Risk Analysis of Amcor Limited

This assignment analyzes the audit risk associated with Amcor Limited by examining inherent and control risks using ratio analysis. The analysis highlights higher risk factors for Amcor compared to its competitor, Fortescue Metals Group. The paper draws on auditing principles and literature to provide a comprehensive understanding of the identified risks.

Running head: AUDITING THEORY AND PRACTICE
Auditing Theory and Practice
Name of Student:
Name of University:
Author’s Note:

1AUDITING THEORY AND PRACTICE
Table of Contents
Introduction......................................................................................................................................2
Risk Analysis...................................................................................................................................2
Evaluation of risks and control environment...................................................................................4
Comparison of the financial ratios with Fortescue Metals Group...................................................5
Conclusion.....................................................................................................................................11
Reference.......................................................................................................................................12

2AUDITING THEORY AND PRACTICE
Introduction
Amcor is recognised as Australia’s one of the leader in providing packaging service. The
important form of the manufacturing initiatives is seen in areas of healthcare, food and beverage.
The packaging services are included in form of “food, beverage, medical, personal,
pharmaceutical and personal care products”. The headquarters of the company is seen to be
located at Melbourne, Victoria and Australia. The different market incidences of the company
are taken into account with “Dow Jones Sustainability Asia Pacific Index, the Carbon Disclosure
Leadership Index and the FTSE4Good index”. The primary motive of the study is understood
with the assessment of the inherent risk factors including specific control measures. The risk
comparison is done with evaluating the financial ratios of Amcor and comparing the same with
Fortescue Metals Group (Bhattacharjee, Maletta & Moreno, 2015).
Risk Analysis
Inherent Risk Control Measures
Compliance and control risks- This risk is
seen with the inadequate internal process
along with the awareness of internal control
failure potentially resulting in financial loss
and reputational damage. These risks for
Amcor deals with fraud, bribery or any form
of insider trading by the co-workers mainly
due to lack of integrity or awareness. These
are further discerned with failure to adhere to
the regulations relating to “antitrust,
competition laws and sanction regimes”
(Hsieh & Lin, 2015). The global reach and the
diverse activities are included with range of
jurisdictions and specific application of the
laws. The inherent risk is taken into account
with cyber-attack and loss of information. In
The company’s operating model and Code of
conduct named the ‘The Amcor Way’ is
responsible for providing a definite
framework for all policies across the group.
The controlling of the compliance risk
includes various procedures such as “Share
Trading Policy, Sanctions Policy and a
Competition Compliance Program”. These are
communicated on a periodic basis to the co-
workers of Amcor (Rose, 2015). The
maintenance of the awareness for these
factors are seen to be done by annual
compliance training wherever applicable for
the co-workers. In addition to this, Amcor is
seen to maintain a dedicated team for global
“Fraud Prevention Policy”. This policy is able

3AUDITING THEORY AND PRACTICE
this case there is significant threat in terms of
integrity, confidentiality and availability of
key information systems (Ruhnke & Schmidt,
2014).
to outline principals and the standards which
are concerned to minimise the risk of fraud.
Furthermore, the fraud prevention system of
the company is supported with global
Whistle-blower service provider and detailed
investigation procedure (DeFond et al., 2015).
Tax Risks- Amcor is recognised to operate in
40 countries with dynamic and unique tax
environment. The tax affairs of the operations
in the individual country may adversely
impact on the changes pertaining to the
regulatory regime along with the differences
in the interpretations of the local tax laws of
those countries (Hayes, Wallage &
Gortemaker, 2014).
The tax affairs of Amcor are managed as per
the use of tax risk framework which are
agreed and reviewed by Audit and
compliance committee on a regular basis.
Moreover, the framework ensures that the
significant types of the tax risks are taken into
account with utilising and monitored the
ERM methodology. The tax risks are
prioritised based on attention and the action
which may be taken in the key risk areas.
Active approach of the tax risk management
has pursued the approach with the appropriate
revenue and authority (Krishnan & Wang,
2014).
Product safety and risk of integrity- Being
the world’s largest company for packaging
and having more than 95% of sales into food,
beverage, tobacco and healthcare products
there is significant risk of integrity (Oktorina
& Wedari, 2015).
Amcor is committed for responsible and safe
packaging practices. The company is
committed for being partner to its customers,
who will be able to rely on the core products
of the company. In addition to this, the
company is committed towards product safety
and implementation of processes and controls,
trained crisis management teams and
continuous focus on quality (Han et al.,
2015).
Mergers and acquisition (M&A) risks- The The strategic development team of Amcor

