Concept of Corporate Governance - Doc

Running head: AUDIT, ASSURANCE AND COMPLIANCE
Audit, Assurance and Compliance
Name of the Student
Name of the University
Authors Note
Course ID

1AUDIT, ASSURANCE AND COMPLIANCE
Table of Contents
Executive Summary:..................................................................................................................2
Introduction:...............................................................................................................................3
Implementation of ASX Corporate Governance Principles:......................................................3
Risk Assessment:.......................................................................................................................6
Nature of the company:..............................................................................................................6
Market Overview:......................................................................................................................6
Regulatory Authority:................................................................................................................7
Business Strategy:......................................................................................................................7
Relevant Audit Risk:................................................................................................................17
Steps taken to reduce the risks:................................................................................................17
Conclusion:..............................................................................................................................18
Reference List:.........................................................................................................................19

2AUDIT, ASSURANCE AND COMPLIANCE
Executive Summary:
The concept of corporate governance is regarded as the system of rules and procedure that is
used by the organization for directing and controlling. Corporate governance is concerned
with balancing the interest of the organization’s several stakeholders, management,
financiers, government and community. The present report focuses on the implications of the
ASX principles of corporate governance for BHP Billiton. The study would conceptually
provide an explanation of the corporate governance principles applied by the BHP Billiton.
Additionally, a risk assessment relating to relevant business risk for BHP Billiton would be
explained as well with nature of the company’s business and the market overview.

3AUDIT, ASSURANCE AND COMPLIANCE
Introduction:
BHP Billiton is one of the Anglo-Australian multinational mining, petroleum and
metal company. BHP Billiton is a duel listed public company having its headquarter in
Melbourne, Victoria in Australia (BHP Billiton 2018). BHP Billiton was founded during the
year 1885 and in the year of 2017 the company was ranked as the world’s largest mining
company based on the market capitalization and held as the Australia’s third largest company
in terms of revenue that significantly triple folded between 2004 and 2012.
BHP Billiton was formed in the year 2001 with the merger of between the Broken
Hill Proprietary Company Ltd and Anglo-Dutch Billion Plc turning out to be a dual-listed
company. BHP Billiton Australia limited is primarily listed on the Australian Securities
Exchange while the English registered PLC is primarily listed on the London Stock Exchange
and it is held as the constituent of the FTSE 100 index (BHP Billiton 2018). The major
purpose of the stud is understanding the corporate governance principles of BHP Billiton and
lay down the comprehensive explanation of the corporate risks.
Implementation of ASX Corporate Governance Principles:
The philosophy of the BHP Billiton corporate governance goes further than the
obedience. The company believes that a high quality governance structure helps in acting as
the support in the long run value creation. Strong process is placed to make sure that
delegation of authority flows through the Board and executive leadership team into the
organization. Meanwhile the responsibility of the board flows upward from the group to
shareholders (Dodd 2017). The charter of the governance framework of the BHP Billiton
embodies the corporate purpose, strategy and values to foster culture and higher ethical
standards and corporate integrity.

4AUDIT, ASSURANCE AND COMPLIANCE
As the part of shareholders rights it engages with the shareholders and communicates
with them to make their views known. BHP Billiton uses the wide range of formal and
informal medium of communication to engage with the shareholders (Tricker and Tricker
2015). Additionally, BHP Billiton has robust mechanism of ensuring that all the directors of
the company should remain aware of the issues raised and have the better understanding of
the present views of the shareholders.
In compliance with the laying the foundations for management and oversight the role
of the board is to represent the shareholders. The board of the BHP Billiton responsibly
creates value and delivers the value with the help of effective governance (Allen 2017). The
board of directors lay down the solid foundations in making a contribution in the decision
making process. The governance report of the board provides that BHP Billiton has adopted
and implemented the foundations of reserving its considerations and decision making
authority of delegating the responsibilities. The document of the BHP Billiton governance
states the role of board’s chairman and the role and conduct of the Non-Executive Directors.
The governance documents provides secretary of the company as the accountable person for
advising the chairman, the board and the directors regarding the subject of governance
procedure.
In accordance with the principle of structure of board composition BHP Billiton
present has nine members. The non-executive directors are regarded by the board as the
independent management and free from any form of business associations or any other
circumstances that may materially create an interference with the board’s objectives
(McCahery et al. 2016). The board of directors of BHP Billiton have maintained a suitable
balance the executive and non-executive directors in order to promote the interest of the
shareholders that govern BHP effectively.

