Audit, Assurance and Compliance - Assignment PDF

Running head: AUDIT, ASSURANCE AND COMPLIANCE
Audit, Assurance and Compliance
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1AUDIT, ASSURANCE AND COMPLIANCE
Executive Summary:
The current report intends to assess the adherence to the ASX CGC principles and
process of assessment of an ASX listed entity. In order to fit the purpose of this report, Orica
Limited is selected as the organisation, which is one of the biggest global providers of blasting
systems and commercial explosives. Orica Limited has adhered to all the “ASX CGC Principles
and Recommendations” by implementing various strategies such as formation of board, effective
remuneration structure, code of conduct, timely revelation, risk realisation and management and
others. Some major risks are inherent in the business operations of Orica and they include credit
risk, liquidity risk, market risk, risk related to digital innovation and others. For this reason, the
organisation has undertaken certain steps like hedging, financial statement analysis and others
for mitigating the above-stated risks. Finally, it has been found out that Orica Limited is
maintaining stable financial position and performance in the Australian market.

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Table of Contents
1. Introduction:................................................................................................................................3
2. ASX Corporate Governance Principles and adherence of Orica Limited to these principles:....3
3. Risk assessment of Orica Limited:............................................................................................12
3.1 Nature and market overview:...............................................................................................12
3.2 Regulatory authority and the business strategy of Orica Limited:......................................12
3.3 Income statement and balance sheet ratios and common size financial statements:...........13
3.4 Relevant audit risks of Orica Limited and steps to minimise risk:......................................18
4. Conclusion:................................................................................................................................19
References:....................................................................................................................................20

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1. Introduction:
Auditing is the procedure of investigating the financial reports of the business
organisations for determining the material misstatements. When the financial statements of an
entity are audited, the auditors need to consider the primary risks related to material
misstatements and steps need to be taken for minimising them. In this context, ASX has
formulated eight corporate governance principles for the Australian entities to ensure sound
mechanism of corporate governance (Asx.com.au 2018).
This report intends to assess the adherence to the ASX CGC principles and process of
assessment of an ASX listed entity. In order to fit the purpose of this report, Orica Limited is
selected as the organisation, which is one of the biggest global providers of blasting systems and
commercial explosives. The primary business activities of the organisation include providing the
above products to quarrying, oil and gas, mining and construction, supplying sodium cyanide for
extracting gold along with providing ground support services in tunnelling and mining
(Orica.com 2018).
2. ASX Corporate Governance Principles and adherence of Orica Limited to these
principles:
“ASX CGC Principles and Recommendations” have been introduced in 2003 so that the
companies ensure sound practices of corporate governance. Orica Limited is no exception to this
aspect, since it has to adhere to these standards. The below-stated discussion would evaluate the
effectiveness of Orica Limited in complying with the “ASX CGC Principles and
Recommendations”:

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Principle 1:
According to this principle, an organisation needs to establish and disclose
responsibilities and roles of the management and directors along with measuring and monitoring
its performance.
The above figures denote that Orica Limited has disclosed the roles and responsibilities
of its board. Moreover, the organisation uses the balanced scorecard approach of yearly major
performance indicators for monitoring and measuring performance.
Principle 2:
It is necessary for the organisations to have boards with suitable skills, size, composition
and commitment for performing their duties effectively (Baylis et al. 2017). In accordance with

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the annual report and corporate governance statement of Orica Limited, it has seven board
members and their skills sets are disclosed appropriately.
Along with this, Orica Limited has disclosed previous experience and skills of their
directors for ensuring sound corporate governance within the organisation.

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Principle 3:
The business entities are needed to serve responsibly and ethically to comply with this
principle. In Orica Limited, it has formulated suitable framework of policies associated with
values and code of conduct. In order to comply with the code of ethics, the directors, staffs and
other executives require acting ethically.

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Principle 4:
It is necessary for the organisations to have formal procedures in order to safeguard and
verify the integrity of corporate reporting (Chambers and Odar 2015). It could be observed that
CSR Limited has conformed to the principles such as AASB, IFRS, IASB and Corporations Act
2001 for ensuring corporate reporting integrity. All such aspects assure fair and true depicting of
the accounting statements of Orica Limited. Besides, the managers of the business unit meet with
the representatives of the team of corporate finance for obtaining an overview of the financial

