Blackmores Ltd: Corporate Governance and Risk Management Analysis

This report provides an in-depth analysis of Blackmores Ltd's corporate governance practices and risk management strategies. It evaluates the company's adherence to ASX Corporate Governance Principles and its procedure of risk management to tackle adverse situations. The report also discusses the auditing standard of ASA 570 and various ratio computations.

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AUDIT, ASSURANCE & COMPLIANCE

Blackmores Ltd
Executive summary
In the modern global scenario, an organization’s success clearly relies on its various
strategies that allow it to attain all goals and objectives. The major role in this context is
played by adoption of corporate governance practices or principles and management of risks.
This highlights the fact that implementation of proper risk management strategies and
corporate governance together can allow an organization survive in the market and
outperform their competitors as well. With the help of this report, the evaluation of
Blackmores Ltd has been taken into account for in-depth analysis. The company is listed on
the Australian Stock Exchange and has adhered to the principles of corporate governance
within its affairs. Moreover, this report initiates with the implications of ASX Corporate
Governance Principles that has been looked after by Blackmores Ltd and its procedure of risk
management to tackle adverse situations. Thereafter, the auditing standard of ASA 570 has
been discussed to enhance the discussion that is also accompanied by various ratio
computations.
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Contents
Introduction...........................................................................................................................................3
Implications of ASX Corporate Governance Principles..........................................................................3
Risk assessment.....................................................................................................................................6
Conclusion.............................................................................................................................................8
References.............................................................................................................................................9
Appendix.............................................................................................................................................11
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Blackmores Ltd
Introduction
In the corporate environment of Australia, there has been several alterations in the industry of
consumer staples. In relation to Blackmores Ltd, the company is involved in the
development, marketing, and sales of health products for animal and humans that includes
mineral, herbal, and vitamin nutritional supplements. The company’s primary segments
comprise of China, Australia, and others. The company was founded in the year 1930 and is
in Warriewood, Australia. It offers its items and services through pharmacies, online stores,
merchandizers, groceries, health food stores, and various practitioners. Because of its
strategies and measures, the company has gained the position of number one health food store
brand in relation to ‘Fusion Health’ and number one practitioner brand in relation to
Bioceuticals. Moreover, this is the reason why the company has been regarded as the most
trusted brand in relation to supplements and vitamins in Australia (Blackmore, 2017).
Overall, the strong operations in 2017 have assisted Blackmores in attaining a major position
in the entire industry.
Implications of ASX Corporate Governance Principles
Blackmores Ltd has appropriately adhered to the principles of corporate governance as listed
under the recommendations of ASX. This can also be proved through its annual report and
statement of corporate governance as disclosed under reporting guidelines. The various
corporate governance principles adhered to by the company are as follows:
a. Laying enhanced foundations for oversight and management
The company’s Board is liable for the governance framework that operates under the
approved policies, practices, and charters of the Board. Further, the board committee assists
the Board in fulfilling their role of governance. Moreover, such committee together with the
Board reviews the governance framework of the company and its related practices to ensure
they align with statutory changes. The Board has also designed a formal charter that sets out
structure, composition, and responsibilities of the Board. The matters that necessitate board
approval are also included in such charter (Peirson et. al, 2015). Besides, prior to the
appointment of directors, the Board adopts proper checks and offers shareholders with
significant information that is important to the decision of re-electing or electing a director.
Nevertheless, such directors attain formal engagement letters that sets out conditions, terms,
and expectations of their engagement. The company also has comprehensive guidelines in
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relation to performance of executives (Merchant, 2012). These guidelines are underpinned by
measures and objectives developed through aggregate processes of performance
management. However, there is also an induction process to offer a concise experience for
senior executives that ensures an efficient induction into the company’s practices and culture.
b. Structuring of board to add value
The company has a nominations committee in place that consists of the board and is a
committee of the same. Further, the meetings and proceedings of such committee are
regulated by the provisions of the Constitution. The main objective of such committee is to
assist and advise the board in catering its obligations towards the shareholders (Blackmore,
2017). Moreover, the Board also reviews such composition and evaluates nominations for
fresh appointments to make sure there is right balance of experience and skills. In addition to
this, the Board also evaluates the independence of all non-executive directors. Moreover, the
company does not consider time-period as a significant disqualifying criterion for values and
independence of directors in serving the Board. The Board also reviews current skills
required by the directors so that any beneficial opportunities for the future are not disregarded
by the company.
c. Acting ethically and responsibly
The company has a code of conduct for its employees, senior executives, and directors that
was re-launched in 2016. It ensures that the employees and directors must operate in a
manner that is consistent with effective practices of commercial and public business and are
also committed to transparent and open communications. Such code of conduct offers
employees and directors with guidance on what is considered as acceptable behaviour.
