Corporate Governance Principles and Risk Assessment in Qantas Airways

This report examines the application of corporate governance principles in Qantas Airways, a leading Australian airline. It explores the implications of ASX Corporate Governance Principles on the company's operations, including board structure, ethical conduct, financial reporting, and risk management. The report also delves into risk assessment techniques relevant to the audit of Qantas Airways, identifying potential material misstatements and outlining steps to mitigate audit risk. By analyzing the company's financial ratios and business environment, the report provides insights into the challenges and opportunities faced by Qantas Airways in the aviation industry.

HI6026 - Audit, Assurance and Compliance
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Executive Summary:
In the modern business environment there is a need to establish some kind of corporate
governance principles base on which the company and the various affairs gets controlled and
directed in an appropriate manner. The consideration of corporate governance principles will
include achieving a proper balance between the interests of various stakeholders of the company
including management, shareholders, government and many other external and internal parties.
The application of corporate governance principles will include facilitating the prudent and
effective management which will assist in maintaining the long term success of an organisation.
Also while conducting the audit work there is a need to recognize the risk associated with the
audit work to be conducted in an enterprise. This will help in establishing the plans and
procedures and the extent to which the audit procedures must be applied in the company. The
decision regarding the nature and extent of audit procedures to be applied will depend on these
evaluations.
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Contents
Executive Summary:........................................................................................................................2
Introduction:....................................................................................................................................4
Content:............................................................................................................................................5
Conclusion:....................................................................................................................................11
References:....................................................................................................................................12
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Introduction:
The report helps in providing the information about the various concepts relating with the
auditing and assurance services provided by the auditors in the company’s operating in wider
business environment. The various accepted corporate governance principles will be identified
and they will be conceptualised in the context of the company selected in this report. The
company selected here is Qantas Airways. The various risk assessment techniques and their
implication in the audit work to be performed in the company will be utilized in this report. The
overall report will give a brief knowledge of the audit work conducted.
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Content:
Background of the company
Qantas Airways is the company operating under the Group Qantas Group. The company is
considered to be one of the largest and biggest domestic and national airline of Australia while
operating mainly in Sydney, Melbourne and having some secondary hubs in Brisbane and Perth.
The company is providing the airline services internationally having the flights to various parts
of world. The track record of the company considering its financial growth is sound and it has
been operating successfully in the market in the recent few years (Annual Report, 2017).
Implication of ASX Corporate Governance Principles in Qantas Airways:
As per the corporate governance principles and standards established for the company, the Board
of Directors are committed at maintaining the enhanced level of standards associated with safety,
corporate governance and performances related with the organisation. The various principles of
corporate governance and their implications in regard to Qantas Airways are presented below:
Lay solid foundations for management and oversight: As per the first principle of corporate
governance it must be ensured that the management of the company has properly established and
disclosed the roles and responsibilities related with the Board and the management and there is a
proper system of recognizing their performance and monitoring them for their appropriateness
(Transurban.com.au. 2018).
Implication in context of Qantas Airways – In context of the given principle the Board of the
company has adopted a charter that can be accessed on the company website. Also it has been
ensured that the Board is taking care of setting and reviewing the strategic plan and direction and
has been reviewing the implementation of the same. The CEO and Company secretary has been
appointed by the company in order to control the day to day activities and functioning of the
Board and has been provided with all the powers and delegations required to perform these
activities appropriately.
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Structure the board to add value: As per this principle of corporate governance the structuring
of the Board should be in a manner that will assist in maintaining an appropriate size,
composition of the Board and ensuring that proper and adequate skills are present in the
members of the Board. The management should also ensure that all the members of the board
must discharge their responsibilities and duties effectively in order to achieve efficient results.
Implications in context of Qantas Airways – The Board of Qantas have the Board structure in
following way:
 Ten directors in which 9 are independent non-executive directors who are elected by
shareholders.
 The CEO of the company is not independent and is an executive director.
