Corporate Governance Principles and Risk Assessment: A Case Study of APA Group Limited

This report examines the implementation of corporate governance principles within APA Group Limited, a leading Australian infrastructure company listed on the ASX. It delves into the seven principles of corporate governance, analyzing how APA Group adheres to each principle through its board structure, ethical practices, risk management strategies, and financial reporting. The report further explores the risk assessment process conducted by auditors, including ratio analysis and common size financial statements, to identify potential risks associated with the company's operations and financial performance. The report concludes with recommendations for APA Group to further enhance its corporate governance practices and mitigate identified risks.

Name:
Student ID:
Company Name: APA Group LimitedS
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HI6026 Audit, Assurance and Compliance
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Contents
Executive Summary...................................................................................................................4
Part 1..........................................................................................................................................5
Part 2........................................................................................................................................10
Reference:................................................................................................................................18
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Executive Summary
Corporate governance principles are also the part of audit. While conducting internal and
external audit auditors ensures that a company follows governance principles and maintain a
healthy relationship with their employees. The report presents a detailed description of
corporate governance principles and its implementation on ASX listed company. The
company here by considered for the report is APA group, which is a group company listed on
Australian stock exchange and operates electricity and natural gas within the organisation.
Implementation of these principles ensures that management of company are having a good
and open relationship with other stakeholders. These principles guide company to act
ethically and fairly with balanced structure of board members. These principles recognize and
manage the risk of the company. Along with this the report contains risk assessment
procedure which is followed by auditors while performing audit programme of the company.
Risk assessment informs regarding the material misstatement if any involved in disclosed
information of the company. In order to perform the risk assessment process auditors need to
compute ratios and develop common size balance sheet and income statements. All these
methods help in testing the available inherent risk within the organisation so that potential
steps can be taken to reduce the impact of such risk.
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Part 1
There are seven principles of corporate governance which are compulsory to follow by the
companies. Australian stock exchange regulates these principles over the companies. APA
group has disclosed in its corporate governance report regarding the implementation of these
principles within its organisation. The detailed description of the same is as follows:
1. Lay solid foundation for management and oversight
This principle provides that a strong foundation of well-structured management can
be laid down by assigning appropriate roles and responsibilities along with authority
to the members of their penal.
In order to lay solid foundation APA group has framed Board charter and make it
available on its website, in which it provide the role and functions of the board
members towards organisational objectives. Board of directors organise their meeting
at least 11 times in a year. Board panel also create standing committee which assist
them in carrying out its responsibilities.
APA group has standing committee of:
a. Audit and risk management
b. People and Remuneration committee
c. Health and safety environment committee
d. Nomination committee (APA Group, 2017).
Chairman of the board panel also review performance of individual director on annual
basis and determine the changes if any occur in negative manner.
2. Structure the board to add value
According to the size of the company, Panel of board members must be appropriate
and balanced (APA Group, 2017). Composition of board member must include
executive and non- executive directors in appropriate ratio.
Board panel of APA group contains eight individual directors. Their names,
designation and qualification are as follows:
a. Leonard Bleasel AM- Independent chairman- FAICD FAIM
b. Michael McCormack- Managing director- MBA FAICD
c. Steven Crane- Independent director- BComm FAICD SF Fin
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d. John Fletcher-Independent Director- BSc MBA FAICD
e. Michael Fraser- Independent Director- BCom FCPA FTI MAICD
f. Debra Goodin- Independent Director- BEc FCA MAICD
g. Russell Higgins AO- Independent Director- BEc FAICD
h. Patricia McKenzie- Independent Director- LLB FAICD
The above composition of board of directors is as per the board charter available on the
website of the company. Mjority section of board panel is served by independent directors
and position of chairman and managing director is hold by two different individuals. Security
holders are having right to remove any director from the board panel at any time (APA
Group, 2017).
3. Act ethically and responsibly
A company serves interest of number of stakeholders so it is important for it to act l
and responsibly. In order to act ethically company has framed code of conduct which
should be required to follow by the directors, executive officers and employees of the
company
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APA group also develop Core value in order to conduct business operation in ethical manner
and supports the group in achieving goals and objectives. Core values includes safe
environment for employees, perform with honesty and integrity, responding as per the
changes occur in the external environment, meeting the commitments consistently and
provide high quality of service (APA Group, 2017).
4. Safeguard integrity in corporate reporting
A company is responsible in making fair and ful reporting of its performance towards its
stakeholders. In order to safeguard integrity in corporate reporting company has structured
audit and risk management committee. In order to maintain integrity in income statement and
statement of financial position chief executive officer and chief financial officer authenticate
the financial records as per the provisions of corporations act. Along with this company also
conduct audit of the organisation through the external auditors which provides fair and clear
view regarding the performance of the company (APA Group, 2017).
5. Make timely and balanced disclosure
The principle of timely and balanced disclosure includes disclosure of material information
which is associate with the interest of the company. In order to follow this principle APA
group frames market disclosure policy and ensures that every stakeholder have the
information in which he has a particular interest and any change in situation will impact on
his interest. APA group release the information regarding the company as per the ASX listing
rules and corporations act. Managing director, company secretory and chief financial/
executive officers are responsible for making disclosure of the information regarding the
company (APA Group, 2017).
