Analysis of Corporate Governance Principles and Audit Risk in Scentre Group

This report examines the implementation of ASX Corporate Governance Principles within Scentre Group, a publicly listed company in Australia and New Zealand. It analyzes the company's corporate governance framework, focusing on the board's responsibilities, ethical decision-making, financial reporting integrity, and shareholder rights. The report also delves into the audit risk assessment process, identifying potential risks to the company's financial reporting and suggesting steps to mitigate those risks. The analysis includes a review of the company's market overview, business strategy, and internal control system. The report concludes by highlighting the importance of a strong corporate governance framework and effective audit risk management in ensuring the company's long-term sustainability and success.

HI – 6026 Auditing, assurance and
compliance
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Executive Summary:
The corporate governance in a company refers to the set of standards which must be followed in
the company in order to ensure a sound and healthy corporate environment. The corporate
governance framework developed in the company reflects the way directors are committed to
their work and considers the interest of all the stakeholders of company. The principles paid
down in context of sound corporate governance helps in evaluating the hierarchy of standards
with which the senior management is working in the company. The report will be in context of
the analysis of corporate governance principles and analysing the quality of audit work
conducted in the company in respect of recognizing the audit risk matters affecting the continuity
of business operations. The audit risk strategy will be analysed and suggested in this report.
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Contents
Executive Summary:........................................................................................................................2
Introduction:....................................................................................................................................4
Content:............................................................................................................................................5
Implication of ASX Corporate Governance Principles in Scentre Group:..................................5
Risk assessment of the company:.................................................................................................8
Conclusion:....................................................................................................................................10
References:....................................................................................................................................11
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Introduction:
The report will include the explanation about various corporate governance principles which
guides the framework of corporate governance implemented in the company. The principles will
be evaluated in context of a company Scentre Group which is one of the ASX listed company
and has been operating its business operations in Australia and New Zealand. The report will
also include the analysis of audit risk matters which are considered by the auditor while
managing the audit risk in the company and suggesting potential steps in order to reduce or
minimize the audit risk concerned. The overall report will guide the behaviour of the auditor.
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Content:
Implication of ASX Corporate Governance Principles in Scentre Group:
Principle 1: Lay solid foundations for management and oversight – This principle reflects
the responsibility of the board to manage the business operations effectively and taking charge if
their duties appropriately.
Implication in context of Scentre Group: By referring to the corporate governance statement it
can be seen that the board of Scentre Group is responsible for taking charge and responsibility of
the management and operations of the company (Annual Report, 2017). The framework
developed in context of corporate governance is helpful in ensuring the accountability and
balance of authority within the board. The key responsibilities of the board are set out
appropriately and clearly. The board committee has set out the list of members as presented
below:
(Source: Annual report, 2017)
Principle 2: Structure the Board to add value – The second principle establishes the
responsibility of the board to add value to the wealth of the shareholders and ensuring that the
appropriate members are appointed within the committee of the board.
Implication in context of Scentre Group: The Company has created a nomination committee
which is responsible for supporting and making recommendation to the board for appointment
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and selection of directors who will be able to meet the requirements of the job. A board skill
matrix has been developed in order to set out the skills criteria required and the same includes
quality of leadership, analytical skills, financial skills etc. Also the members are committed to
ensure independence during their job (Armstrong, et. al., 2015).
Principle 3: Promote ethical and responsible decision-making – The Company is required to
set a code of conduct under which all the members should act.
Implication in context of Scentre Group: The group has developed a code of conduct which
requires the directors to act fairly, honestly and with due integrity during their work performed.
The ethical responsibilities include acting with integrity, acting as an owner while working
together, pushing the limits and never giving up.
Principle 4: Safeguard integrity in financial reporting – The principle states the importance
of maintaining integrity in financial and corporate reporting of the company in order to achieve
better decision making.
Implication in context of Scentre Group: The board has established an audit and risk
committee which is responsible for overseeing the integrity with which the financial statements
and other reports are developed in the company and checking the internal control and other
compliances within the company. The external auditor monitoring is regularly reviewed in the
company.
Principle 5: Make timely and balanced disclosure – This will make sure that adequate and
timely disclosures regarding the material information about the company is presented in the
reports published (Armstrong, et. al., 2015).
Implication in context of Scentre Group: The Company has been committed to its security
holders for providing timely and comprehensive data which will help them in making correct
decisions. It has developed a continuous disclosure and communication policy which ensures
that the stockholders and the market get the required and relevant information all the time.
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Principle 6: Respect the rights of shareholders – The principle requires the board to respect
and identify the rights of the shareholders and providing them with adequate facilities to perform
these rights.
Implication in context of Scentre Group: On the company’s corporate website a section has
been provided with investor relation in which various types of information has been provided for
assisting the shareholders in exercising their rights in the company (Annual Report, 2017). Also
the electronic communications has been used to motivate and encourage the participation of
shareholders in general meeting of the company.
Principle 7: Recognize and Manage risk – The principle is related with recognizing the
significance of dealing with risk matters of the company and managing them appropriately for
ensuring continuous business operations.