5AUDIT, ASSURANCE AND COMPLIANCE
Agreeing to the principles of Integrity in corporate reporting Risk and the audit
committee of BHP Billiton helps in making sure that the financial statements are in
accordance with the integrity. The risk and the audit committee of the BHP Billiton assesses
and provides recommendations to the board regarding the correctness of the accounting
policies and judgments to company with the relevant accounting standards (Aguilera, Judge
and Terjesen 2018). The company has included formal adoption of the financial statements so
that BHP Billiton can maintain the integrity of financial reporting.
Complying with the principles of remuneration the company has set up a
remuneration committee that helps in provides assistance to the board regarding the policy of
remuneration and its detailed application to CEO and general application to each of the
employees (Armstrong et al. 2015). The company has adopted longer term incentive plans to
determine the degree of rewards. BHP Billiton complies with the appropriate legal and
regulatory requirements that are related with the matters of remuneration.
BHP Billiton identifies and manages business risks as it covers each of the asset and
provides assistance to the management in rendering necessary information so that it can allow
the risk and audit committee to properly discharge their responsibilities (Fox et al. 2016).
BHP Billiton has the appropriate management committee and performs the necessary
functions of monitoring the inclusive governance of the company.
BHP Billiton directors respects the rights of the shareholders by providing financial
information to its shareholders with the fair and understandable information so that they can
assess the position of BHP Billiton, its securities, performance and business strategy
(Rodriguez-Fernandez 2016). BHP Billiton has placed considerable corporate governance
framework in place which comprises of management presentation of financial statements to
its shareholders.

6AUDIT, ASSURANCE AND COMPLIANCE
In accordance with the principles of the ASX Corporate governance policies BHP
Billiton makes timely and balanced disclosure. The management with the participation of its
CEO and CFO carries out the disclosure controls and procedures that are designed to give
sufficient assurance that the material functions and the non-financial information that are
required to be disclosed are provided in a timely manner (Du Plessis, Hargovan and Harris
2018). The company has appropriate controls for disclosure and process which is effective in
giving reasonable assurance.
Risk Assessment:
Nature of the company:
BHP Billiton is considered as the world class leader in the resources. The nature of
the business consist of extracting and process of minerals, oil and gases with greater than
60,000 employee strength and contractors that are primarily engaged in Australia and
Americas. The products of the company are sold across the world with sales and marketing
activities being carried on through Singapore and United States (Griffiths 2016). The
company generally employs the portfolio of its assets in minerals and petroleum. These
mainly consists of the Coal, Iron Ore, Copper, Petroleum and Potash.
Market Overview:
Considering the market factors and trends the long term view of the market continues
to remain positive. The rise in population and growth will result in increasing demand for
energy, metals and fertilisers (Sadgrove 2016). New centres for demand would rise where
industrialisation and urbanisation both appears to be opportunity and threat. Despite this there
is still challenge of weak prices. There are numerous products of BHP Billiton trade in the
long term forecasts. Furthermore, the company faces geopolitical uncertainties and
protectionism that has the ability to inhibit overseas trade. However, the company remains

7AUDIT, ASSURANCE AND COMPLIANCE
confident that it has the correct assets and the correct commodity with diversified demand
from the end-user segment and geographical boundaries.
Regulatory Authority:
The activities of the BHP Billiton is regulated and in compliance with the Australian
Accounting Standard which comprises of the interpretation of accounting and Companies Act
2001.
Business Strategy:
The business strategy of BHP Billiton is to operate a low cost, expandable, large and
upstream assets under the diversified commodity market (Leung et al. 2014). The company
has six point business strategy plan that are consistent with the approach of creating a long
term shareholders value.
1. Cost effective focus: BHP Billiton has simple set of standards with greater
connectivity with the assets and commodity so that it can enhance its productivity.
2. Restricted risk and attractive returns: The Company debottleneck its current mine
to derive greater production and replace the production with cost effective
infrastructure (Knechel and Salterio 2016).
3. Big projects timed for valued returns: BHP Billiton has channel the probable
aspects of growth which helps in creating significant value for the shareholders in the
long run especially in copper and coal.
4. Reduced risk for future results: BHP Billiton business strategy is discovering new
oil and copper deposits with the help of targeted exploration. The company employs
lowest exploration costs to take the advantage of its portfolio of resources.
5. Improved technology: BHP Billiton continues to develop new technology to increase
the efficiency and unlocking resources.

