Auditors and Corporate Governance

This report focuses on the importance of ASX corporate governance and its impact on risk assessment, audit strategies, and audit evidence. It discusses the principles and recommendations of corporate governance and analyzes their influence on entities and audits.

Running head: AUDITORS AND CORPORATE GOVERNANCE
Auditors and corporate governance
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Executive summary
Aim of the report is concentrating on the importance of ASX corporate governance, its
principles and recommendations. The report will discuss how the adoption of these principles
as well as recommendations by the entities will have impact on the risk assessment
procedure, audit strategies, audit approaches and the audit evidences. Based on the details
of corporate governance principles and recommendation the report will analyse the impact of
full adoption of corporate governance principles as well as recommendations on entities its
influence on audit.

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Table of Contents
Introduction.................................................................................................................................2
Principles of ASX corporate governance....................................................................................2
Principle 1 –serving the management with solid foundation and oversight............................2
Principle 2 – effective board’s structure for adding value.......................................................3
Principle 3 – culture of acting ethically, responsibly and lawfully............................................4
Principle 4 – safeguarding integrity of the corporate reports..................................................5
Principle 5 – making balanced as well as timely disclosure...................................................6
Principle 6 – Respecting rights of the security holders...........................................................6
Principle 7 – recognising along with measuring risks.............................................................6
Principle 8 – remunerate in fair and responsible manner.......................................................7
Impact of full adoption of corporate governance principles as well as recommendations on
entities.........................................................................................................................................8
Adoption of ASX corporate governance and its influence on audit............................................9
Conclusion..................................................................................................................................9
Reference..................................................................................................................................11

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Introduction
Corporate governance combines the processes, laws or rules through which the
businesses are controlled, regulated and operated. The term further includes both external as
well as internal factors that may have impact on the interest of the organization’s stakeholders
including suppliers, shareholders, management and government regulators. Apart from that,
the board of directors is accountable in creating framework for the corporate governance that
can be used to align the business conducts with the objectives in the best way. Particular
purposes those can be outlined under corporate governance consists measurement of
performance, action plans, practice for disclosures, decision regarding the executive
compensation, dividend policies, process to reconcile conflicts interests as well as implicit or
explicit contracts among the stakeholders and the entity (Asx.com.au 2019).
Principles of ASX corporate governance
ASX corporate governance outlines the recommended practices under corporate
governance for the ASX listed organizations and those who are as per the view of the
councils are expected to achieve good outcomes for the governance and met reasonable
expectations under most of the situation of most of the investors. However, it has been
recognized by the council that the corporate governance can be adopted legitimately based
on different factors like corporate culture, size, history and complexity (Buckby, Gallery and
Ma 2015) Owing to that, principles along with the recommendations are not compulsory and
do not prescribe that the same must be complied with by any entity.8 principles as well as
recommendations of ASX corporate governance are as follows –
Principle 1 –serving the management with solid foundation and oversight
An entity listed under ASX shall outline respective responsibilities and roles clearly
regarding its management as well as board and review their performance on regular basis.
Different recommendations provided for this principle are as follows –
Recommendation 1.1
An entity listed under ASX shall have and provide disclosure regarding board charter
explaining –
 Respective responsibilities along with roles of the management and board and
 Matters those are reserved expressly to board and those expressly delegated to the
management (Tricker and Tricker 2015)
Recommendation 1.2
An entity listed under ASX shall –
 Offer the security holders with all the information those are considered to be material
with regard to the possession pertinent to the decision concerning whether director
shall be elected or re-elected.
 Undertake proper checks prior to appointment of senior executive or director or
keeping someone forward while election is conducted for the post of director
(Asx.com.au 2019).