4AUDITING THEORY AND PRACTICE
growth opportunities of Amcor are considered
to be dependent on the selection of suitable
acquisition targets in correct geographic
regions. The failure for being disciplined in
the selection is considered to be effective with
the integration and focusing on capturing
value which may impact the overall
operations. This may be having an adverse
effect on achievement of the expected
financial benefits (Arens et al., 2016).
works with the businesses to identify suitable
targets which are aligned with the overall
strategy of Amcor. The implementation of the
M&A framework is considered to instil target
selection along with preparation and planning
of the value capture (Mohammadi, 2015).
Country Risks- The operations at Amcor is
considered to be spread across 40 countries
with broad range of selection from legal,
regulatory or political systems. Some of this
is subject to rapid changes with civil unrest.
The profitability of these operations is able to
maintain and repatriate funds to Amcor which
may be impacted with the changes associated
to the regulatory regimes, currency
devaluations of compliance from local laws
from these countries (BOTEZ, D.2015).
Amcor has been able to continuously monitor
the proposed changes in regulatory regimes
which may affect the operations at Amcor.
The company is seen to elect the local
operations environment team which is
considered with strong customer relationships
(Huang, Lin & Raghunandan, 2015).
Evaluation of risks and control environment
The inference made from the various risk factors taken are evident with country risks,
mergers and acquisition, product safety and risk of integrity, tax risks, compliance and control
risks. The changes in preference of the consumers along with control risks are considered as
some of the other inherent risk factors. The different types of the measures taken by the company
is seen to address the company’s operating model and Code of conduct named the ‘The Amcor
Way’ and strategic development team, which works with the businesses to identify suitable
targets aligned with the overall strategy at Amcor. The company is seen to continuously build the

5AUDITING THEORY AND PRACTICE
innovation capability for achieving the objective of being an innovative leader in the packaging
industry. In addition to this, the company has a global Fraud Prevention Policy. This policy is
seen to clearly outline the principals and standardisation process to minimise the fraud
prevention program (Demartini & Trucco, 2016).
Comparison of the financial ratios with Fortescue Metals Group
Profitability Ratio Analysis
As per the net profit margin analysis and return on equity, Fortescue Metals Group is in a
better position and Amcor Limited is having a higher risk profile.
Profitability Ratio Analysis: -
Amcor Limited Fortescue Metals Group
Particulars 2016 2015 2014 2016 2015 2014
Revenue (A) 9421.3 9611.8 9964.5 7083 8574 11753
Net Profit/Loss (D) 671.1 680.3 677.8 985 316 2740
Common Stock(H) 784 1466 2028 984 7524 7569
Net Profit Margin (D/A) 7.12% 7.08% 6.80%
13.91
% 3.69% 23.31%
Return on Equity
(A/H)) 86% 46% 33.42% 100% 4% 36%
2016 2015 2014
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
7.12% 7.08% 6.80%
13.91%
3.69%
23.31%
Net Profit Margin
Amcor Limited Fortescue Metals Group

6AUDITING THEORY AND PRACTICE
2016 2015 2014 2016 2015 2014
0%
20%
40%
60%
80%
100%
120%
86%
46%
33%
100%
4%
36%
Return on Equity
Amcor Limited Fortescue Metals Group
Short-Term Liquidity Ratio Analysis
The decreasing current ratio of the company over the years has depicted that Fortescue
Metals Group is in a better position to pay back its liabilities (debt and accounts payable) with its
assets.
c) Short-Term Liquidity Ratio Analysis: -
Amcor Limited Fortescue Metals Group
2016 2015 2014 2016 2015 2014
Total Current Assets (A) 3193.1 3413 3326.5 2423 3529 4477
Total Current Liabilities (F) 3645.2 3674.4 3296 1634 1688 3270

