Audit, Assurance & Compliance Assignment

Audit, Assurance & Compliance
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Executive Summary
JB Hi-Fi, an ASX listed entity need to develop its governance policies as per the ASX
Council principles and procedures adopted by auditors to analyze the risk of material misstated
as per the ASA 520. As such, the report analyses the corporate governance statement and
implements the use of analytical procedure for identifying the risk of material misstatement if
any in JB Hi-Fi, an ASX listed entity. It has been depicted from the overall analysis carried out
the company has effectively comply with the ASX corporate governance principles and also take
active measures for minimizing the occurrence of material misstatement risks.
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JB Hi-Fi Compliance with ASX Council Governance Framework
ASX Council has mandated to all the business companies that are listed on stock
exchange for developing and presenting their governance policies and guidelines. This is mainly
done by ASX for increasing transparency and reliability in the business operations and meeting
the different needs and expectations of the stakeholders. In this context, JB Hi-Fi, a retail
company in Australia involved in retailing of consumer goods and is publicly listed on the stock
exchange. As such, the company needs to comply with the ASX Corporate Governance
Principles and develop its governance statement as per the Council recommendations (ASX
Corporate Governance Council, 2014). The extent of JB Hi-Fi compliance with the corporate
governance statement of ASX is depicted as follows:
Developing Solid Foundations for Management & Oversight
The primary role of Board is to promote the long-term value of the shareholders and
control the business operations on the behalf of the shareholders. The board responsibilities
include evaluation of executive performance and carrying out the business operations in an
integrated manner (Plessis, McConvill and Bagaric, 2005). The different roles and
responsibilities of Board are disclosed in the Board Charter published on the website of the
company in the investor and governance section. The management personnel carry out the role
of being accountable to the Board and reporting them about the daily activities of the company.
The performance of executives and directors of Board is reviewed by his committee and the
Chairperson. The results obtained are presented to the Board and it includes an assessment of the
financial and non-financial measures to evaluate the contribution of each member of Board to
achieving its overall roles and responsibilities. The review of the performance of Board is carried
out by the remuneration committee during the time of determining the remuneration provided to
the key management personnel (JB Hi-Fi Limited, 2017).
Structuring the Board to Add Value
ASX listed business companies need to properly structure the board so that it is
effectively composed with presence of wide range of skills, experience and knowledge to add
value to the Board (Nordberg, 2010). In this context, it has been depicted from the corporate
governance statement of the company that it places large emphasis on maintain an effective
composition of Board so that there is presence of adequate range of skills, experience, diversity
and knowledge. This is essential so that Board is able to effectively govern the business, improve
its operational efficiency and add value to the company by quick decision-making for resolving
complex issues. The company has maintained a large proportion of non-executive directors in the
Board and also ensures that all of its directors carry out their roles and responsibilities
independently (JB Hi-Fi Limited, 2017).
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Ethical and Responsible Way of Acting
As per this ASX principle, the company has maintained an effective Code of Conduct for
ensuring that all people working in the company carries out their roles and responsibilities as per
the highest ethical standards of corporate behavior (Bazley, Hancock and Robinson, 2014). The
Code of Conduct ahs provided the key principle for the business leaders and the employees that
they need to comply to ensure that the business activities are carried out as per the ethical
standards of honesty and integrity. It has also recognized the importance of diversity within the
workplace and its importance in achieving competitive advantage for the company. It has also
maintained adequate provision and policies for resolving the conflict of interest that can occur
between the business leaders and the management. Thus, the company has in place adequate
procedures and policies for ensuring its ethical and responsible way of acting (JB Hi-Fi Limited,
2017).
Safeguard Integrity in Corporate Reporting
JB Hi-Fi as per the ASX principle has also implemented a rigorous procedure for
safeguarding integrity in its corporate reporting. The procedures are developed as per the
Corporations Act and the ASX Recommendations have stated that the financial statements
developed should represent a true and fair view of the entity’s financial position (Horngren and
Harrison, 2012). Also, the statement is developed on the foundation of an effective system of risk
management and internal control. The company is required to disclose all the information that
have a material effect on the price of the securities. The overall process is monitored and
controlled by the audit and risk management committee and the subsequent information is also
presented on the website of the company (JB Hi-Fi Limited, 2017).