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Recommendation 1.3
An entity listed under ASX must have agreement in writing with each of its directors as
well as senior executives outlining terms related to their appointments.
Recommendation 1.4
Company secretary of an ASX listed organization plays crucial role in holding up the
board’s effectiveness as well as its committees. The company secretary though chair, is
directly answerable to the board regarding all the matters for doing the same with proper
functioning of board (Du Plessis, Hargovan and Harris 2018)
Recommendation 1.5
An entity listed under ASX shall –
 Though its board committee or board set up objectives those are measurable for
attaining gender diversity in board composition, general workforce and senior
executives
 Have the policies those are diverse and shall disclose the same in appropriate manner
 With regard to each reporting period disclose (i) set up measurable objectives to attain
gender diversity for the concerned period (ii) progress of the firm towards attaining the
said objectives and (iii) either – (a) required portion of women and men on position of
senior executives, board and across entire workforce or (b) if the organization is
considered as relevant employer as per Workplace Gender Equality Act, most recent
‘gender equality indicators’ of the entity as per the definition and publication of the
act. If the organization falls under S&P/ASX 300 Index at begining of reporting period,
measurable objective to achieve gender diversity in board composition shall have 30%
of the directors from each gender within the specified period (Chapple, Clout and Tan
2014).
Recommendation 1.6
An entity listed under ASX shall –
 Have the process and disclose the same on periodic basis to analyse board’s
performance, board’s committee and the individual directors.
 For each of the reporting period disclose whether the performance analysis has been
carried out in confirmation with the process during the period or with regard to that
period (Asx.com.au 2019).
Principle 2 – effective board’s structure for adding value
An ASX listed entity’s board must be of appropriate size and must possess the
commitments, knowledge and skills collectively for the entity as well as for the industry under
which the entity operates. This will enable it discharging the duties in effective manner for
adding value.
Recommendation 2.1
An ASX listed entity’s board –

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 Have the nomination committee consisting of (i) minimum 3 members with majority of
the independent directors and (ii) the committee shall be chaired by independent
director and disclose (iii) committee’s charter (iv) committee’s member (v) at the close
of every reporting period, how many times committee met during the concerned period
and member’s individual attendance at the held meetings.
 In case the entity does not have any nomination committee, it shall disclose the fact as
well as the procedures followed by it for addressing succession issue of the board.
Further it shall assure that board is consists of proper balance for knowledge, skill,
diversity, experience and independence that will allow it discharging the duties as well
as responsibilities in effective manner (Klettner, Clarke and Boersma 2014)
Recommendation 2.2
An entity listed under ASX must have the skills matrix for the board outlining the skill
mix that it has for the current period or for which it is looking for achieving under its
membership and must disclose the same.
Recommendation 2.3
An ASX listed entity is required to disclose –
 Director’s name those are considered by board for becoming independent directors
 If director has position, relationship or interest however as per the opinion of the board
the same will not compromise the director’s independency, interest nature, relationship
or position in question
 Service length for each of the directors (Asx.com.au 2019).
Recommendation 2.4
Majority of board of an ASX listed entity shall be of independent nature
Recommendation 2.5
Board’s chair on an ASX listed organization shall be of independent nature director and
the same person shall not be the CEO of the organization.
Recommendation 2.6
An ASX listed entity must have induction program for new directors and review the
same on periodic basis.
Principle 3 – culture of acting ethically, responsibly and lawfully
An entity listed under ASX shall implement as well as reinforce the culture on
continuous basis all over the organization for acting responsibly, lawfully and ethically.
Recommendation 3.1
An entity listed under ASX shall coherent as well as disclose the entity’s values
(Yarram 2015)
Recommendation 3.2
An entity listed under ASX shall –

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 Have the code of conduct and disclose the same for the entity’s employees, senior
executives and directors
 Assure that board committee or board are informed regarding material breach of code,
if any (Beekes, Brown and Zhang 2015).
Recommendation 3.3
An entity listed under ASX shall –
 Have the whistleblower policy and disclose the same
 Assure that board committee or board are informed regarding material incidence, if
any, are reported (Asx.com.au 2019).
Recommendation 3.4
An entity listed under ASX shall –
 Have the corruption as well as anti-bribery policy and disclose the same
 Assure that board committee or board are informed regarding material breaches, if
any, regarding the policy.
Principle 4 – safeguarding integrity of the corporate reports
An entity listed under ASX shall have proper procedures for verifying integrity of the
corporate reports.
Recommendation 4.1
An ASX listed entity’s board –
 Have the audit committee consisting of (i) at least 3 members with all being non-
executive directors out of which majorities are independent directors and (ii) the
committee shall be chaired by independent director who is not the board’s chair and
disclose (iii) committee’s charter (iv) experience and qualification of members (v) at the
close of each reporting period, how many times committee met during the concerned
period and member’s individual attendance at the held meetings.
 In case the entity does not have any audit committee, it shall disclose the fact as well
as the procedures followed by it for safeguarding and verifying integrity of corporate
reporting (Chan, Watson and Woodliff 2014)
Recommendation 4.2
An ASX listed entity’s board shall receive the declaration from CFO and CEO that as
per their opinion the entity’s financial records are maintained properly and complied with
appropriate accounting standards before the approval of the financial statements for the
concerned financial period.
Recommendation 4.3
An ASX listed entity’s board shall disclose the procedure for verifying integrity of
corporate report released periodically by it to the market which is not reviewed or audited by
the external auditor (Asx.com.au 2019).