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aspects of the organisation in order to maintain financial reporting integrity (Duncan and
Whittington 2014).
Principle 5:
This principle requires all the crucial information of the business organisations to be in
balanced and timely manner (Griffiths 2016). In case of Orica Limited, the organisation has
enforced a long-term framework for providing timely and pertinent information to all the
stakeholders.
Principle 6:
The organisations are needed to maintain the shareholders’ rights by delivering them with
all the necessary information (Jones et al. 2017). In this regard, it is noteworthy to mention that
the market disclosure policy of Orica Limited assures timely supply of crucial information to the
shareholders. This has helped the shareholders in undertaking timely investment decisions.
Principle 7:

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This principles states that every ASX listed organisation is needed to mitigate their risks
through the formation of a sound framework for risk management. In order to adhere to this
principle, Orica Limited has formulated suitable policies and procedures so that it could monitor
its business risks. The four primary factors in the risk management framework of Orica Limited
include Risk Committee, Annual Risk Review, Internal Audit and Sustainability Risk.

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Principle 8:

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As per this principle, fair remuneration needs to be paid to the directors for attracting and
retaining them to assure the organisational benefits (Marques 2018). In addition, the
organisations need to align their interests with those of the shareholders. Orica Limited has
developed its remuneration framework effectively to retain its directors. The remuneration
framework of the organisation comprises of short-term and long-term incentives along with fixed
remuneration.

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3. Risk assessment of Orica Limited:
3.1 Nature and market overview:
Orica Limited is an ASX listed organisation involved in providing blasting systems and
commercial explosives to the various industrial sectors of the nation. As it falls under the mining
sector, this industry has generated $356 billion in the form of revenue with a growth rate of 0.4%
in 2017 (Vasarhelyi, Alles and Kogan 2018). In addition, this sector has employed nearly
990,000 employees with approximately 3,000 businesses in the nation. However, it has been
identified that the divergent demand has direct impact on the overall sector performance of the
nation. Due to this, the profitability of this sector has improved.
3.2 Regulatory authority and the business strategy of Orica Limited:
Orica Limited needs to comply with few significant regulations at the time of carrying
out business operations. These regulations include the following:
 Australian Competition and Consumer Commission
 Australian Security and Investment Commission ( ASIC)
 Australian Consumer Law
 Fair Trading Law
 Australian Accounting Standards Board (AASB)
 International Accounting Standards Board (IASB)
 International Financial Reporting Standards (IFRS)
Upon critical evaluation of the annual report of the organisation, it has been evaluated that
Orica Limited has adhered to all the above standards. The organisation follows five significant
business strategies. The first strategy is to make investments in the business along with

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strengthening the shareholders. The second strategy is to provide rapid, easier and smarter
building solutions. The third strategy is to affect design along with adapting the varying ways of
business. The fourth strategy is to ensure the improvement of the products by enhancing its
quality and efficacy. The final strategy is to develop positive impact on the minds of the
customers regarding the organisation.
3.3 Income statement and balance sheet ratios and common size financial statements:
Income statement and balance sheet statement ratios:
2016 2017
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
6.74% 7.66%
16.58%
14.94%
Profitability Ratios
Net margin
Return on capital
employed (ROCE)

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2016 2017
-
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
0.99
1.38
0.67
0.96
Liquidity Ratios
Current ratio
Quick ratio

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2016 2017
-
20.00
40.00
60.00
80.00
100.00
120.00
140.00
89.72 86.46
130.29 128.95
Efficiency Ratios
Inventory turnover (in
days)
Payables turnover (in
days)
2016 2017
-
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
0.80 0.85
7.28
8.20
Solvency Ratios
Debt-to-equity ratio
Interest coverage ratio
Common-size financial statements:

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Revenue Gross profit Net profit
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
-1.04%
-0.35%
12.54%
Percent increase/decrease in
common size income statement

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Total assets Total liabilities Total equity
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
2.87%
0.24%
6.47%
Percent increase/decrease in
common-size balance sheet
statement
According to the above tables and figures, it is inherent that the net margin of Orica
Limited has earned greater income in 2017 due to the lowering amount of tax expense and
interest expense. However, the fall in revenue has restricted the organisation to earn adequate
returns on the capital amount of the shareholders in the same year. As per the current ratio and
quick ratio, the liquidity position of the organisation has improved significantly, since it has
produced goods by accurate estimation of market demand. This is mainly conducted by
maintaining appropriate inventory base (Mock, Ragothaman and Srivastava 2018).
The efficiency position of the organisation has improved significantly, as the products are
released from inventory base at a faster rate, as evidenced from inventory turnover (in days). It
has started to clear its short-term obligations by making early payments to its creditors. From the
viewpoint of solvency, it could be observed that the organisation is highly dependent on debt for
raising its funds. However, it possesses adequate capability to meet its finance cost with
operating income. Hence, it could be inferred that Orica Limited is maintaining healthy financial
position in the Australian market.