Disclosure of Information on Timely Basis
The continuous disclosure policy section of the governance statement has provided the
details in relation to the policies adopted for providing the relevant information to the
shareholders on a timely basis.. The policy is developed for ensuring that all the material price
sensitive information is provided by the Board to the stakeholders as per the Corporations Act
and ASX Listing Rules. All the relevant information is disclosed to the ASX by the Chief
Executive Officer and the Chairman of the company. The annual report provides timely
information to the stakeholders and the information about the governance policies and structure
is provided on the company website on an annual basis (JB Hi-Fi Limited, 2017).
Protecting the Rights of Security Holders
The company in order to respect the rights of shareholders has provided all the relevant
information in the consumer matters and investor section on the website of the company. The
section provides relevant information to the shareholders about the market announcements, all
the significant details about its directors and executives, board committee and its charters, a
calendar of future issues, summary of its dividend policy and details regarding the ways by
which an investor can contact the company. Shareholders are also provided the right to receive
the information required by them with the use of electronic means from the share registry of the
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company. They are provided a communication channel to interact with the company and receive
the response of their queries with the use of electronic means. The annual general meeting
carried out by the company is held in presence of all the shareholders where they can gain an
appropriate response to all the material issues. In addition to this, the investor relations program
involves conducting regular meetings with the present and potential investors to gain their trust
and confidence by providing them adequate knowledge of the business operations (JB Hi-Fi
Limited, 2017).
Risk Identification & Mitigation
The presence of an effective risk management framework is essential in a business entity
as per ASX principle and recommendations. Also, it is essential to review its effectiveness of a
continual basis for identification and management of risk in advance (Fleckner and Hopt, 2013).
The balance of risk and reward is maintained by the company with the adoption of a risk
management framework. Also, the audit and risk commitment is present for ensuring that all the
operations are carried out in a manner to adequately manage the risk and protecting the people,
environment and its assets. The risk management policy of the company aims to identify and
control the economic, environmental and social sustainability risks related with the company’s
operations. The Risk and Assurance Manager is also appointed by the company for attending all
the meetings of committee in relation to identification and management of risk. The risk
management policies and guidelines as per the ISO 31000 that enables it to identify and
managing the risk adequately.
Responsible and Fair Practices of Remuneration
The remuneration committee has been entrusted with the responsibility by the Board to
manage the issues related to compensation provided to the members of the board and
management team. The details of the remuneration paid to the directors nada mangers is
provided in the remuneration report that also adequately provides the information in relation to
the criteria used in determining the amount of fixed and variable part of compensation provided
to the key management personnel (JB Hi-Fi Limited, 2017).
Procedures Used for Assessing & Mitigating the Audit Risk
The auditing standard ASA 520 developed by the Auditing and Assurance Standards
Board is used by the auditors to identify the material misstatement risks. The analytical
procedures need to be implemented by the auditors for preventing the occurrence of any risk
related to material misstatement in the financial information provided to the auditors for carrying
out the audit process. The audit process is used by the business corporations for ensuring that
financial information provided to the end-users is free from any materialistic error. The auditors
in order to ensure that financial statements does not have any significant risk of occurrence of
materialistic error in the future need to adopt the use of analytical or risk assessment procedures
as provided by the ASA 520 (Auditing and Assurance Standards Board, 2009). The steps
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involved in the analytical procedure for identifying and overcoming the audit risk by the auditors
of JB Hi-Fi can be described as follows:
Nature of Company
The step involves examining the operational nature of the selected company for identifying
the threat of occurrence of any risk related to its business nature (Putra, 2010). JB Hi-Fi as such
is a public listed company carrying out its operations a highly competitive retail environment of
the country which can impact its future growth potential. The company has maintained an
effective governance structure as per ASX principle which minimizes the chances of occurrence
of any risk in relation to governance structure. The financial transactions are carried out as per
the standard accounting rules and regulations provided by AASB and Corporations Act 2001.
There is also sufficient disclosure in the annual report of the company about its related party
transactions determining the relation between the parent entity and equity interests in related
parties.
Market Overview
The Company provides its product and services mainly in Australia and faces stiff
competition from the expanding retail industry of the country. However, the presence of a stable
political and legal environment minimizes the risk related to its future growth potential in the
country.
Business Strategy
The company aims to drive its future growth and properly by effectively meeting the
competitive challenges and achieving customer satisfaction. The solid strategic aim of the
company ensures that it has effectively identified its future goals and objectives to be achieved
(JB Hi-Fi: Annual Report. 2017).
