Audit, Assurance and Compliance for JB Hi-Fi Limited
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This report focuses on the compliance of ASX Corporate Governance principles by JB Hi-Fi Limited and assesses the risk associated with the company through various measures like ratio analysis, trend analysis and market overview.
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Audit, assurance and compliance HOLMES INSTITUTE Course ID: HI6026S Prepared By: Md Rabiul Alam ID: WHZ2339 Prepared For: Andre Houang Lecturer, Sydney Campus
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1AUDIT, ASSURANCE AND COMPLIANCE Table of Contents Part 1..........................................................................................................................................2 Executive summary....................................................................................................................2 Part 2 – ASX CGS Principles.....................................................................................................3 Part 3..........................................................................................................................................6 Risk assessment..........................................................................................................................6 Reference....................................................................................................................................9
2AUDIT, ASSURANCE AND COMPLIANCE Part 1 Executive summary The main objective of the report is to focus on the compliance of ASX Corporate Governance principles by JB Hi-Fi Limited. The report will explain whether all the requirements under the ASX CGS principles are complied with by the company or not. Thereafter, the report will assess the risk associated with the company through various measures like the company’s ratio analysis, trend analysis and market overview.
3AUDIT, ASSURANCE AND COMPLIANCE Part 2 – ASX CGS Principles 1.Foundations for management and oversight The responsibilities of the board of JB Hi-Fi includes looking into the matter of company’s affairs and businesses, setting up the financial and strategic objectives and looking into the implementationof managementto fulfil these objectives,monitoring performances of the management, approving the adoption for major corporate policies of the company (Council and Exchange 2014). 2.Board structure for adding value The board perform the duties and responsibilities with regard to safeguard the interests of the shareholders, customers, staffs and the community under which they operate. It can empower and establish the board committees to help performing the functions. Further, the board is also responsible for managing the affairs and business of the company. Further, the board communicates with the shareholders whenever required (Lama and Anderson 2015). While performing the duties the board operates in such a way that reflects the values of the company and complies with the Corporation act 2001 and various other applicable regulations and laws. At present the board has 8 members in the board, out of which except the CEO all other members are non-executive director. 3.Act responsibly and ethically The board of JB Hi-Fi is committed towards assuring that the business of the company is ethically conducted and as per high standard of the corporate governance. Further, the board believes that if otherwise not disclosed under the statement of corporate governance the practices and policies of the company shall comply with 3rdedition of ASX
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4AUDIT, ASSURANCE AND COMPLIANCE corporategovernmentcouncilprincipleandrecommendations.Further,thecompany acknowledges that the directors, employees and executives are required to maintain highest ethical standards of the corporate behaviour (Jbhifi.com.au 2018). 4.Safeguard integrity in the corporate reporting JB Hi-Fi has put the designed controls to assure that integrity of the financial reporting is maintained and the company complies with the entire relevant regulatory requirement.As per the ASX recommendations and Corporation Act, the CEO and CFO of the company stated that as per their opinion – The financial report of the company has been maintained properly as per Corporation act, section 286 (Jbhifi.com.au 2018). Financial reports for the year and the related disclosure notes as per the accounting standard gives true and fair view of the company’s financial performance and position and are complied with the accounting standards. The financial statements of the company are founded to have sound system for internal control and risk management that is efficiently operated (Chan, Watson and Woodliff 2014). No alterations or other matters arose that may have material impact on company’s operation for internal control and risk management after 30thJune 2017. Further, the financial statement of the company is subjected to annual audit by the professional and independent auditor 5.Make balanced and timely disclosures The company ensures to provide timely and relevant information to the shareholders and is also committed to fulfil continuous obligation for disclosures. Boar of the company has
5AUDIT, ASSURANCE AND COMPLIANCE approved the policy for continuous disclosures for assuring that the process for recognizing and disclosing the material information as per ASX listing rules and Corporation act are articulated clearly (Tao and Hutchinson 2013). The policy also sets out an obligation on the employees with regard to such information. The CEO of the company in consultation with Chairman is responsible to communicate with ASX, wherever applicable. Further, the copy of the policy for continuous disclosures is available in the official website of the company at www.jbhifi.com.auunder the sections of governance and investors. 6.Respecting rights of the security holders The official website of the company includes a section called investors that include the below mentioned information – Details of company’s executives and directors Board and board committee and documents related to corporate governance Details regarding how the investors can communicate with the company and share register All the market announcements and documents associated with it that are immediately posted after its release to ASX. Further, the shareholders have right to receive communication from share registry of the company electronically that also entitles the shareholders an opportunity to manage the account details electronically. Shareholders also possess the right to send the communication to company and receive any responses on those electronically. Moreover, the company holds the annual general meeting where all the shareholders are invited and if any shareholder is not able to attend the meeting he can send the proxy or can vote electronically.
