Corporate Governance Principles and Risk Assessment in REA Group

This report examines the corporate governance principles implemented by REA Group, a leading real estate company. It analyzes the company's board structure, risk management framework, and compliance with ASX Corporate Governance Principles. The report also delves into risk assessment techniques used by REA Group, including the calculation of financial ratios, to identify potential risks in financial statements. The report concludes by discussing steps to mitigate these risks, such as implementing robust internal controls and leveraging IT systems.

HI6026- Audit Assurance and
Compliance
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Executive Summary
The report consists of the Corporate Governance Principles with respect to the REA Group. The
company has made various committees along with the fixation of the responsibilities for the
board of director to have transparency with the stakeholders and to provide sustainable growth.
There are various principles that are being followed such as the Lay solid foundation which can
be beneficial for the company. The company has established the system to manage the risk
involved. There is also the inclusion of the risk assessment on the basis of the nature of the
company and other factor and follow the procedures accordingly. There are ways through which
there can be the development of an effective system for minimizing of risks such as the IT
system and internal control system.
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Table of Contents
Executive Summary.......................................................................................................................2
Introduction....................................................................................................................................4
2. ASX Corporate Governance Principles from your selected company.................................5
3. Risk Assessment and steps to reduce the potential risk in financial statements..................9
Conclusion....................................................................................................................................12
References.....................................................................................................................................13
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Introduction
The assignment includes the corporate governing principles that are being implied in the
company and effect of the same. The report also consists of the various risk assessment
technique for the selection of the Audit procedure by the company along with the calculation of
the ratios. There are various factors analyzed for the risk management such as the nature of the
business, who regulates the client etc.
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2. ASX Corporate Governance Principles from your selected company
The governance principal of the selected can be as possible:-
Lay solid foundations for management and oversight: The board of directors is very effective
with respect to the experience that they have. The board of directors is very much experience
with properly defined responsibilities (Annual Report, 2018). There is also the establishment of
the Executive leadership team for further development and growth. There is the development of
risk management framework which can be useful for the minimizing of risk includes the
development of new technologies, competitive market effect over the potential growth and
development (Corporate Governance, 2018). The strategic decision making regarding the
financial decision and risk are also being taken by the directors of the company. They also need
to take care regarding the compliance and the risk associated along with the implementation of
the corporate governance in the organization.
Structure the board to add value: The structure of the board is very much experience along
with the high qualification. The board of the directors consists of the following:-
Particulars Position Qualification and experience
Hamish McLennan Non-executive Director Had been Executive chairman
in the marketing industry
Tracey Fellows Executive Director and
Chief Executive Officer
She is BEc with experience in
strategic operations and
investments
Roger Amos Independent nonexecutive
Director
He is FCA and FAICD having
expertise in finance and
management
Kathleen Conlon Independent non-executive
Director
BA (ECON)(DIST), MBA,
FAICD. Having an experience
of 20Years in management
consulting experience
Richard J Freudenstein Non-executive Director BEc, LLB (Hons). Has already
been CEO of company Foxtel
for 5 years.
John D McGrath Independent nonexecutive
Director
Have been a successful
businessman making McGrath
Estate agent Australia one of
the most successful
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Michael Miller Non-executive Director He is having an experience of
20 years in media industry as a
senior executive
Susan Panuccio Non-executive Director Having extensive media
experience across UK and
Australia
Ryan O’Hara Non-executive Director Leading provider of real
online estate
The specialization of the directors will be useful in determining the best strategy along with the
establishment of the control and coordination. The specialization will help the directors to make
the company achieve its goals and objective (Annual Report, 2018). The directors will be able to
achieve the efficiency along with the increased productivity resulting in long-term growth and
development.
Act ethically and responsibly: The Company should act in a way which is ethically and
responsible for the stakeholders as well as to meet the compliance. The Groups is responsible
and focussed on keeping them transparent and accountable to the stakeholders (Corporate
Governance, 2018). The board of directors is also made responsible to maintain the corporate
governance statement effective and efficient. The company wants to have sustainable
development along with the building the value to the shareholders of the company by enhancing
the performance of the organization.