It has been ensured that the member appointed in the Board possesses adequate and appropriate
skills and knowledge about their professional and they will discharge their roles and
responsibilities properly. The Board of the company includes four committee:
 Remuneration Committee
 Nominations Committee
 Audit Committee
 Safety, Health, Environment and Security Committee
Act ethically and responsibly: The principle states that the company should develop an
appropriate code of ethics or the code of conduct for the members in order create awareness of
the standards of conduct which are expected and needs to be followed by the managers,
directors, employees etc. of the company. The company should develop and maintain a corporate
culture which will enhance its reputation and goodwill in the market (Transurban.com.au. 2018).
Implication in context of Qantas Airways – The Board of the company Qantas Airways has
developed a Non-Negotiable Business Principles and the Group policies which are helpful in
laying down the foundation associated with business practices. The framework established by the
Board is supported by the rigorous Whistle-blower program, which ensures the protected
disclosures from the employees of the company. The Group has set out The Qantas Group
Employee Share Trading Policy which prohibits employees from breaching the law and trading
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in the shares of the Group while having privileged information which are sensitive to share
prices.
Safeguard integrity in corporate reporting: It must be ensured that there have been established
the rigorous and formal processes in order to ensure an independent verification and integrity of
the financial reporting and corporate reporting related with the company.
Implication in context of Qantas Airways – The audit committee and the Board are regularly
monitoring the independence of the external auditors and the external auditors are rotated in
every five years while ensuring that the restrictions are in place to employ ant related personnel
form the previous auditor. The policies are in place to prohibit the non-audit services that are not
required (O'Donnell, et. al., 2011).
Make timely and balanced disclosure: The Company should ensure that all the information has
been disclosed properly to ASX in a balanced and timely manner so that a reasonable person can
have the knowledge regarding the decision to be taken for investment purpose in the company
and the same will affect the share price of the company.
Implication in context of Qantas Airways – It has been ensured that there exist a consistent and
transparent communication to the shareholders regarding while of the information and this has
been made possible with biannual confirmation by all Executive Management. The
communication with shareholders takes place with the help of web based news room or via ASX.
Respect the rights of security holders: The Company should ensure that the shareholders have
all the information as required by them and the same should allow then to use their rights
effectively and in a timely manner.
Implication in context of Qantas Airways – By establishing a Shareholder Communications
Policy it has been ensured that there is a two way communication operating and the participation
of shareholders has been encouraged in all the meetings. The shareholders can also receive the
information electronically (O'Donnell, et. al., 2011).
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Recognise and manage risk: This creates a responsibility regarding the establishment of an
appropriate framework of risk management which is being operating effectively and regularly
monitoring the legal and policy compliances.
Implication in context of Qantas Airways – The management has designed and operated an
appropriate risk management and internal control system which will help in managing the
material business risks. In the financial year 2016-17 the two committee has taken the annual
review in order to test the effectiveness of the same.
Remunerate fairly and responsibly: There should be a proper and adequate executive
remuneration system in place in order to give adequate remuneration to the directors and
executives and appointing high skilled management. The values should be created in order to
align with values of the security holders (Putra, 2010).
Implication in context of Qantas Airways – remuneration has been considered while evaluating
this principle and it states that there are proper remuneration policies in the company. Also the
non-executive directors of the company are eligible for statutory superannuation and certain
travel entitlements which should be reasonable and correct. There is no remuneration based on
performance.
Risk assessment of the company:
The company is engaged in aviation industry which generally involves complex business
transaction and there is high foreign exchange risk exposures associated with this type of
company operating in aviation sector. The customers are highly dependent on the seasonality and
the profitability and sustainability is affected by this fact.
The market overview of the company is very sound as in the domestic market of Australia the
company has achieved an EBIT of record $865 million making the company as one of the most
profitable airlines. There are increased level of capacity growths in the broader market of
company. The company has high opportunities in international market trading and business
should be developed in that way (Auditinghelp, 2018).
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The business strategy of the company Qantas Airways is shaped appropriately in context of the
four typos of global forces that the company believes will affect the operating environment in
future. The four forces will include big data, shifting customer experiences, growth of Asia and
the implication concerned with resource constraints. The company will now focus on the fastest
growing Asian aviation industry. The growth prospects are sound in that strategy.
The clients are not regulated by a particular group or processes and this creates an independency
among the business processes and transaction concerned with those clients. The company needs
to regularly review and monitor the same in future contexts.
