Auditing and Assurance

This assignment analyzes the financial statements of Blackmore ltd and how the company follows and implements the ASX Corporate Governance Principles in the business. The major risks which the business faces are identified. The report concludes with suggestions as to how the business can overcome the risks which the business faces.

Running head: AUDITING AND ASSURANCE
Auditing and Assurance
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AUDITING AND ASSURANCE
Table of Contents
1. Executive Summary.................................................................................................................2
2. Principles of Corporate Governance as per ASX.....................................................................2
3. Risk Assessment.......................................................................................................................6
Nature of the Company................................................................................................................6
Market Overview.........................................................................................................................6
Regulating Authority...................................................................................................................7
Business Strategy.........................................................................................................................7
Ratio Analysis..................................................................................................................................7
Audit Risks....................................................................................................................................10
4. Recommendation....................................................................................................................11
Reference.......................................................................................................................................12

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1. Executive Summary
The main purpose of this assignment is to analyze the financial statements of Blackmore ltd
which operates in Australia. The assignment will be analysing how the company follows and
implements the ASX Corporate Governance Principles in the business. In addition to this, the
major risks which the business faces are identified as per the requirement of the assignment. The
assignment will also be including horizontal analysis and various key ratio computation for the
purpose of understanding the financial performance of the business. The report will be
concluding with suggestions as to how the business can overcome the risks which the business
faces.
2. Principles of Corporate Governance as per ASX
1. Laying Solid foundation and oversight for management: As per the business charter of
the company, the management of affairs are done by the board of directors. The board of
directors Blackmores ltd has formally adopted the charter of the business in order to
promote structure, responsibility and composition of the board of directors (Klettner,
Clarke and Boersma 2014). In such a charter all important guidelines are mentioned and
also includes all those matter for which the approval of the board of directors are
important. The board of director ensures that the business’s activities are accordingly for
the benefit for the shareholders. The financial statements state the responsibility on the
auditors for which areas of different directors are covered. In case any new director or
senior-level management enters the company, an orientation program is developed by the
company in order to educate them about the Corporate Governance requirements of
Blackmores ltd.

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2. Board Structure for adding value: The company has an established nomination committee
which comprises of members of the board of directors and other personnel. The meetings
of the nomination follow the provisions of the board charter. The nomination committee
is responsible for appointing significant individuals as directors or non- executive
directors of the company (Salterio, Conrod and Schmidt 2013). The committee also looks
into the processes of the business and ensure whether standard of corporate governance is
followed or not. The nomination committee ensures that the employee or even the
directors who are nominated to be appointed have the necessary skills and experience to
add more value to the management of the company (Aggarwal 2013). The company
secretary is responsible to report to the board of directors for overall management of the
company.
3. Act ethically and responsibly: Blackmores ltd has a code of conduct which is applicable
to all employees, executives and directors which was launched in October 2016. The
code of conduct ensures that the employee of the business follow the highest ethical
principles and act in an honest and trustworthy manner (Drumwright, Prentice and
Biasucci 2015). The code also provides that the employees and the directors of the
company follow the principles consistently and also ensure that there is transparency in
the operation of the business. The company takes into consideration issues like safety,
health and environmental issues into consideration while conducting the operations of the
business. The code provides a basic framework or guidelines for the purpose of ensuring
that the employee of the company contribute to the value addition of the company and
also follow highest ethical standard (Weiss 2014). The code also establishes principles
which is related to the basic behavior which is expected from distributors, suppliers,

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customers of the business. All this ethical approach from the point of view of the
company is known as Blackmores way and the company is keen on complying with the
highest level of corporate governance standard where ever the company operates.
4. Safeguard the integrity in corporate reporting: The company has a audit and risk
management committee which looks after the audits and compliance with the various
standard in the company. Blackmores ltd is committed to promote transparency in the
audit procedure of the company which would measure the financial performance of the
company effectively. The audit committee is made up of non-executive directors of the
company and the majority of which are independent (Fung 2014). The chairman of the
audit and risk management committee is a non-executive independent director. The
auditor of the company needs to be present during the annual general meeting of the
company so that any question regarding the annual report and auditor’s report of the
company can be justified by the auditor. The annual report also consists of information
and declarations from the CFO and CEO of the company regarding important
developments which took place during the year. it is the responsibility of the auditor of
the company to ensure that the financial statements are showing true and fair view and no
item of the financial statement are misrepresented. This promotes the integrity of the
financial statements of the company (Gao and Jia 2016).
5. Making Disclosures in a balanced and timely manner: Blackmores ltd has policies which
are such established so that the disclosure requirements of material items of a financial
statements are effectively done. The disclosure requirements are also to be done in a
balanced, timely and fair manner in order to ensure that the investors and the stakeholders
of the company are able to access information about performance, management and