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Principle 5 – making balanced as well as timely disclosure
An ASX listed entity are required to make the disclosures in balanced and timely
manner regarding the fact that a reasonable person will expect having material impact on
value or price of the entity’s securities.
Recommendation 5.1
An ASX listed entity shall have the written policy to comply with continuous obligation
for disclosures and the same must be disclosed.
Recommendation 5.2
An ASX listed entity shall assure that the board obtains copies of all the market
announcements those are material in prompt basis after those are made (Asx.com.au 2019).
Recommendation 5.3
An ASX listed entity that provides new as well as substantive analysts or investors
presentation shall release the presentation material copy on ASX Market Announcement
Platform.
Principle 6 – Respecting rights of the security holders
An ASX listed entity shall deliver the security holders with the appropriate facilities as
well as information that will allow them exercising their effective rights as security holder
Recommendation 6.1
An ASX listed entity shall deliver information regarding itself as well as its governance
to the investors through the websites
Recommendation 6.2
An ASX listed entity shall have programs related to investor’s relations that will
facilitate in 2 way communications with the investors in effective manner (Asx.com.au 2019).
Recommendation 6.3
An ASX listed entity shall disclose the way in which it facilitates as well as encourages
the participation while meeting the security holders
Recommendation 6.4
An ASX listed entity shall assure that all the substantive resolution at security holder’s
meeting are decided through poll instead of through showing hands.
Recommendation 6.5
An ASX listed entity shall offer the security holders with option of receiving
communications from as well as sending communications to entity along with its security
registry though electronic means (Asx.com.au 2019).
Principle 7 – recognising along with measuring risks
An ASX listed entity must establish sound framework for managing risks and reviewing
the effectiveness of the framework on periodic basis.

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Recommendation 7.1
An ASX listed entity’s board shall
 Have the committee for overseeing the risks consisting of (i) minimum 3 members out
of which majority are independent directors and (ii) the committee shall be chaired by
independent director who is not the board’s chair and disclose (iii) committee’s charter
(iv) committee’s member (v) at the close of each reporting period, how many times
committee met during the concerned period and member’s individual attendance at the
held meetings.
 In case the entity does not have any risk committee, it shall disclose the fact as well as
the procedures followed by it for safeguarding and verifying integrity of corporate
reporting (Asx.com.au 2019).
Recommendation 7.2
The board committee or the board shall –
 Review risk management framework of the entity at least once in a year for satisfying
that the entity is sound and is operating with the due regard to risk appetite that is set
by the board.
 Disclose for each of the reporting period whether the review has been taken place
(Asx.com.au 2019).
Principle 8 – remunerate in fair and responsible manner
An ASX listed entity shall pay sufficient remuneration to the director for attracting as
well as retaining high quality senior executives as well as motivate them in aligning their
interests with value creation for shareholders.
Recommendation 8.1
An ASX listed entity’s board shall
 Have the remuneration committee consisting of (i) minimum 3 members where majority
are independent directors and (ii) the committee shall be chaired by independent
director and disclose (iii) committee’s charter (iv) committee’s member (v) at the close
of every reporting period, how many times committee met during the concerned period
and member’s individual attendance at the held meetings.
 In case the entity does not have any remuneration committee, it shall disclose the fact
as well as the procedures followed by it for assuring that the composition and amount
of remuneration paid to senior executives and directors are appropriate and not in
excess (Asx.com.au 2019).
Recommendation 8.2
An ASX listed entity shall disclose the practices and policies separately regarding the
non-executive as well as executive director’s and senior executive are remuneration (Williams
2017)