8AUDIT, ASSURANCE AND COMPLIANCE
6. Onshore flexibility: BHP Billiton constantly reviews is onshore portfolio to
productively increase the value of acreage through disciplined development and
divestments.
Calculation of Common size statement, ratios and balance sheet:

9AUDIT, ASSURANCE AND COMPLIANCE

10AUDIT, ASSURANCE AND COMPLIANCE
Particulars 2017 2016
Revenue (A) 38285 30,912
Net Profit/Loss after Tax (D) 6222 6207
Ordinary Equity(H) 62726 60071
Total Assets (G) 117006 118953
Net Profit Margin (D/A) 16.25% 20.08%
Return on Equity (A/H)) 9.92% 10.33%
Return on Assets (G/D) 5.32% 5.22%
Profitability Ratio Analysis:-
BHP Billiton
2017 2016
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
16.25%
20.08%
Net Profi t Margin
BHP Billiton
Figure 1: Figure representing Net Profit Margin
(Source: As Created by Author)

11AUDIT, ASSURANCE AND COMPLIANCE
2017 2016
9.70%
9.80%
9.90%
10.00%
10.10%
10.20%
10.30%
10.40%
9.92%
10.33%
Return on Equity
BHP Billiton
Figure 2: Figure representing Return on Equity
(Source: As Created by Author)
2017 2016
5.16%
5.18%
5.20%
5.22%
5.24%
5.26%
5.28%
5.30%
5.32%
5.34%
5.32%
5.22%
Return on Assets
BHP Billiton
Figure 3: Figure representing Return on Assets
(Source: As Created by Author)

12AUDIT, ASSURANCE AND COMPLIANCE
Particulars 2017 2016
Cost of Goods Sold(A) 27540 35487
Inventory (H) 3673 3411
Revenue (A) 38285 30912
Total Assets (G) 117006 118953
Inventory Turnover Ratio
(A/H)) 7.50 10.40
Total Asset Turnover
Ratio (A/G) 0.33 0.26
BHP Billiton
Efficiency Ratios Analysis
2017 2016
0.00
2.00
4.00
6.00
8.00
10.00
12.00
7.50
10.40
Inventory Turnover Ratio
BHP Billiton
Figure 4: Figure representing Inventory Turnover Ratio
(Source: As Created by Author)

13AUDIT, ASSURANCE AND COMPLIANCE
2017 2016
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35 0.33
0.26
Total Asset Turnover Rati o
BHP Billiton
Figure 5: Figure representing Total Asset Turnover Ratio
(Source: As Created by Author)
2017 2016
Total Current Assets (A) 21056 17714
Receivables (D) 2836 3155
Cash and equivalents (B) 14153 10319
Total Current Liabilities (F) 11366 12340
Current Ratio (A/F) 1.85 1.44
Quick Ratio [(B+D)/F) 1.49 1.09
Short-Term Liquidity Ratio Analysis:-
BHP Billiton

14AUDIT, ASSURANCE AND COMPLIANCE
2 0 1 7 2 0 1 6
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00 1.85
1.44
Current Rati o
BHP Billiton
Figure 6: Figure representing Current Ratio
(Source: As Created by Author)
2017 2016
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60 1.49
1.09
Quick Ratio
BHP Billiton
Figure 7: Figure representing Quick Ratio
(Source: As Created by Author)

15AUDIT, ASSURANCE AND COMPLIANCE
2017 2016
Total Liabilities (A) 54280 58882
Total Assets (B) 117006 118953
Total Equity (C ) 62726 60071
Debt-to-total Assets Ratio (A/B) 0.46 0.50
Debt to Equity Ratio (A/C) 0.87 0.98
Debt Equity Ratio
BHP Billiton
2017 2016
0.44
0.45
0.46
0.47
0.48
0.49
0.50
0.46
0.50
Debt-to-total Assets Ratio
BHP Billiton
Figure 8: Figure representing Debt to Total Asset Ratio
(Source: As Created by Author)

16AUDIT, ASSURANCE AND COMPLIANCE
2017 2016
0.80
0.82
0.84
0.86
0.88
0.90
0.92
0.94
0.96
0.98
1.00
0.87
0.98
Debt Equity Ratio
BHP Billiton
Figure 9: Figure representing Debt to Equity Ratio
(Source: As Created by Author)
BHP Billiton faces some of the business risk that are stated below;
a. Failure to identify and acquire resources: The failure of the BHP Billiton in
identifying and acquiring the resources or developing the new assets may negatively
create an impact which may hamper the future results and financial conditions of the
company. Decline in the price of commodity might make some of the BHP Billiton
reserves uneconomic (Nicholds and Mo 2015). The company faces the business risk
of inherent uncertainties. The demand for the products of BHP Billiton and
production from its assets may lead to depletion of the existing reserves. Furthermore,
the reserve restatements might be negatively impacted by the results and products.
b. Risk of potential changes to portfolio assets and financial conditions: BHP
Billiton faces the business risk of potential changes to its collection of assets through
the acquisition and divestments that might materially create an adverse impact on the
future of the financial conditions (Haimes 2015). The adverse regulatory conditions