Safeguard integrity in corporate reporting: There are various processes that are being
implemented by the company for the safeguard and integrity in reporting. The statements of the
company are prepared with utmost care and in accordance with the International Financial
reporting standards (IFRS) and International Accounting Standards Board (IASB) (Annual
Report, 2018). The companies follow the AASB requirements such as reporting of useful
information to the stakeholders and people for whom it is useful. The company also follows the
requirement of AASB 9 which considers the impairment model that makes the companies
consider the credit loss if any.
Make timely and balanced disclosure: The AASB 107 is followed by the company for the
appropriate disclosure with respect to the financial statements of the company. It is the
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responsibility of the directors to have disclosure of the material effect to the appropriate authority
and governing bodies. The changes in the liabilities and assets need to be disclosed by the
company (Annual Report, 2018). The disclosure regarding nature, timing along with the
uncertainty with respect to the revenues that is being expected is required to be disclosed by the
company. The company also disclosed the risk related to the credit as per the accounting
standards.
Respect the rights of security holders: The shareholders are kept transparent with respect to
every information that is material or not (Annual Report, 2018). The company is very much
forward in managing the risk that can affect the return of the shareholder and try to minimize the
risk as low as possible which increases the trust of the stakeholders and also affect the prices of
the shares. The company looks forward to having better productivity and sustainable growth so
that interest of the shareholder is maintained increasing the profitability of the company.
Recognise and manage risk: There are various risks that are being associated with the
organization irrespective of its size and nature. The company also faces the same risk which
includes the competitive risk, technological risk, risk related to the security and data etc. The
company has established the Executive risk committee for the implementation and establishment
of the framework which is held responsible for the management and planning of the strategies
including the operational, financial and strategic (Annual Report, 2018). They are formed to
provide an excellent result with the available resources and return on investment of the people
that have interest in the company. The management of risk helps in minimizing the risk along
with increasing the profitability of the company and long-term growth and sustainability
(Transurban.com.au. 2018).
Remunerate fairly and responsibly: The remuneration must be done as per the prescribed
guidelines of the governing bodies. It can be seen that the company is fair towards the
remuneration by auditing them as per the section 308(3C ) of the Corporation Act 2001. The
remuneration in fair terms helps in effective management of the resources along with the
transparency for the stakeholders. The remuneration of the directors is based on Key
management personnel which includes the directors which are responsible for the planning,
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controlling, directing the activities that are being carried out by the company
(Orionequities.com.au. 2018).
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3. Risk Assessment and steps to reduce the potential risk in financial statements.
Nature of the company: - The nature of the company is important for an auditor to understand
so that the risk can be assessed and procedures can be followed to reduce the risk in the financial
statements. The ownership, governance, and operations are important for the understanding of
the nature of the company (O'Donnell, et. al., 2011). Nature affects the transactions that are being
carried out by the company thereby reducing the risk or increasing the risk depending on the
control. It is important to carry out the audit as per the plans and the risk associated with the
organization. The strong governance reduces the chances of the risk involved thereby making the
auditor satisfies.
The company market overview: - The market overview of the risk assessment includes the
value and growth of the company along with the branches and chains of the organization. There
are chances of misstatement in case of many subsidiaries companies thereby making the auditor
to take care of the abnormalities that can be there in the financial statements of the company. The
market overview is critical for determining the effective procedure so that the audit can be
conducted with full efficiency and effectiveness (Loughran, ND). There can be ways through
which the manipulation can be carried out by the company to show the undervalued or
overvaluation of the financial statements.
Regulation of the clients: - The regulation of the clients and transparency helps to identify the
disclosure of the facts and information by the company. The regulation is through the agents
along with the customer portal for the purpose of the advertising. The Auditor risk is reduced
with the help of the in case there is proper chain and value system of the process that is being
carried out reduces the risk related to the regulation of the clients (Loughran, ND). The
regulation of the clients is being conducted with a view to understanding the working of the
organization for selecting of the appropriate procedure.