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3.4 Relevant audit risks of Orica Limited and steps to minimise risk:
Audit risks of Orica Limited:
According to the annual report of 2017, global currency risk due to the fluctuations n
USD is one of the significant risks for Orica Limited (Orica.com 2018). The impact of
significant competitive forces such as global and domestic suppliers along with new technology
could be observed on Orica. This leads to replacement risk for the organisation. In Orica
Limited, risk could be observed in terms of digital services that the mining firms use, since
absence of digital services could minimise the revenue of the organisation. Another risk is
associated with climate change and energy and Orica needs to adhere to the government
regulations for minimising the impact of business operations on the environment. If these
regulations are not followed, material effects on the business are bound to occur.
Besides these risks, Orica is encountered with liquidity risk, credit risk and market risk
Orica would face liquidity risk, if it does not have adequate funds to meet the short-term dues
and obligations. Credit risk would occur when there is failure on the part of the customers to
meet their contractual obligations (Schmidt, Wood and Grabski 2016). Market risk is inherent in
Orica at the time there is exposure of the organisation to the aluminium prices arising from
contract-based sales.
Steps to minimise the identified risks:
As identified, Orica Limited has developed audit committee and risk committee to deal
with the various kinds of risks. For this, the audit and risk committee reviews internal control,
reporting system and system of risk management to formulate effective strategies. It has
developed credit approval policy for evaluating the new customers to investigate their credit

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worthiness so that the credit risk is mitigated. For dealing with the liquidity risk, adequate cash
and bank balances along with reserves are maintained to monitor the actual and forecasted cash
flows (Orica.com 2018). The market risk is minimised through hedging strategy and for
minimising the overall audit risk, analytical procedures need to be developed. In this context, the
implementation of the method of account balance comparison, which would help the auditors to
contrast the amounts in trial balance with adjusted trial balance. Finally, the auditors could
conduct regression analysis in order to minimise the audit risk.
4. Conclusion:
Based on the above discussion, it could be stated that Orica Limited has adhered to all the
“ASX CGC Principles and Recommendations” by implementing various strategies such as
formation of board, effective remuneration structure, code of conduct, timely revelation, risk
realisation and management and others. Some major risks are inherent in the business operations
of Orica and they include credit risk, liquidity risk, market risk, risk related to digital innovation
and others. For this reason, the organisation has undertaken certain steps like hedging, financial
statement analysis and others for mitigating the above-stated risks. Finally, it has been found out
that Orica Limited is maintaining stable financial position and performance in the Australian
market.

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References:
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 3 May. 2018].
Baylis, R.M., Burnap, P., Clatworthy, M.A., Gad, M.A. and Pong, C.K., 2017. Private lenders’
demand for audit. Journal of Accounting and Economics, 64(1), pp.78-97.
Chambers, A.D. and Odar, M., 2015. A new vision for internal audit. Managerial Auditing
Journal, 30(1), pp.34-55.
Duncan, B. and Whittington, M., 2014, September. Compliance with standards, assurance and
audit: does this equal security?. In Proceedings of the 7th International Conference on Security
of Information and Networks (p. 77). ACM.
Griffiths, P., 2016. Risk-based auditing. Routledge.
Jones, K.K., Baskerville, R.L., Sriram, R.S. and Ramesh, B., 2017. The impact of legislation on
the internal audit function. Journal of Accounting & Organizational Change, 13(4), pp.450-470.
Marques, R.P.F., 2018. Continuous Assurance and the Use of Technology for Business
Compliance. In Encyclopedia of Information Science and Technology, Fourth Edition (pp. 820-
830). IGI Global.
Mock, T.J., Ragothaman, S. and Srivastava, R.P., 2018. Using Evidential Reasoning Technology
to Enhance the Audit Quality Assurance Inspection Process. Journal of Emerging Technologies
in Accounting.

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Orica.com., 2018. Orica Company Reports. [online] Available at:
http://www.orica.com/Investors/company-reports#.WuqiR_lubIU [Accessed 3 May 2018].
Orica.com., 2018. Orica Governance. [online] Available at:
http://www.orica.com/About-Us/Governance#.Wurh3_lubIU [Accessed 3 May 2018].
Schmidt, P.J., Wood, J.T. and Grabski, S.V., 2016. Business in the Cloud: Research Questions
on Governance, Audit, and Assurance. Journal of Information Systems, 30(3), pp.173-189.
Vasarhelyi, M.A., Alles, M.G. and Kogan, A., 2018. Principles of analytic monitoring for
continuous assurance. In Continuous Auditing: Theory and Application (pp. 191-217). Emerald
Publishing Limited.