Relevant audit risk
The audit risk will be associated with not being able to recognize and identify the material
misstatements which can affect the decisions of the investors who will be using the financial
statements for their investing decisions. The risk related with audit will be concerned with
determining the appropriate level of audit procedures and determining the materiality levels to be
considered while conducting the audit work in an enterprise. The various material business risks
which are associated with company profitability should have been properly identified and
considered for ensuring true and fair view of financial reporting (Putra, 2010).
The various ratios have been considered for evaluating the risk of material misstatements
in financial statement of the company:
Qantas Airways
Calculation of Ratios
Sr.
No.
Particular Year 2017 ($ m) Year 2016 ($ m)
1 Current Asset 3119.000 3458.000
2 Current Liabilities 7095.000 7028.000
3 Working capital -3976.000 -3570.000
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4 EBIT 1370.000 1643.000
5 Retained Earnings 472.000 -100.000
6 Total Asset 17221.000 16705.000
7 Shareholder Equity 3540.000 3260.000
8 Total Debt 13681.000 13445.000
9 Net sales 16057.000 16200.000
Working Capital/Total Assets -0.23 -0.21
Retained Earnings/Total Assets 0.03 -0.01
EBIT/Total Assets 0.08 0.10
Shareholder Equity/Total Debt 0.26 0.24
Sales/ Total Asset 0.93 0.97
Potential steps to reduce the risk associated with the financial statements:-
 The auditors should identify and assess the material business risks currently associated
with company. This will help in analysing the exposure with which the company is
operating.
 Establishing a proper internal control and based on that establishing the extent of reliance
to be placed on the internal controls operating in the company.
 Ensuring that all the material statements are identified either by the audit procedures
conducted or the auditing techniques applied (Auditinghelp, 2018).
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Conclusion:
It can be concluded that sound corporate governance will ensure that there exists a set of core
values and behaviours which underpins and guides the activities of the Group and maintaining
transparency in the overall process. The corporate governance thus will be required in order
protect the interest of the stakeholders of company. The same should be ensured for the entity as
a whole covering all its sub entities. The auditors while conducting the audit work should
concentrate on identifying and assessing the material misstatement and this can be performed by
efficient planning only.
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References:
 AASB, 2009. Auditing Standard ASA 520 Analytical Procedures. Australian
Government. [Online]. Also available at
http://www.auasb.gov.au/admin/file/content102/c3/ASA_520_27-10-09.pdf.
 Annual Report, 2018. Annual Report 2017. Qantas Airways [Online]. Also available at
http://investor.qantas.com/FormBuilder/_Resource/_module/doLLG5ufYkCyEPjF1tpgy
w/file/annual-reports/2017AnnualReport.pdf [Accessed on 16-04-2018]
 Auditinghelp, 2018. Identifying and Assessing the Risks of Material Misstatement
through Understanding the Entity and Its Environment Auditing Help. Auditing help.
[Online]. Also available at https://auditinghelp.com/identifying-and-assessing-the-risks-
of-material-misstatement-through-understanding-the-entity-and-its-environment-13914.
[Accessed on 16-04-2018]
 Loughran, M., ND. How to follow risk assessment procedures in an audit. Dummies.
[Online]. Also available at http://www.dummies.com/business/accounting/auditing/how-
to-follow-risk-assessment-procedures-in-an-audit/. [Accessed on 16-04-2018]
 Orionequities.com.au. 2018. [online] Available at:
http://www.orionequities.com.au/sites/default/files/20171018%20OEQ%20ASX
%20Corporate%20Governance%20Statement%20-%202017.pdf [Accessed 10 Apr.
2018].
 Putra, D. L., 2010. The Use of Analytical Procedures In Auditing. Accounting financial
tax. [Online]. Also available at http://accounting-financial-tax.com/2010/04/the-use-of-
analytical-procedures-in-auditing/. [Accessed on 16-04-2018]
 Transurban.com.au. 2018. [online] Available at:
https://www.transurban.com.au/content/dam/transurban-pdfs/02/corporate-governance/
Corporate_Governance_Statement.pdf [Accessed 16 Apr. 2018].
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