Assignment on Compliance Auditing

Running head: AUDITING AND COMPLIANCE
Auditing and Compliance
University Name
Student Name
Authors’ Note

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Table of Contents
Executive Summary...................................................................................................................2
ASX Corporate Governance Principles.....................................................................................2
Risk Assessment.........................................................................................................................7
Reference..................................................................................................................................11

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Executive Summary
The present study under consideration elucidates in detail the way the formal, methodical and
ordered approach of auditing that can help in understanding effectiveness of procedures and
associated controls. This study also studies compliance necessities that can help in
augmentation of business value. In itself, the primary purpose of the study is to critically
examine scale and extent of conformity of the selected firm AGL to specific dictates of the
corporate governance principles as mentioned by the ASX CGS. Furthermore, the study also
has the intent to examine whether the company under deliberation abides by the rules laid
down by the Corporate Governance Council. Moving further, the current study also analyses
risks faced by the business entity by analysis of financial ratio, analysis of trend and analysis
of the market.
ASX Corporate Governance Principles
The statement of corporate governance of the chosen ASX listed company AGL has made a
commitment to act in accordance with framework, obligations and practices set by the
Council of Corporate Governance of ASX. AGL board of director believes in sustainable
performance. Therefore, they practice the best corporate governance supported by ASX rules.
The structure of the Corporate Governance policy of AGL is as follows:
Enforcing a sturdy and efficient management foundation and oversight:
The management of the AGL includes the boards of directors who are responsible for the
mainlining the various interest of the company and its stakeholders (Craneand, Matten2016).
The corporate governance of the company is also maintained by them. The board of directors

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has the duty of approving and supervising the company’s strategies along with its
performance. They also set the budget plan as well recruits the CEO of the company.
Development of a proper Director board for enriching its value:
The integrated energy business AGL has a sound composition and structure of the board that
consists of the audit and the risk committee, nomination committee, people and performance
committee and a committee for sustainability, safety and corporate social responsibility
(Masonand Simmons 2014). Each of the committee performs their assigned duty along with
sound coordination in order to achieve the organizational goal. The number of directors and
their operations are determined in the annual meetings that are set in the Directors attendance
mentioned in the Annual report.
Morals and ethical policies of the organization
As per the statement of sustainability re approved by the ASX committee, the AGL maintains
a sound code of conduct thatis applicable to its stakeholders that includes the directors,
contractors and the employees engaged in its operations. The code is a collection of the
ethical conduct and a standard of responsibility for its members who are related to the
company (Bowie 2017). According to the code thereare a setof rules abide by them that
induces the members to act with integrity and honesty along with maintaining a sound
professionalism in their operations (William Jr et al. 2016). In addition to that they set the
internal standards, commitments and the various laws along with maintaining confidentiality
in their operations
Protection of the honour of the company by sound corporate reporting
The various financial report of the organization is maintained and regulated by the Board of
directors. The committee of audit and risk management takes care of the financial statements

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and the reporting practices (Shimeld, Williamsand Shimeld2017).They also provide
confirmation that these opinions have been formed on the basis of a sound system of risk
management and internal control, which is operating effectively. Before the Board approves
the financial statements for a financial period, the CEO and CFO provide declarations to the
Board that, in their opinion, the financial records of AGL have been properly maintained and
that the financial statements comply with the Accounting Standards and give a true and fair
view of the financial position and performance of AGL.
Preserve integrity in particularly corporate reporting
Analysis of the corporate governance statement aptly illustrates corporate governance
structure, strategies along with practices. During the entire period of financial year 2017, the
Corporate Governance arrangements of AGL are in agreement with Corporate Governance
Principles along with recommendations (referring to 3 rd Edition) of principles laid down by
Australian Stock Exchange. This is published by the Corporate Governance Council of ASX
that helps in providing a checklist for cross referring to the principles of ASX to the pertinent
disclosures. AGL’s code of conduct can be referred to as vital factor of the firm that can aid
in attaining excellence and securing complete financial soundness, societies as well as
businesses. Management of the corporation follows the values of maintaining integrity,
higher merit, and accountability along with maintaining alliance (William Jr et al. 2016). The
recommendations mentioned in the Corporate Governance Regulations states that Listing
rules along with directives of Corporation Act introduced in the year 2001 helps in the
understanding the fact that administration has devised several controls for maintaining
integrity of system of reporting. The financial assertions of the firm are also prepared as per
the accounting standards leading to presentation of true along with fair view of financial
information. Disclosures are also presented as per recommendations stipulated under ASX

