Corporate Governance Principles

2017

1
By student name
Professor
Date: May 2 , 2017.
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Executive Assessment
The company chosen for the specific purpose of this assignment is Wesfarmers. The given assignment
basically focuses on matters of compliance. We have discussed the extent to which the company has
been able to comply with the requirements of the ASX corporate governance principles. It also
emphasizes on the procedures adopted by the entity to assess the potential risks that has a bearing on
the financial statements and ultimately in the sustainability, profitability and the growth of the business.
The assessment of risk is one of the most important area of concern for any organisation as it brings into
light the problem areas of the business, areas from where there is a possibility of threat or the
possibility of the treaty materializing into loss of resources. For the purpose of risk assessment a number
of steps needs to be performed, in a particular sequence. This will enhance the internal controls of the
company and will also lower down the occurrence of errors, frauds or mistakes. Thereby the overall
productivity and profits of the business would boost up.
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Contents
Introduction...........…………………………………………………………………..........…...3
Analysis.......................………………........................................................................................3
References...................................................................................................................................7
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Introduction
Wesfarmers is one of the biggest business houses in Australia. The company has made its presence
across a variety of business sectors and segments, making itself a highly diversified company. Some
areas of their business presence includes hotel industry, supermarkets and departmental stores, liquors,
coal, fertilisers, chemicals and home improvement. Founded in the year 1914, the company has
managed to carve a place for itself in the list of the top companies of the world. Since wesfarmers is a
listed company , it is required to comply with the rules, regulations and policies framed by the
regulatory authority, i.e. The Australian Securities Exchange. It also needs to ensure that the principles
with regard to corporate governance are properly met and followed. The business objective of
wesfarmers is to create wealth for its shareholders by ensuring a good return on their investments. In
order to make sure that such an objective is achieved, the company continuously strives to gain a
competitive edge over its competitors. This is done by contributing to the upliftment of the countries in
which the company has business presence, by providing a safe working environment, by indulging in the
preservation of the environment and by placing utmost importance on the values of honesty and
integrity.Analysis
Analysis
ASG Principles and its significance for the company
Corporate governance is the set of policies and practices, which a company or an entity adopts and
implements to make sure that it balances the needs of all its stakeholders, including but not limited to,
shareholders,investors,management, suppliers of inputs, creditors, customers and government
authorities. It gives the company its essential character, in the absence of a good corporate governance,
the company cannot continue to function for long. A bad corporate governance will bring with itself
huge financial implications and may even lead to the corporate death of the company. The performance
of Wesfarmers, if evaluated on the parameter of corporate governance, is quite commendable. We will
be discussing it further.
● The company has a solid management committee that oversees the affairs of the company and
ensures that those affairs and operations are in consistence with the principles of corporate governance.
The responsibility area and the level of authority granted to each director or managerial personnel is
properly defined. There is no overlapping of duties. This helps them in proper discharge of their duties,
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free from biasedness or undue advantages. There isn't any likelihood or occurrence of conflict of
interests and the directors exercise complete independence.
● The members of the board come from different knowledge areas. They have professional
expertise in a variety of field and subject matters like financial acumen, retail, international relations,
risk management, banking, customer relations, e commerce and capital markets. They have different
experiences, skills and competencies, the combined effect of which takes the company to newer heights
and creates brand value. This also gives an assurance that the resources of the company will be utilised
in the best possible manner.
● Wesfarmers have a very effective code of conduct in place, which everybody in the company
abides by. The employees know what they are expected to do, how are they required to behave and
they act accordingly They give a lot of consideration on values of integrity and accountability. The
operations and the decisions of the company are kept as transparent as possible. The Board has the
practice to review these policies at regular intervals so that standards are met and expected behaviour is
guaranteed. It even has a strong whistleblower policy in place.
● The company gets its financial statements audited as per the regulatory requirements and the
reports establishes the fact that the records are true and fair. It confirms that the affairs of the business
are ethical and morally sound.
● All the matters, material to the financial statements have been disclosed in a proper manner.
The notes give details about the accounting policies and principles that have been applied. It is also seen
that these principles have been applied in a consistent manner and these are not something that is
changed or modified on a frequent basis. The investors get information about all the matters and
everything is kept very open, transparent and clear. The internal controls are quite strong and the Audit
and risk Committee work tirelessly to maintain the desired level of integrity.
● The shareholders and the investors are encouraged to take part in the activities of the company
and also in the decision making process. They are given access to up to date information. Shareholders
are also given opportunities to engage themselves in the communication process.
● The Wesfarmers board of directors make it a point to annually review the risk assessment
framework. This gives them an idea about the strengths and weaknesses of the system, and the changes
that needs to be made, in the light of the changing business situation. For this the company does a lot of
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activities like carrying out due diligence at all levels, across all divisions. They also have a group
compliance reporting program where a lot of areas is covered including legal, environment, compliance,
taxation and information technology.