Income Statement & Balance Sheet Ratios Analysis of JB Hi-Fi
Financial Data on JB HiFi
Particulars 2016 2017
Net profit
$
152.00
$
172.00
Gross Profit $865.00 $1,231.00
Revenue $3,954.00 $5,628.00
Total Assets $992.00 $2,452.00
Long term Debts $110.00 $559.00
Shareholder's Equity $405.00 $854.00
Current Assets $703.00 $1,171.00
Current Liabilities $447.00 $886.00
Income Statement
Ratios Formula Interpretation
Net Profit Ratio Net 3.84% 3.06% The increase in net
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Profit/Revenue
profit ratio shows that
profitability of
company has slight
increased in current
year when compared to
previous year. It is an
indication of positive
growth in the
company.
Gross Profit Ratio
Gross Profit/
Revenue 21.88% 21.87%
There is no much
change in gross profit
of the company.
Return on Assets
Net
Profit/Assets 15.32% 7.01%
The increase in return
on assets ratio shows
that profitability of
company has slight
increased in current
year when compared to
previous year. It is an
indication of positive
growth in the
company.
Balance Sheet
Ratios
Debt Equity Ratio Debt/Equity 0.27 0.65
The financial risk of
company has been
reduced in the current
year because company
has reduced the debt
capital amount in the
current year as
compared to previous.
Fixed Assets
Turnover
Revenue/Total
Assets 3.99 2.30
Efficiency of company
to earn the revenue
through fixed has been
increased in current
year
Current Ratio
Current
Assets/Current
Liabilities 1.57 1.32
Liquidity risk has been
reduced slightly in the
current year
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Audit risk & Its Mitigation
The operational activities of the company are subjected to different type of materialistic risk that
can cause the occurrence of material misstatement within the information presented to the
auditors. These can be stated as follows:
 Market Risk: There is less chances of occurrence of market risk in the company’s
financial information as it carries out its transactions mainly in the country of operation,
that is, in Australian dollar. Also, the exposure to exchange rate is properly managed by
the use of forward foreign exchange contracts.
 Interest Risk: There is a presence of threat of interest rate risk due to use of debt funding
at floating rates of interest. The risk is monitored by the company by using a mix of fixed
and floating rate and interest rate swap and cap contracts.
 Liquidity Risk: The liquidity risk arises due to occurrence of any future contingency
condition within the company related with its short, medium and long-term funding
obligations. He policy of managing the respective risk by the company involves
maintaining sufficient cash resources, banking and reserve borrowing facilities. This
enables the company in mitigating the liquidity risk effectively and manages an
appropriate proportion of cash equivalents to meet its financial obligations.
 Credit Risk: This is the risk due to inability of the company to meet its future obligations
resulting in a potential financial loss. However, it has not maintained effective policies
for mitigating the credit risk. As such, the company is recommended to develop and
implement a credit risk management policy for determining the limits of credits to reduce
the impact of the financial loss (JB Hi-Fi: Annual Report. 2017).
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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: 3 May 2018].
Auditing and Assurance Standards Board. 2009. Auditing Standard ASA 520 Analytical
Procedures. [Online]. Available
at: http://www.auasb.gov.au/admin/file/content102/c3/ASA_520_27-10-09.pdf [Accessed on: 3
May 2018].
Bazley, M., Hancock, P. and Robinson, P. 2014. Contemporary Accounting PDF. Cengage
Learning Australia.
Fleckner, A. and Hopt, K. 2013. Comparative Corporate Governance: A Functional and
International Analysis. Cambridge University Press.
Horngren, C., and Harrison, W. 2012. Financial Accounting. Pearson Higher Education AU.
JB Hi-Fi Limited. 2017. Corporate Governance Statement. Appendix 4E Preliminary Final
Report.
JB Hi-Fi: Annual Report. 2017. [Online]. Available at:
https://www.jbhifi.com.au/Documents/2017%20Annual%20Report.pdf [Accessed on: 3 May
2018].
Nordberg, D. 2010. Corporate Governance: Principles and Issues. SAGE.
Plessis, J., McConvill, J. and Bagaric, M. 2005. Principles of Contemporary Corporate
Governance. Cambridge University Press.
Putra, L. 2010. The Use Of Analytical Procedures In Auditing. [Online]. Available
at: http://accounting-financial-tax.com/2010/04/the-use-of-analytical-procedures-in-auditing/ [Ac
cessed on: 3 May 2018].
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