Implication in context of Scentre Group: The Company has established a risk committee
which is undertaking the work of managing the business risk matters which can affect the
operational capability of the company. The risk committee includes the members for overseeing
the exposures related with those risks.
Principle 8: Remunerate fairly and responsibly – The principle is associated with human
resource matters in which appropriate remuneration policy must be developed by the company in
order to retain its efficient employees (Tricker & Tricker, 2015).
Implication in context of Scentre Group: A human resource committee gas been developed by
the company in order to develop and strategize the appropriate remuneration policy which can
attract and retain the efficient executives and can help in remunerating them fairly and
responsibly based on their quality and ,amount of work performed.
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Risk assessment of the company:
The company market overview: The market overviews of the company are sound reflecting the
opportunities for growth in concerned industry. The company has generated an increase in the
net profits after tax which has resulted in sound prospects of the company to diversify its
business operations.
Business strategy: The business strategies of the company has four main priorities consisting of
asset management activities which are concerned with preserving the assets of the company,
building a quality retail product and experiencing high quality customer experiences,
developments in respect of the diversified business operations and managing the capital structure
and capital assets of the company (Annual Report, 2017).
Relevant Audit risk: - The relevant audit risk of the company which will be considered for audit
purposes consists of the inability of the company to identify and recognize the risk of material
misstatement which can affect the quality of financial reporting of the company. The integrity of
financial reporting is the responsibility of management but the recognition of possible risk of
errors in those financial statements is being considered to be the work of auditor.
Internal control analysis – The management has developed a system of internal control which
will be helpful in maintaining the sound culture and financial reporting within the company. The
auditor will be responsible for assessing the type of internal control and evaluating the
effectiveness with which it is operating in the company.
Scentre Group
Calculation of Ratios
Sr.
No.
Particular Year 2017 ($ m) Year 2016 ($ m)
1 Current Asset 489.000 793.100
2 Current Liabilities 2704.700 2212.900
3 Working capital -2215.700 -1419.800
4 EBIT 4287.100 3051.100
5 Retained Earnings 165.900 178.900
6 Total Asset 37415.600 33985.200
7 Shareholder Equity 22781.300 19754.400
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8 Total Debt 14634.300 14230.800
9 Net sales 2469.600 2520.700
Working Capital/Total
Assets
-0.06 -0.04
Retained Earnings/Total
Assets
0.00 0.01
EBIT/Total Assets 0.11 0.09
Shareholder Equity/Total
Debt
1.56 1.39
Sales/ Total Asset 0.07 0.07
The potential steps to reduce the risk associated with the financial statements:-
The same will include the following:
 Identification and assessment of fraud risk factors and risk of material misstatement
which can happen in the company.
 Assessing and evaluating the exposure with which they can incur in the company and the
harm it can do to the company (Tricker & Tricker, 2015).
 Identifying the effectiveness with which the internal control is operating within the
company.
 Establishing the audit risk measurement procedures and identifying the nature, timing and
extent of audit procedures required.
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Conclusion:
It can be concluded that the auditing and assurance work in the company will be related to the
evaluation of audit risk procedures which have been applied in the company and analysing the
corporate governance prevailing in the company. The principles of corporate governance helps in
establishing the various standards which shall be adopted for maintain a sound framework of
management in the company. The auditor needs to apply appropriate audit procedures and steps
in order to obtain the advantage.
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References:
 Aguilera, R.V., Judge, W.Q. and Terjesen, S.A., 2018. Corporate governance deviance.
Academy of Management Review, 43(1), pp.87-109.
 Annual Report, 2017. Annual Report 2017. Scentre Group [Online]. Also available at
Annual_Financial_Report_2017.pdf [Accessed on 04-05-2018]
 Armstrong, C.S., Blouin, J.L., Jagolinzer, A.D. and Larcker, D.F., 2015. Corporate
governance, incentives, and tax avoidance. Journal of Accounting and Economics, 60(1),
pp.1-17.
 Auditinghelp, 2018. Identifying and Assessing the Risks of Material Misstatement
through Understanding the Entity and Its Environment Auditing Help. Auditing help.
[Online]. Also available at https://auditinghelp.com/identifying-and-assessing-the-risks-
of-material-misstatement-through-understanding-the-entity-and-its-environment-13914.
[Accessed on 04-05-2018]
 Loughran, M., ND. How to follow risk assessment procedures in an audit. Dummies.
[Online]. Also available at http://www.dummies.com/business/accounting/auditing/how-
to-follow-risk-assessment-procedures-in-an-audit/. [Accessed on 04-05-2018]
 Putra, D. L., 2010. The Use of Analytical Procedures In Auditing. Accounting financial
tax. [Online]. Also available at http://accounting-financial-tax.com/2010/04/the-use-of-
analytical-procedures-in-auditing/. [Accessed on 04-05-2018]
 Transurban.com.au. 2018. [online] Available at:
https://www.transurban.com.au/content/dam/transurban-pdfs/02/corporate-governance/
Corporate_Governance_Statement.pdf [Accessed 04-05-2018].
 Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and
practices. Oxford University Press, USA.
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