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6. Respect the rights of security holders
Security holders are the investors and contributors in the capital of the company. So, every
company must respect the rights of their security holders which can only be perform by
effective communication. As per the board panel, information regarding the key business
decision must be provided to the security holders because any growth in the performance of
the company will also affect the return of these security holders.
APA group respects the rights of security holders by providing high standard of
communication of information. APA group communicates with security holders through its
own website, website of ASX and media releases. APA group also hold annual general
meeting of stakeholders yearly, in order to take decision regarding bard panel and financial
statement prepared by the auditors of the company.
7. Recognize and manage risk
In order to maintain value before security Holders Company need to make proper
management of risk i.e. audit risk, inherent risk etc. In order to recognize risk APA group has
risk management committee. It also has adopted ISO31000 in order to determine major risk
exposure. Risk involves strategic risk, financial risk, operational risk and compliance risk.
APA group also frame health, safety and environment committee, conduct internal audit
which helps in recognizing risk associated with operation of the company so that it can be
managed effectively and timely (APA Group, 2017).
8. Remunerate fairly and responsibly
This principle guides company regarding the remuneration policy of the company. APA
group has established remuneration committee which considers and recommends board panel
regarding the remuneration and incentive brackets of management and staff personals. The
committee also take advice from external professional bodies in order to make independent
and fair decisions.
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Part 2
Risk assessment:
Auditors appointed by the company are responsible in carrying out the risk assessment
procedure in order to determine the available risk within the organisation so that it can be
managed on time. Risk assessment procedure covers an overview of overall performance of
the company and nature of business carried on by it.
Nature of the Business
APA group is listed on Australian stock exchange which is recognised as largest natural gas
infrastructure business of Australia. It had initiated business operations since 2000 and
availing the available market opportunities it is coming under top 50 ASX listed companies
of Australia. Company is operating largest interconnected gas transmission network with in
and across the Australia. The major project of the company covers Darling downs solar farm,
Western Slopes Pipeline, Ready Creek Wallumbilla Pipeline and Pipeline construction
process (APA Group, 2018).
Company’s Market overview:
Company is operating through multiple projects in all over the Australia. APA has 15000 Km
longest pipelines for supply of natural gas in main land Australia and connecting the pipeline
with homes and commercial apartments. In order to supply natural gas AOPA group is
having interest in Gas storage facility providers, gas- fired power station and wind farms
(APA Group, 2018). Company is also investor in Energy infrastructure investments with
19.9%, EII2 with 20.2%, south east Australia Pty limited with 50% and SEA gas Partnership
with 50%. The company is also having investment schemes named Australian Pipeline trust
and APT investment trust.
Business strategy of the company:
The main aim of the company is to become largest supplier of natural gas with lowest
releaser of carbon gases. As the business of the company bring risk related to health and
safety of the environment. The risk can occur due to climate change in the environment
which restrict company in achieving the pre- set goals and objectives of the organisation.
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The business strategy of APA group is to identify the available opportunities in the market
along with the risk. Company has prepared strategy in order to meet every kind of risk. In
order to meet its objectives company also contributes and support the clean energy policy of
the government.
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Source: (APA Group, 2018).
Financial analysis of the company:
In order to identify the risk associated with the financial performance of the company ratio
analysis has been conducted for the period of three years. Comparative analysis of financial
ratios for three years inform about the performance of the company in financial terms.
Financial highlights of the company
Particulars 2017 (AUD) 2016 (AUD) 2015 (AUD)
Total current asset 777331 420792 7,21,254
Total Current Liabilities 698235 883932 8,08,782
Inventory 25260 24891 21,290
Quick Assets 747071 395901 699964
Total assets 15045948 14842675 1,46,52,886
Total Revenue 2304627 2077327 15,39,697
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Net profit 236846 179471 5,59,930
Gross profit 533800 489400 638300
Accounts receivable 289709 263232 254940
Accounts payable 312611 252661 405685
COGS 4420 6576 34609
2017 2016 2015
Particular Formula Amount
(AUD)
Amount
(AUD)
Amount
(AUD)
Current ratio Current assets/current
liabilities
1.11 0.48 0.89
Quick asset ratio Quick assets/Current
Liabilities
1.07 0.45 0.87
Gross margin ratio Gross profit/Sales*100 23.16% 23.56% 41.46%
Net profit ratio Net profit/Total
revenue*100
10.28% 8.64% 36.37%
Sales to asset ratio Sales/Total assets 0.15 0.14 0.11
Accounts receivable
turnover
Sales/Accounts
receivable
7.95 7.89 6.04
Accounts payable
turnover
COGS/Accounts payable 0.01 0.03 0.09
Current and quick ratio provides that company has maintained proper balance of current
assets and current liabilities and operates its operation effectively. Due to continuous
expansion plans company is enjoying good percentage of
gross profit and net profits. During
last three years.