6AUDIT, ASSURANCE AND COMPLIANCE 7.Mange and recognize risk The policy of the company is to maintain the balance between reward and risk, as far as possible for optimizing the returns generated from the business activities and meeting the shareholder’s expectations. The audit and risk management committee of the company is responsible for looking after the policy implementation and processes that ensures that the operations of the company is conducted in such manner that will manage the risk adequately (Bottomley 2016). Further, the company has effective framework for risk management complied with ISO31000 that enables the management to recognize and manage the risk appropriately. Moreover, the committee reviews and revises the framework on regular basis. Risk identification and its management is managed on daily basis by a team that is dedicated for risk management and the team is led by Group Risk and Assurance Manager. 8.Remunerate responsibly and fairly The board of JB Hi-Fi believes that the executive remuneration must be reasonable andfairandstructuredeffectivelytomotivate,attract,rewardandretainthevalued executives and are designed in such way that will create value for the shareholders. Further, the remuneration committee reviews remuneration package annually for all the executives andprovidestherecommendationaccordingly(Christensenetal.2015).Further,the remuneration committee may receive independent advice for remuneration levels that is requiredforretaining,attractingandcompensatingthegroupexecutivesaspertheir responsibilities and work experiences.
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7AUDIT, ASSURANCE AND COMPLIANCE Part 3 Risk assessment Market overview: Risk score is the relevant measure for assessing the attractiveness of the company’s stock. As per the analysis the risk score of the company is 6.00. Here, 10 states very high level of risk whereas 0 states very low level of risk. To assess and analyze the company’s risk various indicators are used like debt level, volatility, capital structure. Methods that are used are as under – Beta – beta is the qualitative measure for volatility of stock as compared to the market volatility. The beta of the company is 1.15 which is moderate. Therefore, the volatility of the company is in moderate level. Volatility – the analysts use any specific method for estimating the volatility on the basis of 3 months historical fluctuations in the market value (Gitman, Juchau and Flanagan 2015) Ratio analysis Income statement ratio It has been identified that irrespective of 21.86% of gross profit, the company was able to earn only 3.06% of net profit. The main reason behind the lower level of net profit is the increase of sales of marketing expenses of the company by 43.38%. Further, the occupancy expenses also increased by 43.04% in 2017 as compared to previous year 2016.
8AUDIT, ASSURANCE AND COMPLIANCE Moreover, the finance cost is significantly increased by 174.36%. The risk associated with the increase of expenses is as follows – Increase in finance cost states the there must have been proportionate increase in the borrowings. Therefore,the additionalborrowingswill putextra burdenon the company for payment of interest and repayment of borrowing. This can also lead the company to the level of unsustainability (Klettner, Clarke and Boersma 2014). Increase in occupancy expenses and sales and marketing expenses will eventually reduce the net profit of the company. Risk may involved there that the expenses have been over stated to show profit at the lower level and pay lower return to the shareholders (Du Plessis, Hargovan and Harris 2018). Balance sheet ratio It is recognized that the current ratio of the company is 1.32 that states that the company is quite capable of paying off the current liabilities with the available current assets. However, the quick ratio of the company is only 0.35 that signifies that the company is not much capable of possessing liquid assets to pay off the short term liabilities (Tricker and Tricker 2015). The main reason behind this is that inventories form the biggest part in current asset group which is not easily transformed into cash. Chances are there that the inventories may have been misstated to show them in higher amount. Therefore, to minimize this risk the company shall check the inventories physically and match it with the inventory register to minimize the misstatement.
9AUDIT, ASSURANCE AND COMPLIANCE Reference Bottomley,S.,2016.Theconstitutionalcorporation:Rethinkingcorporategovernance. Routledge. Chan, M.C., Watson, J. and Woodliff, D., 2014. Corporate governance quality and CSR disclosures.Journal of Business Ethics,125(1), pp.59-73. Christensen, J., Kent, P., Routledge, J. and Stewart, J., 2015. Do corporate governance recommendationsimprovetheperformanceandaccountabilityofsmalllisted companies?.Accounting & Finance,55(1), pp.133-164. Council,A.C.G.andExchange,A.S.,2014.Corporategovernanceprinciplesand recommendations . ASX Corporate Governance Council. Council, A.C.G., 2014. Corporate Governance Principles and Recommendations, 3rd edn (ASX, Sydney). Du Plessis, J.J., Hargovan, A. and Harris, J., 2018.Principles of contemporary corporate governance. Cambridge University Press. Gitman, L.J., Juchau, R. and Flanagan, J., 2015.Principles of managerial finance. Pearson Higher Education AU. Jbhifi.com.au. (2018). JB Hi-Fi | JB Hi-Fi - Australia's Largest Home Entertainment Retailer. [online] Available at: https://www.jbhifi.com.au/ [Accessed 20 Apr. 2018]. Klettner, A., Clarke, T. and Boersma, M., 2014. The governance of corporate sustainability: Empirical insights into the development, leadership and implementation of responsible business strategy.Journal of Business Ethics,122(1), pp.145-165.
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10AUDIT, ASSURANCE AND COMPLIANCE Lama, T. and Anderson, W.W., 2015. Company characteristics and compliance with ASX corporate governance principles.Pacific Accounting Review,27(3), pp.373-392. Tao, N.B. and Hutchinson, M., 2013. Corporate governance and risk management: The role of risk management and compensation committees.Journal of Contemporary Accounting & Economics,9(1), pp.83-99. Tricker, R.B. and Tricker, R.I., 2015.Corporate governance: Principles, policies, and practices. Oxford University Press, USA.