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CGS. This in turn can help in preservation of reliability as well as veracity of system of
reporting pecuniary matters (Messier et al. 2014).
Carry out well timed and at the same time balanced disclosure
AGL has a continuous disclosure principle in place. AGL has a External Communication
Policy that elucidates about the continuous disclosure necessities of the company. The board
of the firm AGL intends to make certain that all the shareholders along with the market are
fully informed regarding all credible information along with price sensitive advance along
with alterations that can probably affect overall operations, financial outcomes along with
business prospects. The continuous disclosure necessities can help in making certain that all
the requisite information is divulged to the entire market in a well timed as well as effective
manner (Vasarhelyi et al. 2018). This is done by means of internal system of reporting along
with monitoring procedure of standard information. The company AGL presents periodic
reporting that delivers financial statements prepared by the firm to the shareholders as well as
other interested parties. In addition to this, the company delivers important functional in
addition to different financial performance indicators to the users of information.
Respect security holders’ rights
The board intends to safeguard and shield interests and at the same time promote sustainable
value creation whilst taking into consideration rational shareholder’s interests (Leung et al.
2014). The board of the company has the intention to approve significant pronouncements
made by AGL to particularly ASX as well as other reports to the firm’s shareholders as per
suggestions of Corporation Act as well as other pertinent regulations (Leung et al. 2014). The
chairperson of the company AGL preside board meetings along with shareholder’s meetings.
Thus, in this specific manner, the company can provide material information to shareholders.

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Detect and manage risk
In connection to risk management, the board of the firm AGL assesses and at the same time
recommends Risk Appetite Statement along with various material strategic risks (Simpson et
al. 2016). In addition to this, the study also reviews and tracks execution of various policies
along with procedures for detecting, evaluating, tracking as well as handling risks. In addition
to this, AGL’s board also presents Audit & Risk Management Committee (also referred to as
ARMC). Board of the company also presents risk management structure and there is a risk
management model in place in the company (Zhou et al. 2016). Essentially, AGL encounters
various types of risks owing to nature as well as characteristics of operations. Management of
the firm is necessarily committed towards appropriate risk management. The “Audit,
Compliance and Risk Committee” aids the firm’s board in effectual discharge of
accountabilities in relation to financial affairs counting treasury risks as well as practices,
monitoring of business risks (Hiltz and Pierce 2018). This committee also aids the board in
detection of main financial along with compliance risks encountered by the firm and assesses
the steps for implementation of specific control and processes for mitigating risks (Arens et
al. 2015).
The company has an Enterprise Risk Management system and a framework for control that
includes different controls that include the following:
Remunerate fairly as well as responsibly