17AUDIT, ASSURANCE AND COMPLIANCE
and obligations may result in adverse reaction to the timing and terms on which the
changes are made. The unforeseen in the liabilities and changes originating from the
portfolio might result in commercial objective not being attained as anticipated.
c. Rising costs and scheduled delay might negatively create an adverse impact on
the development projects: Even though BHP Billiton has devoted significant amount
of time and resources for its project planning many of the company’s project are
considered to be highly complex and remains dependent on the factors which is
beyond the control (Li 2014). This may result in underestimation of costs or time that
is required to complete the project. For example, unforeseen conditions encountered
at the time of project development might result in setback of overruns that might be
unobtainable at the anticipated cots or may be derived only after the significant delay
which may force a change in the market conditions. Any of the above stated situations
may result in rise in capital costs and schedule delay in the development projects and
may materiality impact the expected financial return.
Relevant Audit Risk:
a. Risk of compliance: BHP Billiton is exposed to compliance audit risk as the company
is globally located the assets of the company is exposed to legal compliance.
b. Sustainability audit risks: BHP Billiton is exposed to the sustainable audit risks that
may hamper the governance and monitoring of minimum performance requirement of
its assets. The company is exposed to the legal and regulatory requirements that are
less stringent.
Steps taken to reduce the risks:
Closure planning: BHP Billiton has internal audit functions tests that helps in providing
effectiveness in the internal test plans (Griffiths 2016). BHP Billiton reviews the reports of

18AUDIT, ASSURANCE AND COMPLIANCE
corporate assets and develops a closure plan along with the financial evaluation to minimise
the risk of closure related to the life of the assets.
Building trust through transparency: The business model of BHP Billiton is based on trust
and to reduce those risks the company prioritises in corporate transparency and public
disclosure (Sadgrove 2016). BHP Billiton implements the operational risk management
approach to recognize the disastrous operational risks and applies the critical contracts and
performance requirements to implement control effectiveness. BHP Billiton implements the
business continuity plans to mitigate the relevant audit and business risks that are consistent
with the portfolio risk management approach.
Conclusion:
The report conclusively provides that BHP Billiton has applied the ASX Corporate
Governance Principles and has assured that the endorsements of the corporate governance
principles are complied with. The report evidently provides that BHP Billiton board is held
responsible for presenting and serving the interest of the shareholders. The report evidently
provides that the business is exposed to several risks. The risks are though considered as the
inherent part of the business however with appropriate risk mitigation strategies in place the
company has the potential of reducing and eliminating the risks.

19AUDIT, ASSURANCE AND COMPLIANCE
Reference List:
Aguilera, R.V., Judge, W.Q. and Terjesen, S.A., 2018. Corporate governance
deviance. Academy of Management Review, 43(1), pp.87-109.
Allen, W.T., 2017. Our schizophrenic conception of the business corporation. In Corporate
Governance (pp. 79-99). Gower.
Armstrong, C.S., Blouin, J.L., Jagolinzer, A.D. and Larcker, D.F., 2015. Corporate
governance, incentives, and tax avoidance. Journal of Accounting and Economics, 60(1),
pp.1-17.
BHP Billiton. (2018). BHP Annual Reporting 2017. [online] Available at:
https://www.bhp.com/investor-centre/annual-reporting-2017 [Accessed 29 Apr. 2018].
BHP. (2018). BHP Billiton | Our business. [online] Available at: https://www.bhp.com/our-
businesses [Accessed 29 Apr. 2018].
Dodd, E.M., 2017. For whom are corporate managers trustees?. In Corporate
Governance (pp. 29-47). Gower.
Du Plessis, J.J., Hargovan, A. and Harris, J., 2018. Principles of contemporary corporate
governance. Cambridge University Press.
Fox, M.B., Gilson, R.J. and Palia, D., 2016. Corporate Governance Changes as a Signal:
Contextualizing the Performance Link.
Griffiths, P., 2016. Risk-based auditing. Routledge.
Haimes, Y.Y., 2015. Risk modeling, assessment, and management. John Wiley & Sons.
Knechel, W.R. and Salterio, S.E., 2016. Auditing: Assurance and risk. Taylor & Francis.

20AUDIT, ASSURANCE AND COMPLIANCE
Leung, P., Coram, P., Cooper, B.J. and Richardson, P., 2014. Modern Auditing and
Assurance Services 6e. Wiley.
Li, W., 2014. Risk assessment of power systems: models, methods, and applications. John
Wiley & Sons.
McCahery, J.A., Sautner, Z. and Starks, L.T., 2016. Behind the scenes: The corporate
governance preferences of institutional investors. The Journal of Finance, 71(6), pp.2905-
2932.
Nicholds, B.A. and Mo, J.P., 2015. Risk assessment of business process re-engineering
projects. Open Journal of Social Sciences, 3(03), p.30.
Rodriguez-Fernandez, M., 2016. Social responsibility and financial performance: The role of
good corporate governance. BRQ Business Research Quarterly, 19(2), pp.137-151.
Sadgrove, K., 2016. The complete guide to business risk management. Routledge.
Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and
practices. Oxford University Press, USA.