect the interest of the end-users through disclosing them accurate and realistic information about its financial performance. The auditors need to scrutinize the financial performance of the company in accordance with the business strategy for assessing whether it is carrying out its operational activities as per the established strategic goals and objectives (JB Hi-Fi Limited, 2015).
ASX Corporate Governance Council’s Principle: Adequate Disclosure of Information to Shareholders
Income Sheet ratios:
Gross profit margin: Gross profit /Net Sales
Gross Profit (2017) = 1230.5AUD million
Net Sales (2017) = 5628AUD million
Gross profit margin Ratio = 21.86%
Net profit margin = Net Profit/Net Sales
Net Profit (2017) = 172.4AUD million
Net Sales (2017) = 5628 AUD million
Net profit margin Ratio = 3.06%
Balance Sheet Ratios
Current Ratio: Current Assets/Current Liabilities
Current Assets (2017) = 1170.7AUD million
Current liabilities (2017) = 885.8AUD million
Current Ratio (2017) =1.32 times
Debt Equity Ratio = Debt/Equity
Debt (2017) = 558.8 AUD million
Equity (2017) = 853.5AUD million
Debt Equity Ratio (2017) = 0.65
The computation of income sheet and balance sheet ratios will help the auditors to assess the financial risk that can have an impact on its materialistic information (JB Hi Fi Limited: Annual Report, 2017).
Audit Risk
There are three main types of audit risk present within the company that can have a materialistic impact on its performance. These are as follows:
Inherent Risk: This type of audit risk refers to the presence of risk within the company due to the occurrence of any uncertainty in the internal operations. The identification of this type of risk involves developing a clear audit plan, audit approach and audit strategy.
Detection Risk: The risk present within a company due to inaccurate results provided by the auditors as a result of the auditing process. This may occur due to poor planning of the audit process that can cause the failure to detect the misstatement in the financial information. The risk can occur due to inappropriate analysis of the financial statement, methodology and the overall financial reporting system of the company.
Control Risks: The risk can occur due to failure of the auditors o asses whether the employee numbers reported by the company are accurate or not. This depends on the effectiveness of the internal control risk procedures adopted by the company. The auditors need toe examine their effectiveness for providing the correct financial information to the auditors for assessment (Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment, 2018).
The above audit risk can be minimized by the auditors to a large extent through implementation of accurate risk assessment procedures. The inherent risk can be reduced through development of an effective audit plan in accordance with the business strategy. The auditors need to develop an appropriate approach of risk analysis that is able to accurately evaluate the procedures implemented by the company to prevent the occurrence of any risk. Jb Hi-Fi has developed an audit and risk management committee for management of the financial risk such as interest rate risk, liquidity risk and foreign exchange risk that can have an impact on the materialistic information. The detection risk can be reduced by the audit team by ensuring that the company has implemented the accounting standards and policies for development of its general purpose financial statements. Lastly, the control risk can be reduced through ensuring that the company has adopted an effective internal control framework for minimizing the chances of occurrence of any type of financial risk (Bazley, Hancock and Robinson, 2014).
Conclusion
It can be stated from the overall discussion held in the report that it is very essential for a company to implement the proper corporate governance policies and risk assessment procedures to ensure its long-term growth and development. Jb Hi-fi has complied effectively with the ASX CGC principles and also adopted appropriate procedures of risk assessment to control the audit risk.
References
ASX Corporate Governance Council. 2014. [Online]. Available at: https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-recommendations-3rd-edn.pdf [Accessed on: 23 April 2018].
Auditing and Assurance Standards Board. 2009. 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 on: 22 April 2018].
Bazley, M., Hancock, P. and Robinson, P. 2014. Contemporary Accounting PDF. Cengage Learning Australia.
Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment. 2018. [Online]. Available at: https://auditinghelp.com/identifying-and-assessing-the-risks-of-material-misstatement-through-understanding-the-entity-and-its-environment-13914 [Accessed on: 22 April 2018].
JB Hi-Fi Limited. 2015. [Online]. Available at: https://member.afraccess.com/media?id=CMN://3A427325&filename=20150810/JBH_01648937.pdf [Accessed on: 22 April 2018].
Plessis, J., McConvill, J. and Bagaric, M. 2005. Principles of Contemporary Corporate Governance. Cambridge University Press.
JB Hi Fi Limited. 2017. Annual Report. [Online]. Available at: https://www.jbhifi.com.au/Documents/2017%20Annual%20Report.pdf [Accessed on: 22 April 2018]
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