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Impact of full adoption of the corporate governance principles as well as
recommendations on entities
Full adoption of the ASX corporate governance principles along with recommendations
helps the entities in different ways as mentioned below –
Principle 1
Segregating responsibilities among the management and board in clear manner will
assist in managing the expectations as well as avoiding the misunderstandings regarding
their respective accountabilities and roles. Further, before appointing any person as director it
can be assured that required checks have been undertaken (Sarens, Christopher and Zaman
2013)
Principle 2
Effective and high performing board is crucial for proper governance and hence, board
shall consist of proper number of the independent director those can throw challenges to the
management and make them accountable for their responsibilities. As the corporate
governance, principle 2 requires the board to be of adequate size for meeting the business
requirement it assures that the board has appropriate composition for promoting the
confidence of the investors and meeting the set objectives (Pilcher et al. 2013).
Principle 3
Reputation is the most valuable asset for any entity listed under ASX and is most
difficult to store, if damaged. Good quality of corporate governance is dependent upon the
personal integrity of boards and management. It is not possible to legislate the personal
integrity however the confidence of investors can be improved through clear articulation of
code of conduct that can be implemented through the corporate governance.
Principle 4
Though the responsibility of financial report is assigned to the board, separate audit
committee can help is implementing effective as well as efficient mechanism for bringing
focus, transparency as well as independent judgement required for overseeing process of
corporate reporting (Hoque, Islam and Azam 2013)
Principle 5
Listed entity shall have its policy in writing that will assure that the entity is confirmed
with the obligation that will assure that all the investors will have equal as well as timely
access to the information considered to be material regarding the entity. This information
includes the information regarding its ownership, performance, governance and position.
Principle 6
It allows the security holder to hold the management responsible for the performance
of the entity and hence, the management tries to perform its duties with required guidelines
(Ghafran and O’Sullivan 2013).
Principle 7

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With adequate information regarding the investment risk the investors are able to take
proper and informed decisions regarding investment in the entity. Further, the good practices
for risk management can help in protecting established value as well as recognising and
capitalising the opportunities for creating value
Principle 8
Proper remuneration to the director attracts as well as helps in retaining high quality
senior executives as well as motivates them in aligning their interests with creation of value
for shareholders (Contessotto and Moroney 2014).
Irrespective of above mentioned benefits some of the organisations feel that it will
segregate the ownership and management, will leave scope for mislead the financial
instruments and regulation costs are high.
Adoption of ASX corporate governance and its influence on audit
Risk assessment – as per principle 7 of corporate governance all the entities shall take into
consideration establishment of internal audit function to assess the effectiveness and
adequacy of internal control as well risk management procedures. Further, the entity is
required to disclose the fact that they do not have any internal audit committee and the way in
which it is analysing and enhancing the efficiency of the internal control along with risk
management. It further, recommends that internal audit head must have direct reporting line
to audit committee or the board for maintaining independency as well as objectivity
(Christensen et al. 2015).
Audit approach and audit strategy – 2 principles that are principle 4 and principle 7 are
relevant for audit approach as well as audit strategies to be implemented while carrying out
the audit. Principle 4 requires that listed entity shall have the audit committee consisting of at
least 3 members with all being non-executive directors where majority are independent
directors and the committee shall be headed by independent director who is not the board’s
chair. It further requires that the members shall have required knowledge of accounts, finance
and experience. Hence, based on the report of internal audit committee, the external audit
committee can outline the audit strategies as well as audit approach (Chapple and Truong
2015).
Audit evidence – as per principle 4, an entity listed under ASX shall have proper procedures
for verifying integrity of the corporate reports. Further, the listed entity’s board shall receive
the declaration from CFO and CEO that as per their opinion the entity’s financial records are
maintained properly and complied with appropriate accounting standards before the approval
of the financial statements for the concerned financial period. It makes the audit evidences
authentic while carrying out the audit (Bédard and Compernolle 2014).
Conclusion
It is established from above discussion that corporate governance is focussed on
corporate success along with economic growth. It helps in maintaining confidence of investors
which in turn help the entity to raise funds in effective and efficient manner. Further the
corporate governance and recommendation help the auditor in setting up the audit approach,
audit strategies, gathering audit evidence and setting up the level of reliance upon it and
analysing the process of risk assessment.

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