7AUDITING THEORY AND PRACTICE
Current Ratio (A/F) 0.88 0.93 1.01 1.48 2.09 1.37
2016 2015 2014
0.00
0.50
1.00
1.50
2.00
2.50
1.48
2.09
1.37
0.88 0.93 1.01
Current Ratio
Fortescue Metals Group Amcor Limited
Interest Coverage Ratio Analysis
Fortescue Metals Group is having a better interest coverage ratio in compared to Amcor
Limited. This shows that Fortescue Metals Group can pay its interest expenses on outstanding
debt with more ease and has a lower risk profile.
Interest Coverage Ratio Analysis: -
Amcor Limited Fortescue Metals Group
2016 2015 2014 2016 2015 2014
EBIT 756 773 823 3,195 2,506 5,636
Interest Expenses 183.9 188.3 237 621 590 747
Interest Coverage
Ratio 4.110 4.104 3.471 5.145 4.247 7.545

8AUDITING THEORY AND PRACTICE
2016 2015 2014 2016 2015 2014
Amcor Limited Fortescue Metals Group
0.000
2.000
4.000
6.000
8.000
4.110 4.104 3.471
5.145 4.247
7.545
Interest Coverage Ratio
Interest Coverage Ratio
Efficiency Ratio Analysis
In terms of the efficiency ratio analysis Fortescue Metals Group is clearly in a better
position.
Efficiency Ratio Analysis: -
Amcor Limited
Fortescue Metals
Group
2016 2015 2014 2016 2015 2014
Revenue 9,421 9,612 9,965 7,083 8,574 11,753
Expenses 201.2 196.5 221.4 675 644 741
Efficiency Ratio 2% 2% 2% 10% 8% 6%

9AUDITING THEORY AND PRACTICE
2016 2015 2014 2016 2015 2014
Amcor Limited Fortescue Metals Group
0%
2%
4%
6%
8%
10%
12%
2% 2% 2%
10%
8% 6%
Efficiency Ratio
Efficiency Ratio
Market Performance Analysis
The market performance has been depicted with EPS determination, which is able to
show that Fortescue Metals Group is in a better position.
Earnings per share Analysis: -
Amcor Limited Fortescue Metals Group
2016 2015 2014 2016 2015 2014
Basic
EPS 21 57 56 32 10 88

10AUDITING THEORY AND PRACTICE
2016 2015 2014 2016 2015 2014
Amcor Limited Fortescue Metals Group
0
10
20
30
40
50
60
70
80
90
100
21
57 56
32
10
88
Basic EPS
Solvency Ratio Analysis
In terms of solvency ratio analysis Amcor is in a slightly in a better position with 0.52
debt equity ratio.
Solvency Ratio Analysis: -
Amcor Limited Fortescue Metals Group
2016 2015 2014 2016 2015 2014
Long
Term
Debt 3,829 2,880 3,013 5,188 7,188 7,159
Equity 2002.9 2114.2 2222.2 8,406 7,537 7,583
Debt
Equity
Ratio 0.52 0.73 0.74 1.62 1.05 1.06

11AUDITING THEORY AND PRACTICE
2016 2015 2014 2016 2015 2014
Amcor Limited Fortescue Metals Group
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
0.52
0.73 0.74
1.62
1.05 1.06
Solvency Ratio
Debt Equity Ratio
Conclusion
The important risk factors for Amcor Limited is discerned with country risks, mergers
and acquisition, product safety, risk of integrity, tax risks, compliance and control risks. The
changes in preference of the consumers along with control risks are considered as some of the
other inherent risk factors. As per the depiction of the ratio analysis, higher risk is determined for
Amcor Limited. The competitor company Fortescue Metals Group is clearly in a better position.

12AUDITING THEORY AND PRACTICE
Reference
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