Overall, the company requires that all its employees, managers, and directors are trustworthy,
honest, and committed to enhanced standards of business, professional, and personal
behaviour.
d. Protecting integrity in financial reporting
The company is committed to a transparent approach for reporting and auditing of financial
performance. The Board has also framed audit and risk committee for such purpose.
Moreover, it is also required that the directors have necessary knowledge and skills to
enhance the approach of reporting, thereby facilitating in assisting users in their decision-
making processes (Blackmore, 2017). Furthermore, prior to the approval of board in relation
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to the company’s financial statements, the Board attains a declaration from the CFO and CEO
that in their viewpoint, the company’s financial records are appropriately maintained and that
the financial statements adequately adhere to the required accounting standards, thereby
offering a true and fair view of the company’s financial performance and position.
e. Make balanced and timely disclosure
The company has framed various practices and policies to ensure that the disclosure of
significant matters associated to the company occurs in a honest, timely, and balanced way
that can ensure equivalent access on the part of investors to materialistic information
including the company’s governance, ownership, performance, and position (Blackmore,
2017). Furthermore, a continuous disclosure policy of the company is also reflected in its
website wherein stakeholders can attain the same for making relevant decisions.
f. Respecting shareholders’ rights
Blackmores Ltd strives to offer to its shareholders and investing public significant
information in a regular, detailed, timely, and factual manner. Furthermore, the rights of
shareholders are respected through communication of information from the annual report,
ASX disclosures, explanatory and notice memoranda, company’s website, etc. Such
shareholders also have the option to attain electronical communications from the company
and the registry. The Board also ensures that the annual report comprises of important
information about the company’s operations.
g. Manage and recognize risk
There is an audit and risk committee designed for recognizing and managing risks. Moreover,
the Board is responsible to maintain, establish, demonstrate, and operate an adequate
framework of business controls. Such framework comprises of all affairs whether technical,
commercial, operational, administrative, or financial. The Board is also liable for monitoring
the system of internal controls as there is no prevalence of internal audit function. However,
specialists are engaged to evaluate and review control processes. Nevertheless, the board also
ensures that recommendations offered by external advisers and auditors are investigated and
where required, corrective actions are taken to ensure prevalence of proper internal control
environment practices (Bauer & Hann, 2010).
h. Remunerate responsibly and fairly
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A People and Remuneration Committee has been established by the company whose
main duty is to consider the strategy of remuneration and to make recommendations
that are in the best company interests and its shareholders as well. The company
remunerates its people responsibly and fairly and such policy is linked and transparent
to both the company’s and individual’s performance (Benabou et. al, 2010).
Risk assessment
The company Blackmores Ltd has various segments that are vulnerable to several types of
risks like operational risks, financial risks, strategic risks, and other risks. This is the reason
why the company has designed a framework of risk management within its operations for
managing such material risks (Lapsley, 2012).
The company’s strategy is focused on the following areas:
a. The company focuses on various segments like Asia, Bioceuticals, Australia, and
other regions in order to facilitate enhanced provision of vitamins and nutritional
supplements. However, it also faces major competition in such field, thereby resulting
in a major risk (Francis et. al, 2013).
b. The company prioritizes strategic competitive positioning through in-store
merchandising and customer planning days. Overall, the company focuses on
distribution, sales, and marketing of products to consumers (Leo, 2011).
c. Blackmores also exerts special importance towards increased brand investments in
order to attain product leadership in the entire world.
ASA-570 plays a key role in relation to management of risks in an organization. It requires
the usage of analytical processes that must be used by the auditors to facilitate proper audit
processes. This standard also provides how such analytical processes can assist auditors in
forming an opinion upon the financial statements. Further, it also requires that the auditors
must investigate the differences or fluctuations from the forecasted figures. Nonetheless,
based on this standard, the main goal of an auditor must be to attain accurate and reliable
audit evidence with the provision of substantive analytical processes and thereafter, perform
and design the same to check the accuracy and consistency of the financial statements
(Carmichael & Graham, 2012).
The analytical processes used by auditors comprises of the analysis methods like regression
analysis, the calculation of ratios and comparison of the same with that of prior years as it
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helps in shedding light on the performance, and comparing the balance in account of trial
balance with the previous year figure (Elder et. al, 2010).
Overall, audit risk can be evaluated through use of analytical and audit processes. In the first
scenario, audit processes can be used to frame an audit strategy to determine the level of risk
associated to the business. While some risks may be inherent, yet some risks may also
emerge due to the company’s business affairs (Gay & Simnet, 2015). In relation to this,
analytical ratios assist in advocating about the risk to the business owners. The auditor can
shed light on the performance of the company through an analysis of the ratios. Going by the
financial statements of the company, it can be noted that GP ratio enhanced in the past five
years together with an increment of the net profit ratio. Hence, the auditor can comment that
the performance of the company and business was significantly high. The auditor can further
comment from the ratios that the liquidity of the business is significantly high as the current
ratio and quick ratio projects the presence of liquidity (Needles & Powers, 2013). Overall,
significant steps to mitigate risk can be facilitated through appointment of internal auditors
and experts in various important fields so the current ratios are adequate to meet the business
obligations. The business can undertake risky since it has the presence of liquidity (Laux,
2014). Moreover, adoption of digital technology and segments can also assist auditors in
getting rid of loss of financial information.