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operations of the company (Guidara, Khlif and Jarboui 2014). As the company is listed in
ASX, therefore the listing rules which requires continuous disclosures has to be complied
by the company (Mayorga 2013). In order to ensure that the continuous disclosure
requirements are maintained effectively in the business, the board of directors conducts
meetings to discuss the agenda and about the requirements of continuous disclosures.
6. Respecting the rights of Shareholders: The company is committed towards informing any
developments which occurs in the business to the shareholders. The board of directors
ensures that the company communicates with the investors regarding every development
in detailed and timely manner (Johnston and Morrow 2014). This is where the continuous
disclosure principle as required by ASX comes in useful for the company. Other
alternatives which are used by the company for communicating information to the
shareholders are annual financial reports, quarterly or half yearly performance reports of
the company, explanatory memos and notices which are issued during a meeting of the
company. In this the company is able to respect the rights of the shareholders.
7. Identify and Manage Risks: The audit and risks committee which is established by the
board of directors of Blackmores company is responsible for managing the risks of the
company effectively (Arjaliès and Mundy 2013). The committee directly reports to the
board of directors and the committee comprise of a majority of independent non-
executive directors. The structure of the committee and the members who makes the
committee are mentioned in the annual reports of the company for the year 2017. The
board of directors on the recommendations of the audit and risk management committee
establishes policies and practices which can enhance businesses control over the risks of
the company. The board also needs to ensure that appropriate framework is followed by

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the business in preparation of the financial statements and also maintaining the policies of
the company.
8. Provide remuneration in fair and responsible manner: The company has established a
remuneration committee and the primary objectives of the company is to consider the
remuneration policies and structure of the company (Asafo-Adjei 2015). The committee
provides recommendation to further improve the remuneration policies of the company
so that the company might be able to retain top level employee of the company such as
directors, managers. The board is headed by an independent non-executive director of the
company.
3. Risk Assessment
Nature of the Company
Blackmores ltd is a company which operates in Australia and in engaged in the
manufacture of medical supplements, vitamins and other nutrition supplements. The company is
considered to be a leading brand in its sector and the company is committed to provide the best
health solutions to the customers (Blackmores.com.au. 2018). The company conducts innovative
researches so that the management can develop or improve medical supplements which can
benefit the consumers of the country significantly. The head office of the company is situated in
Sydney, Australia. The company is committed to ensure that the management follows sustainable
practices to ensure that there is no wastage of resources of the company (Blackmores.com.au.
2018). The company is engaged in responding to the needs of the society and developing
products as per the needs of the society.

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Market Overview
Blackmores ltd is considered to be one of the leading brands which provides medical and
health care supplements and the company has a market capitalization of $ 1.5 billion. The
company mainly deals in healthcare supplements and vitamins and the company also provides
health products for pets as well (Blackmores.com.au. 2018). The company has established its
business in 17 markets which are spread across the world. In Australia the company is regarded
as one of the best brand which provides health nutrients, vitamins and supplements. In addition
to this, the company has a positive image and enjoys brand loyalty in Australia and therefore it is
one of the trusted brand of Australia in healthcare field. The company has generated a net profit
after tax of $ 58 million as per the financial statements of 2017 (Blackmores.com.au. 2018).
Regulating Authority
Blackmores ltd is regulated by the relevant standards which has been issued by
Australian Accounting Standard Board (AASB) and also the company is listed in Australian
Stock Exchange (ASX) and therefore it is regulated by ASX as well. In addition to this, the
business is also regulated by other ethical organization as well.
Business Strategy
The company aims to improve the performance of the business and also aims to take
advantage of every opportunity which the company has in the world. The business strategies of
the company are focused on achieving competitive advantage. The company proposes that the
people should invest in the wellbeing of themselves and on products which are made of natural
sources. The company expertise in health, nutrients and medical healthcare products which are
developed considering the general wellbeing of the society and general public.

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Ratio Analysis
Ratio Formula Result
Income statement ratio
Operating profit margin Operating profit/revenue *100 15.70
Net profit margin Net profit/revenue *100 10.57
Return on shareholder's equity Operating profit/shareholder's equity*100 48.22
Balance sheet ratio
Current ratio Current assets / Current liabilities 1.81
Quick ratio Quick assets / Current liabilities 1.22
Debt equity ratio Total liabilities / shareholder's equity 1.30
Horizontal analysis
Income statement
Particulars 2017 2016 Amoun
t
Percentag
e
Sales 692790 717211 -24421 -3.40%
Promotional and other rebates -143547 -118771 -24776 20.86%
Other income 545 1086 -541 -49.82%
Revenue and other income 549788 599526 -49738 -8.30%
Expenses
Raw material and consumable
used
236184 214263 21921 10.23%
Employee benefits expenses 120209 134933 -14724 -10.91%
Selling and marketing expenses 51141 49177 1964 3.99%
Depreciation and amortisation 8411 7045 1366 19.39%
Operating lease renal exp 7942 4496 3446 76.65%
Professional and consulting
expenses
8923 9168 -245 -2.67%
Repairs and maintenance 5172 4683 489 10.44%
Freight expenses 9809 10906 -1097 -10.06%
Bank charges 1300 2099 -799 -38.07%
Other expenses 14466 17535 -3069 -17.50%
Net expenses 463557 454305 9252 2.04%
Earning before interest and tax 86231 145221 -58990 -40.62%
Interest revenue 384 462 -78 -16.88%
Interest expenses 4564 2272 2292 100.88%