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As per the recommendations of the ASX CGS, AGL has a Remuneration and Nomination
Committee that can support the entire Board in effectual discharge of the accountabilities in
relation to remuneration of both executives as non-executive directors (Ahmed Haji and
Anifowose 2016). Also, this committee oversees system of recruitment as well as processes
of retention of particularly management. In addition to this, this committee also looks into
various aspects of composition of board counting diversity of board as well as succession
planning (Zhao et al. 2017). In a bid to remunerate fairly as well as responsibly as per
suggestions of principles, the board assesses remuneration policy of the corporation to make
sure that it inspires management to undertake strategic priorities of the business and is
correlated to performance. Also, the committee assesses diversity policy, requisite skills for
effectual discharge of duties on a regular basis and policies for remuneration of directors
(Messier et al. 2015)
Risk Assessment
Background of the company
The selected company for the study is AGL. AGL is 180 year old publicly traded corporation
listed under the ASX. The company operates in energy industry and is involved in generating
as well as retailing of products such as gas as well as electricity for both household plus
commercial uses.
Details of regulation
The c bodies include Australian Stock Exchange (ASX), Australian Energy Market Operator
(AEMO) that necessarily handles supply as well as demand and potential as per applicable
regulation. The regulatory authorities also include the Australian Taxation Office as
authorised and validated by law.

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Overview of the market in which AGL operates
The company AGL has a market share of approximately 90%. This company deals in power
as well as energy generation and at the same time retailing of the same for over and above
150 years. AGL is primarily driven by two different strategic essentials that include intention
to develop in a carbon controlled future and to develop customer support with evolving
expectations of customers .
Business Stratagems of the company AGL include
- Sustainable usage of company resources:
- Investment for better generation, storage and sharing of energy
-Development of advanced technologies for maintenance of low levels of emissions
and framing sustainable practices (Cohen and Simnett 2014)
Analysis of risk using key financial ratio and trend analysis: (refer to appendix for
calculations)
- Debt equity ratio calculated for the firm AGL stands at 0.90. A ratio greater than 1
essentially reflects high leverage and greater burden of interest on the part of the firm.
Therefore, AGL is said to be at a favourable financial condition in terms of leverage
(Griffiths 2016).
-The liquidity ratios namely (in this case, current ratio and the quick ratio) of the firm AGL is
registered to be around 1.32 and roughly 1.19 respectively. Standard current ratio is observed
to be 2:1 (Almamy et al. 2016). Therefore, the company has a lower current ratio indicating
poor liquidity condition of the firm. In addition to this, the firm has low quick ratio as well,

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reflecting lower potential of the firm to repay short term obligations using quick assets
(Chambers and Odar 2015)
-Return on firm’s shareholder’s equity is registered to be 7.12%, while operating margin
stands at 6.07 % and net profit margin of AGL stands at 4.28%. Although the return on equity
shows a favourable condition, both the profit margin ratio does not signify efficiency on the
part of the firm AGL to acquire higher returns (Hines et al. 2015)
-Again, analysis of trend reveals that the firm has an upward moving trajectory in terms of
revenue, while assets of the firm has declined during the financial year 2017 as compared to
the year ago period. On the other hand, liability of the firm has increased during the said
period. Again, equity has also declined by 4.65% during FY 2017 in comparison (Omar et al.
2014)
Audit Steps to mitigate the risks:
-Reviewing current ratio, checking register for cash and reconciling the same with bank
statement
-Receivables can be substantiated with days permitted for disbursement, probability of bad
debt
-Debt document can be checked for comprehending sources of finances of the firm and
attempt to lessen payment obligations for debt
-In a bid to increase profit, expenses can be minimised and all vouchers linked to expends can
be verified

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Reference
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Almamy, J., Aston, J. and Ngwa, L.N., 2016. An evaluation of Altman's Z-score using cash
flow ratio to predict corporate failure amid the recent financial crisis: Evidence from the
UK. Journal of Corporate Finance, 36, pp.278-285.
Arens, A.A., Elder, R.J., Beasley, M.S. and Jones, J., 2015. Auditing: The Art and Science of
Assurance Engagements. Pearson Canada.
Chambers, A.D. and Odar, M., 2015. A new vision for internal audit. Managerial Auditing
Journal, 30(1), pp.34-55.
Cohen, J.R. and Simnett, R., 2014. CSR and assurance services: A research agenda. Auditing:
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Messier, W.F., Glover, S.M. and Prawitt, D.F., 2015. Auditing & Assurance Services: A
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