● The remuneration policies are very fair so that the expectations of the workforce is fairly met.
The senior executives , as a part of their salary package have a variable factor or a risk factor associated
with their yearly remuneration. The incentives or the increments extended towards the employees or
the executives are based upon their achievements and work performance. At the year end, the
performance is appraised and training programs are formulated to ensure the growth and development
of the business and the executive. The company gives fair amount of remuneration to all the people
who work there. Being such a give company with such a strong database, the remuneration needs to be
fair so that people are satisfied with what they receive and there is less competition among the
employees. There is no biasness on part of the management in this regards and they ensure a fair
approach.
Risk Assessment Analysis
Risk assessment is vital for the continuity and for the success of any business. It is that function that
helps the entity in identifying the areas where there exists a potential threat. Risk assessment also tells
the company that risks that the company should expect to arise in the future. Based on the outcome
and forecast of risk assessment process, the company develops a response so that losses are reduced to
the minimum. Risk assessment is not a one time exercise, it is an ongoing process where the business
environment is continuously scanned to bring out the areas of weaknesses or danger. It should be done
at regular intervals so that the company is up to date with the happenings in the business world and is
ready to face new challenges. It helps to find whether the financial statements are materially correct or
not and whether they provide a true fair of the company affairs and results. Risk assessment is a series
of steps, to be followed systematically and in a particular order.
Retail market is one of the most unpredictable and dynamic market. The needs and preferences of the
customers change quite fast. What becomes favourable today becomes unfavourable tomorrow. It
therefore becomes very important for the company to have proper controls in place to identify risk.
Controls to maintain their competitiveness and controls that help them create brand value and
recognition. In recent days, with increase access and reliance on the information available on the
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internet, particularly the social media, data integrity has come up as another issue. Maintaining the
integrity and authenticity of data, preventing its misuse and controlling data leakage has become a very
daunting task.it also demands a lot of resources, in terms of money, effort and time, to be engaged. The
company needs to adopt proper, effective and efficient security measures that will help them with
protection of sensitive data and information. These security measures should be planned after giving
due consideration to the size of the company and the volume of data.
In the particular case of Wesfarmers, the company has adopted strong and concrete measures like
analysis with the aid of information technology and related tools and techniques ,secured payment
gateways, regular and frequent audit of the control system to ensure that the risks are kept below the
threshold limit. Not all risks are the same and therefore the response also differs. At first the company
should try to avoid the risks. Thereafter it should try to reduce or mitigate the risks. At the end the risks
which cannot be avoided or treated should be managed well.
The company also focuses on specific audit procedures, both substantive and appropriate that would
help in determining the areas of improvement and areas which need special consideration for better
performance in the long run. It also acts as a check on the behaviour of the employees and noting
deviations and discrepancies, if any. Fraud and errors become easy to detect. Keeping the above
mentioned requirements in mind, it is good for the company to invest in creating a highly skilled and
competent Internal audit team. This team should be given all the resources that enables them to carry
out their duties efficiently. (Heuvel & Wagelman, 2017). It will also keep a watch on the acts of the
management or those charged with governance. Duties needs to be properly segregated amongst all the
officials. In the event of any confusion or any issue the management may opt for help from experts
who have special knowledge and professional experience in that specific field. These experts will provide
ample guidance to the management and help them make a better decision with respect to assessing and
managing the risk level(Elimam, 2017).
The purpose of using analytical procedures in the risk assessment phase is to enhance and uplift the
company’s understanding of the existing and potential risks by examining unusual transactions or
unexpected balances or unreasonable relationships in the available data. Some of the analytical
procedures used in the assessment of risk includes Account balance comparison., studying the trends,
calculating and analysing the significant ratios, comparison of trial balances ,unadjusted with adjusted
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ones, regression analysis. All this will help to ascertain that the risk levels are minimum for the company
and the company is making good progress with their overall financial status and culture for the
company.
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References
Elimam, H. (2017). The Role of Small Businesses (Small Scale Economic Projects) in Alleviating
the Acuity of Unemployment. International Business Research, 10(3).
Heuvel, W., & Wagelman, A. (2017). A note on “A multi-period profit maximizing model for retail
supply chain management”. European Journal of Operational Research, 260(2), 625-630.
Lubensky, D. (2017). A model of recommended retail prices. The RAND Journal of Economics,
48(2), 358-386.
Maynard, J. (2017). Financial Accounting, Reporting, and Analysis (SECOND ed.). New York:
Oxford University Press.
Pape, T. (2017). Value of agreement in decision analysis: Concept, measures and application.
Computers & Operations Research, 80, 82-93.
Wesfarmers.com.au. (2018). [online] Available at:
https://www.wesfarmers.com.au/docs/default-source/default-document-library/2017-annual-
report.pdf?sfvrsn=0 [Accessed 27 Apr. 2018].
Url : https://www.wesfarmers.com.au/docs/default-source/default-document-library/2017-annual-
report.pdf?sfvrsn=0
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