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Net interest expenses 4180 1810 2370 130.94%
Profit before tax 82051 143411 -61360 -42.79%
Income tax expenses 24023 43391 -19368 -44.64%
Profit after tax 58028 100020 -41992 -41.98%
Balance sheet
Assets 2017 2016 Amoun
t
Percentag
e
Current assets
Cash and cash equivalents 34251 37653 -3402 -9%
Trade and other receivables 132146 134636 -2490 -2%
Inventories 84794 116486 -31692 -27%
Other assets 7471 5849 1622 28%
Total current assets 258662 294624 -35962 -12%
Non-current assets
Property, plany and equipment 74207 67626 6581 10%
Investment property 2160 2160 0 0%
Other intangible assets 32293 32736 -443 -1%
Goodwill 29461 29371 90 0%
Deferred tax assets 9960 12257 -2297 -19%
Other assets 1320 628 692 110%
Amount advanced to related
parties
4111 3960 151 4%
Total non-current assets 153512 148738 4774 3%
Total assets 412174 443362 -31188 -7%
Liabilities
Current liabilities
Payables 124365 160478 -36113 -23%
Current tax liabilities 1811 24204 -22393 -93%

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Provisions 11549 7588 3961 52%
Other liabilities 4831 9 4822 53578%
Total current liabilities 142556 192279 -49723 -26%
Non-current liabilities 0
Interest bearing liabilities 78968 55446 23522 42%
Provisions 1372 1134 238 21%
Other liabilities 235 3655 -3420 -94%
Deferred tax liabilities 10224 10255 -31
Total non-current liabilities 90799 70490 20309 29%
Total Liabilities 233355 262769 -29414 -11%
Net assets 178819 180593 -1774 -1%
Equity 178819 180593 -1774 -1%
Audit Risks
Audit risks refers to the misstatements which might be present in the financial statement
of the company and the same might not be detectable by the auditor of the company (Dow,
Watson and Shea 2013). The audit risk which are analyzed on the basis of the calculated ratios
and horizontal analysis of the financial statement are given below:
1. The debt equity ratio of the company is shown as 1.30 in the table which shows ratio
computation. The debt equity ratio of the company is greater than one which signifies
that the company has used debt capital more than equity capital in the capital structure
mix (Wolfson 2017). This is very risky as the business has to face burden of interests as
well as there might be overstatements or understatements of debt capital to improve the
balance sheet of the company.
2. The intangible assets of the company which are goodwill which is shown in the balance
sheet of the company might be misstated. The figure of goodwill is depicted at same
value in 2017 as it was depicted in previous year 2016. There has been no amortization to

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the intangible assets and therefore the auditor needs to consider the fact that there might
be some misstatement or manipulations (Covello and Merkhoher 2013).
3. There has been significant change in the value of inventory from the previous year’s
figure. The inventory value has decreased from previous year and that to by an immense
amount which suggest that there might be certain manipulations in the same or there
might be certain misstatements or omissions in the financial statements which the auditor
of the company must check.
4. Recommendation
The recommendation which can be suggested to overcome or avoid the risks are given
below in details:
1. The auditor needs to check the value of debt which is shown in the financial statements
and also verify the value from checking relevant documents which are related to the debt
which can be legal papers of debt, maturity detail. The auditor also needs to verify if the
debts which are presented are really of long-term nature or not.
2. The auditor also needs to verify the intangible assets of the company and ensure that the
value which is shown in the financial statement is fairly represented. The auditor also
needs to check whether there is any amortization or impairment losses which is
applicable to any intangible assets of the company.
3. The auditor needs to review the inventory records which includes ledgers, inventory
budgets and all receipts and issues notes and invoices. This can help to establish the
actual value of inventories of the business.

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Reference
Aggarwal, P., 2013. Impact of corporate governance on corporate financial performance. IOSR
Journal of Business and Management (IOSR-JBM), 13(3), pp.01-05.
Arjaliès, D.L. and Mundy, J., 2013. The use of management control systems to manage CSR
strategy: A levers of control perspective. Management Accounting Research, 24(4), pp.284-300.
Asafo-Adjei, M.A., 2015. Regulation of executive directors remuneration in South Africa: the
road to achieving good corporate governance (Doctoral dissertation, University of Cape Town).
Blackmores.com.au. (2018). BLACKMORES Vitamins & Supplements - Australia's #1. [online]
Available at: https://www.blackmores.com.au [Accessed 27 Apr. 2018].
Covello, V.T. and Merkhoher, M.W., 2013. Risk assessment methods: approaches for assessing
health and environmental risks. Springer Science & Business Media.
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audit steps: The case of procurement cards. Issues in Accounting Education, 28(4), pp.913-921.
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decision making. Decision Sciences Journal of Innovative Education, 13(3), pp.431-458.
Fung, B., 2014. The demand and need for transparency and disclosure in corporate
governance. Universal Journal of Management, 2(2), pp.72-80.

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