Sales to asset ratio provide information regarding the assets used in sales process of the
company. The last three year’s sales to asset ratio provide that company continuously utilises
its assets efficiently and generate revenue from its services.
Accounts receivable turnover is 6.04, 7.89 and 7.95 in the year 2015, 2016 and 2017
respectively. The turnover period comes down which indicates realisation of cash in a shorter
duration. Which is good in respect of the health of the company?
Accounts payable turnover is 0.09, 0.03 and 0.01 in the year 2015, 2016 and 2017
respectively. It provides that company is timely paying its suppliers. APA group has paid to
its suppliers.
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Common size Balance sheet
Particulars Amount ($'000)
2017
ASSETS
CURRENT ASSETS
Cash and cash equivalents 3,94,501 2.6%
Trade and other receivables 2,89,709 1.9%
Inventories 25,260 0.2%
Other Financial Assets 52,334 0.3%
Other 10,527 0.1%
TOTAL CURRENT ASSETS 7,72,331
NON-CURRENT ASSETS
Cash on Deposit - #VALUE!
Trade and other receivables 15,496 0.1%
other financial asset 4,58,773 3.0%
Investments accounted for using the equity
method 2,59,882 1.7%
Property, plant and equipment 91,50,165 60.8%
Goodwill 11,83,604 7.9%
Other Intangible assets 31,74,282 21.1%
Other 31,415 0.2%
TOTAL NON-CURRENT ASSETS 1,42,73,617 95%
TOTAL ASSETS 1,50,45,948 100%
LIABILITIES
CURRENT LIABILITIES
Trade and other payables 3,12,611 2.1%
Borrowings 126858 0.8%
Other Financial Liabilities 145768 1.0%
Provisions 93,773 0.6%
Unearned revenue 19225 0.1%
TOTAL CURRENT LIABILITIES 6,98,235 5%
NON-CURRENT LIABILITIES
Trade and other payables 4,984 0.0%
Borrowings 95,73,907 63.6%
Other Financial Liabilities 1,82,087 1.2%
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Provisions 69051 0.5%
Deferred Tax liabilities 502265 3.3%
Unearned revenue 37236 0.2%
TOTAL NON-CURRENT LIABILITIES 1,03,69,530 69%
TOTAL LIABILITIES 1,10,67,765 74%
NET ASSETS 39,78,183 26%
EQUITY
Contributed equity 31,14,617 21%
Reserves -207773 -1%
Retained earnings 60,804 0.4%
TOTAL EQUITY 39,78,183 26%
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Common size Income statement
Particulars Amount ($'000)
2017
Revenues from sale of
goods
23,04,627 100%
Share of net profits of
associates and joint
ventures using the equity
method
21,793 1%
Expenses
Asset operation and
management expense
-207329 -9%
Depreciation and
amortisation expenses
-5,70,021 -25%
other operating cost -4,38,140 -19%
Finance cost -5,18,249 -22%
Employee benefit expenses -197747 -9%
Other expenses -8,600 0%
Profit before income tax 3,86,334 17%
Income tax expense -1,49,448 -6%
Profit for the period 2,36,846 10%
Relevant Audit risk
Ratio analysis and common size
income statement and
profit and loss accounts identify the
following risks:
Error of omission: It may be possible that material misstatement may arise due to recording
of false transactions or error of omission due to fraudulent activities. Due to recording of
wrong figures, provide inaccurate information to the key stakeholders and which impact upon
their interest and in the interest of the company.
Risk related to non- compliance: It may be possible that the internal auditor analyse the
external environment of the company but fails to provide ful information regarding he
indiscripencies occurred within the organisation. This will also increase the chance of
inherent risk.
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Recommendation:
It is recommended that external auditor review whole information collected by the internal
auditor and ensures that each and every transactions has been recorded fairly without
affecting the interest of company and stakeholders associated with the company.
In case of identifying any issue related to risk management must investigate the issue and
inform external auditors so they can analyse the impact of same over the company and make
disclosure to the relevant interested parties. Company must also comply with CSR principles
regulated by ASX.
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Reference:
 APA Group, (2018). Annual report, 2017. Available at:
http://annualreport2017.apa.com.au/.
 APA Group, (2017). Annual report, 2016. Available at:
https://www.apa.com.au/globalassets/asx-releases/2016/20160923-apa-annual--
sustainability-report.pdf
 APA Group. (2017). Corporate Governance Statement and Appendix 4G. Available
at: https://www.apa.com.au/globalassets/documents/governance-docs/20170823-corp-
gov-statement--4g-final.pdf
 Larcker, D., & Tayan, B. (2015).
Corporate governance matters: A closer look at
organizational choices and their consequences. Pearson Education.
 APA Group. (2018). ape’s strategy for supporting australia’s transition to a low
carbon economy. [Online]. Available at:
https://www.apa.com.au/about-apa/sustainability/climate-change/apas-strategy-for-
supporting-australias-transition-to-a-low-carbon-economy/. [Accessed on03.05.2018].
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