Corporate Governance and Risk Assessment at JB Hi-Fi: A Comprehensive Analysis

This report examines the implications of ASX Corporate Governance Principles on JB Hi-Fi, a leading Australian consumer electronics retailer. It delves into the company's board structure, ethical practices, financial reporting, and shareholder rights. The report also conducts a comprehensive risk assessment, identifying key risks such as economic sustainability, competition, and consumer loyalty. It analyzes these risks using financial ratios and proposes strategies for mitigation. This analysis provides valuable insights into the corporate governance framework and risk management practices of JB Hi-Fi.

HI6026 - Audit, Assurance and
Compliance
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Table of Contents
Executive summary.........................................................................................................................3
ASX Corporate Governance Principles...........................................................................................4
Lay solid foundations for management and oversight.................................................................4
Structure the board to add value..................................................................................................4
Act ethically and responsibly.......................................................................................................5
Safeguard integrity in corporate reporting...................................................................................5
Make timely and balanced disclosure..........................................................................................6
Respect the rights of security holders..........................................................................................6
Recognise and manage risk.........................................................................................................7
Remunerate fairly and responsibly..............................................................................................7
Risk assessment...............................................................................................................................8
References......................................................................................................................................11
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Executive summary
In the company, there is the need that the proper directions shall be provided so that objectives
can be attained and also the control will be made on all the activities. For this purpose, a process
will be performed which is known as corporate governance. This is required to be complied by
all as per the principles which have been stated by ASX. This report will be explaining the
implication of all the corporate governance principles on the JB Hi-Fi. All of the aspects in
relation to it will be considered in detail. The process which is involved in risk assessment will
also be taken into consideration and in that the strategies which are followed together with the
risk which are involved in business will be identified. The risk will have to be reduced and all the
steps in relation to it will also be determined.
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ASX Corporate Governance Principles
Lay solid foundations for management and oversight
The principle states that in the business it is very important that proper management shall be
present and for that board shall be developed in which responsibility of all will have to be
identified (Akbar, 2015). The role which is to be performed by them is also specified which will
make the whole process a success. In this corporate governance will also be taken into
consideration as by that all of the tasks will be monitored.
The implication for JB Hi-Fi:
The operations which are performed will be affecting the shareholders and due to this board is
accountable to them. So that main role of the board is to protect the interest of shareholders and
improve the value of them in long-term (JB Hi-Fi, 2017). The main responsibility of the board is
to develop such strategies by which the objectives of business will be attained. All the operations
will be managed in such manner by which profitability of the company will be increased.
Structure the board to add value
According to this principle, the business will be able to add value to itself only when the proper
board composition will be made. There shall be such structure in which the members have
required skills and competence and this will have to be noted while making the appointments. By
the help of this proper management will be ensured and there will be a development which will
be taking place.
The implication for JB Hi-Fi:
The company is of the view that proper decisions will be made and also effective governance
will be there if the board will have skilled and experienced members. In the opinion of the
company, there is a proper composition which is maintained by it and by that all the operations
are performed effectively by committee (JB Hi-Fi, 2017). There are mainly non-executive
directors in the board and they are six in number and they are as follows:
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Chairman: Mr. Greg Richards
Nonexecutive director: Mr. Stephen Goddard
Nonexecutive director: Ms. Beth Laughton
Nonexecutive director: Mr. Mark Powell
Nonexecutive director: Ms. Wai Tang
Nonexecutive director: Mr. Richard Uechtritz
Nonexecutive director: Mr. Richard Murray
Nonexecutive director: Me Gary Levin
In addition to the committees such as audit and risk management committee, remuneration and
nomination committees are also established in the company by which they can carry on the
business in best possible manner.
Act ethically and responsibly
In order to make the business a success, this principle states that operations shall be performed in
an ethical manner and proper rights shall be provided to all. There shall be legal procedures
which shall be followed and to fulfill this condition it is required that proper code of conduct
shall be made. The company will be following that so that no ethical issues are faced by it.
The implication for JB Hi-Fi:
The code of conduct sets the guidelines which are to be complied with so that there are proper
standards which are maintained. It has been set in the company also by which the accepted
behavior of all board members will be identified (JB Hi-Fi, 2017). They are provided to all so
that the manner which is to be followed will be known to all.
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Safeguard integrity in corporate reporting
The reporting which will be made by the company shall be in such manner that proper level of
integrity is maintained. By that there will be no frauds and errors and also the company will be
able to safeguard the interest of all. There will be proper confidentiality in respect of the matters
which are not required to be disclosed.
The implication for JB Hi-Fi:
The integrity can be maintained by the establishment of proper control and that has been done in
the company. All the regulations in this regards are followed by JB Hi-Fi. This has been
provided by the board that there is proper integrity and this can be said as financial records are
made as per corporation Act. Also, proper auditing is performed by them.
Make timely and balanced disclosure
The ASX is the main authority and it is required as per this principle that all the information that
is relevant shall be disclosed to it. There shall be proper communication which shall be
established among them so that there is no problem which will be faced due to this. If ASX will
be aware of all the aspects then they will be able to take the required steps for the improvement
of the business.
The implication for JB Hi-Fi:
There is the rule of ASX that all the material price sensitive information shall be disclosed in an
appropriate manner and for that proper disclosure policy has been approved by the board (JB Hi-
Fi, 2017). This will be obligatory for all the employees to make the information available to
ASX.
Respect the rights of security holders
The shareholders of the company have the right that they have informed about all the
information and other relevant policies so that they can take the decisions accordingly. For that,
this principle states that communication policy shall be very effective by which all the
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disclosures are made on a timely manner (Orionequities, 2017). This will be including the
announcements, procedures and all the data.