2013 2014 2015 2016 2017
GP ratio =
GP/net sales*100
30.8868
5
30.8357
3
68.6440
7
70.1534
2
65.9451
7
NP ratio=
NP/sales*100 7.64526
7.20461
1
9.95762
7 13.947
8.51370
9
Current ratio =
CA/CL
2.75555
6
2.25862
1
1.63478
3
1.53645
8
1.81118
9
Quick ratio =
Quick assets/ current liabilities
1.86666
7
1.58620
7
1.29565
2
0.93229
2
1.21678
3
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Conclusion
From the corporate governance practices of Blackmores Ltd, it can be seen that the company
has duly focused on the same, thereby offering itself a stage to become a leader in the field of
vitamins and supplements. Besides, the decision of not acting illegally and immorally has
also played a key role in enhancing the company’s competitive position in the industry.
Moreover, the importance is given to disclosure strategies clearly shed light on the fact that
the company focuses towards its stakeholders in an effective way. Nevertheless, ratios also
prove that the company has properly performed in 2017.
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References
Bauer, R. and Hann, D. (2010) Corporate environmental management and credit risk.
Maastricht University.
Benabou, R. and Tirole, R. (2010) Individual and Corporate Social responsibility. Ecnomica.
[online]. 11, pp. 1-19. Available from: https://doi.org/10.1111/j.1468-0335.2009.00843.x
[Accessed 26 April 2018]
Blackmore. (2017) Blackmores annual report and accounts 2017 [online]. Available from:
https://www.blackmores.com.au/about-us/investor-centre/annual-and-half-year-reports
[Accessed 27 April 2018]
Carmichael, D.R. and Graham, L. 2012. Accountants Handbook. Financial Accounting and
General Topics, John Wiley & Sons.
Elder, J. R, Beasley S. M. and Arens A. A. (2010) Auditing and Assurance Services. Person
Education, New Jersey: USA
Francis, R. N., Harrast, S., Mattingly, J. and Olsen, L. (2013) The relation between
accounting conservatism and corporate social performance: An empirical investigation.
Business and Society Review. [online]. 118 (2), p. 193 - 222. Available from: doi:
10.1111/basr.12008 [Accessed 26 April 2018]
Gay, G. and Simnet, R. (2015) Auditing and Assurance Services. McGraw Hill
Laux, B. (2014) Discussion of The role of revenue recognition in performance reporting.
Accounting and Business Research. [online]. 44(4), 380-382. Available from:
https://doi.org/10.1080/00014788.2014.897867
Leo, K. J. (2011). Company Accounting. Boston:McGraw Hill
making: Achef’s quest for creative freedom. Long range planning [online]. 43, 408-430.
Available from: https://doi.org/10.1002/job.461 [18 April 2018]
Merchant, K. A. (2012) Making Management Accounting Research More Useful. Pacific
Accounting Review. [online]. 24(3), 1-34. Available from:
https://pdfs.semanticscholar.org/6ccf/f78a452763f17ed5e4f4ddc6b96703801403.pdf
Needles, B.E. & Powers, M. (2013) Principles of Financial Accounting. Financial
Accounting Series: Cengage Learning.
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Peirson, G, Brown, R., Easton, S, Howard, P. and Pinder, S. (2015) Business Finance, 12th
ed. North Ryde: McGraw-Hill Australia.
Lapsley, I. (2012) Commentary: Financial Accountability & Management. Qualitative
Research in Accounting & Management. [online]. 9(3), pp. 291-292. Available from
https://doi.org/10.1111/1468-0408.00081
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Appendix
2013-06 2014-06 2015-06 2016-06 2017-06
Gross profit 101 107 324 503 457
Net sales 327 347 472 717 693
GP ratio =
GP/net sales*100
30.88685 30.83573 68.64407 70.15342 65.94517
2013-06 2014-06 2015-06 2016-06 2017-06
Net income 25 25 47 100 59
Net sales 327 347 472 717 693
NP ratio=
NP/sales*100
7.64526 7.204611 9.957627 13.947 8.513709
2013-06 2014-06 2015-06 2016-06 2017-06
current assets 124 131 188 295 259
current liabilities 45 58 115 192 143
Current ratio =
CA/CL
2.755556 2.258621 1.634783 1.536458 1.811189
2013-06 2014-06 2015-06 2016-06 2017-06
current assets 124 131 188 295 259
Inventories 40 39 39 116 85
Quick assets =
C.A - inventories
84 92 149 179 174
current liabilities 45 58 115 192 143
Quick ratio =
Quick assets/ current
1.866667 1.586207 1.295652 0.932292 1.216783
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liabiltiies
13