Business strategy: - Every organization is focussed towards earning the profitability along with
sustainable development. It is important to earn the profits to maintain the goodwill of the
company and to maintain the trust of the stakeholders. The auditor must understand the motive of
the organization to adopt effective risk management procedure for the determination of the
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misstatement and or fraud. The business strategy is critical as there can be unfair practices used
for showing the financial statements of the company above or below the actual figures. The
business strategy of the company is useful in measuring the risk involved to follow the
appropriate procedures.
Relevant Audit risk: -
REA Group
Calculation of Ratios
Sr.
No. Particular Year 2017 ($
000)
Year 2016
($ 000)
1 Current Asset 458184.00 223370.00
2 Current Liabilities 379095.00 233002.00
3 Working capital 79089.00 -9632.00
4 EBIT 156379.00 349836.00
5 Retained Earnings 672712.00 585274.00
6 Total Asset 1578813.00 1483284.00
7 Shareholder Equity 804730.00 715775.00
8 Total Debt 359118.00 492253.00
9 Net sales 671206.00 579059.00
Working Capital/Total
Assets 0.05 -0.01
Retained Earnings/Total
Assets 0.43 0.39
EBIT/Total Assets 0.10 0.24
Shareholder Equity/Total
Debt 2.24 1.45
Sales/ Total Asset 0.43 0.39
The financial ratios are very much useful for determination of any fraud or the misconduct. The
changes in the ratios are always material to the auditor (AASB, 2009). It is important to identify
the reason behind the changes in the ratio of appropriate information for the transactions that are
being carried out. The EBIT of the company has fallen by more than half due to a decrease in the
profit of the company but the sales have increased with a good margin which needs to be
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considered by the auditor and effective steps and procedure must be taken to determine the
reasons and testify them with proofs (Putra, 2010).
The potential steps to reduce the risk associated with the financial statements:-
Internal control – It is important to have an internal control system in the organization for better
control and coordination. The internal control minimizes the risk associated with the transaction
such as misstatement or fraud. It is useful in reconciling the data that is recorded in the system
along with the check system (Auditinghelp, 2018). It is also useful in the set of roles and
responsibilities along with the checking of the process that is being carried out. The internal
control systems are also useful for the purpose of compliance with the standards.
IT Environment – The IT Sector is on the boom with advancement in the technologies
regularly. The IT plays an important role in the development and checks system with appropriate
authority to the respected person. The IT will help in the development of the technology through
which the compliance can be checked with respect to the particular governing authorities and act
accordingly (Auditinghelp, 2018). The IT System can be a watchdog for the upper management
with respect to the compliance and also check any fraud or misconduct is there. It can also be
found that there is a true and fair presentation of the data available.
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Conclusion
It can be concluded by the companies follows the corporate governance and principles
effectively and efficiently by forming of the committees and following of the ASX principles
such as the presentation of the financial statements. The company nature and strategy clearly
shows that the company is transparent with effective management of the corporate governance.
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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. REA Group. [Online]. Also available at
https://www.rea-group.com/irm/PDF/2122_0/AnnualReport2017. [Accessed on 20-04-
2018]
 Assessing Risk with Analytical Procedures: Do Systems-Thinking Tools Help Auditors
Focus on Diagnostic Patterns?O'Donnell, Ed; Perkins, Jon D. Auditing; Sarasota Vol. 30,
Issue. 4, (Nov 2011): 273-283
 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 20-04-2018]
 Corporate Governance, 2018. Corporate Governance. REA Group. [Online]. Also
available at
https://www.rea-group.com/irm/PDF/2123_0/2017corporategovernancestatement.
[Accessed on 20-04-2018]
 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 20-04-2018]
 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 20-04-2018].
 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 20-04-2018]
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 Transurban.com.au. 2018. [online] Available at:
https://www.transurban.com.au/content/dam/transurban-pdfs/02/corporate-governance/
Corporate_Governance_Statement.pdf [Accessed 20-04-2018].
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