The implication for JB Hi-Fi:
The information about the company is provided to all as it is specified on the website of the
company. There is the detailed description of the market announcements, description of all the
charters and documents of the board. The divided related policy and other procedures are also
explained on it. Electronic communication policy is also present in the business by which all the
details of account can be managed by electronic means also.
Recognise and manage risk
The principle says that such policies and procedures shall be introduced by which all the risks
that are involved can be identified and managed in most appropriate manner. There shall be a
committee which shall be made so that it is the one who will be responsible in this respect.
The implication for JB Hi-Fi:
The risk committee has been made and that will be responsible in the company to ensure that all
the policies are implemented in an appropriate manner by which the risk which is there is
identified and then managed so that all the people associated with can be protected (JB Hi-Fi,
2017). There is a proper framework which is made in accordance with ISO31000 and that is
helpful in this regard.
Remunerate fairly and responsibly
The responsibility of the company is to ensure that there is proper remuneration policy by which
all will be receiving the fair remuneration so that there are no conflicts in the business due to
this. For that proper committee and policies shall be framed in this context.
The implication for JB Hi-Fi:
The company has the policy of making a remuneration report in which all the details are
specified in respect of the payments which are made to non-executive directors. The principles
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which are there in relation to it will also be detailed in that report. Also, the amount of
remuneration for the executive will be involved in this report.
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Risk assessment
The company is involved in the business of consumer products which are provided to all. There
are various products which are provided to consumers and they include software, electronics, and
other appliances. The company is operating in this sector only and no major change has taken
place in its nature.
The company is dealing in consumer electronics, telecommunication products, cooking and
kitchen accessories and also in the software and instruments in music. The services of
consultancy are also provided by it (Putra, 2018). The major sales are made by the company in
Australia from the branded retail stores which are established there.
The company is following various business strategies by which overall improvement in the
process will be achieved. Business risks are taken into consideration and the steps to eliminate
the are designed in a proper manner. In addition to this such strategies are made by which growth
will be achieved (JB Hi-Fi, 2017). For this customer services are focused and technological
advancements are also given importance. Product range expansion and improvement in the
supply chain is also made.
The analytical procedure is to be adopted as there are various risks which are involved and so
they are determined by the help of this. It will ensure that auditor will be aware of all the risk and
then they can include that in their reports (Andri, et. al., 2016). There are various means which
can be used for that and it includes ratio analysis which is being performed hereunder:
Information needed for calculations:
Particulars 2017(in
$M)
2016(in
$M)
Total assets 2452.3 992.3
Current assets 1170.7 702.4
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Current liabilities 885.8 446.8
working capital 284.9 255.6
EBIT 269.9 221.7
Retained earnings 381.6 328.3
Sales 5628 3954.5
The market value of
equity
853.5 404.7
Total debt 558.8 109.7
Calculation of ratios:
Particulars 2017 2016
Working capital/Total assets 0.12 0.26
Retained earnings/Total
assets
0.16 0.33
EBIT/Total assets 0.11 0.22
The market value of
equity/Total debt
1.53 3.69
Sales/Total assets 2.29 3.99
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The company is operating in various places and also makes various products and due to this,
there are several risks which will be involved in the business (Auditinghelp, 2018). So it is
required that all of them shall be identified in an appropriate manner. The major risks which are
involved in JB Hi-Fi are as follows:
Economic sustainability risk: This is the risk in which it is considered that whether the company
will be maintaining the current level of operations in the same manner in the coming period and
in such manner that environment is not affected by it (JB Hi-Fi, 2017). This will be including:
 The competition which is faced in the market due to the new suppliers and also from the
existing ones.
 There may be a reduction in the loyalty of the consumers and this can be due to a breach
of regulations.
 The relations with the key suppliers are not maintained in an appropriate manner.
 Increasing cost
 Price deflations
 The problem in retention of staff
There are various ways with which they can be resolved and the steps include:
 The advanced technology shall be used to deal with the price deflation.
 Proper planning shall be made to retain the employees by providing them with required
facilities.
 The competitors pricing will be properly monitored and also consumers will be provided
with better facilities so that they can be attracted.
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References
 Akbar, A. (2015). The role of corporate governance mechanism in optimizing firm
performance: A conceptual model for corporate sector of Pakistan. Journal of Asian Business
Strategy, 5(6), 109-115.
 Andri, B., Dispas, A., & Hubert, P. (2016). Overview of the analytical lifecycle of
supercritical fluid chromatography methods. American Journal of Analytical
Chemistry, 7(01), 75.
 Auditinghelp. (2018). Identifying and Assessing the Risks of Material Misstatement through
Understanding the Entity and Its Environment. Auditinghelp. [Online]. Available at:
https://auditinghelp.com/identifying-and-assessing-the-risks-of-material-misstatement-
through-understanding-the-entity-and-its-environment-13914. [Accessed: 17 April 2018]
 JB Hi-Fi. (2017). Annual Report. JB Hi-Fi. 5-67. [Online] Available At:
https://www.jbhifi.com.au/Documents/2017%20Annual%20Report.pdf. [Accessed: 17 April
2018]
 Orionequities. (2017). Corporate governance statement. Orionequities. [Online]. Available
at: http://www.orionequities.com.au/sites/default/files/20171018%20OEQ%20ASX
%20Corporate%20Governance%20Statement%20-%202017.pdf. [Accessed: 17 April 2018]
 Putra, L.D. (2018). The Use Of Analytical Procedures In Auditing. Accounting Financial &
tax. [Online]. Available at: http://accounting-financial-tax.com/2010/04/the-use-of-
analytical-procedures-in-auditing/. [Accessed: 17 April 2018]
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