Importance of Corporate Governance Principles and Risk Assessment Procedures in JB Hi-Fi

This report discusses the importance of corporate governance principles and risk assessment procedures in JB Hi-Fi, a company listed on the Australian Stock Exchange. It examines the company's compliance with ASX CGC principles and its risk assessment procedures. The report also includes a computation of income and balance sheet ratios, potential steps for reducing audit risk, and a conclusion.

Audit Assurance & Compliance

Executive Summary
The main purpose of this is to provide the detailed understanding in regards to the
importance of presence of effective corporate governance principles and policies in the
organization. In addition to this importance of risk assessment procedures in the organization is
also been discussed in detail. In order to understand the importance of corporate governance
principles and risk assessment procedure, a company listed in Australian Stock Exchange (ASX)
in index of S & P 300. Every company issues its corporate governance statement to provide its
effectiveness towards the corporate governance principles. This report has examined the
corporate governance statement of the JB Hifi Company with the ASX corporate governance
principle to provide its effectiveness. The risk assessment procedure used by JB Hifi to address
the audit risk is also examined as the purpose to fulfill the requirement.

Contents
Implication of ASX Corporate Governance Principles in Jb Hi-Fi..................................................................4
Presence of Solid Framework for Management and Oversight...............................................................4
Structuring of Board to Add Value...........................................................................................................4
Acting Ethically and Responsibly..............................................................................................................4
Presence of Integrity in Corporate Reporting..........................................................................................5
Timely and Balanced Disclosure..............................................................................................................5
Protection of Security Holders Interest...................................................................................................5
Recognition and Management Risk.........................................................................................................6
Fair & Responsible Remuneration...........................................................................................................6
Risk Assessment..........................................................................................................................................6
Assessing the Nature of Company...........................................................................................................6
Market Overview.....................................................................................................................................6
Business Strategy.....................................................................................................................................7
Computation of Income and Balance Sheet Ratio...................................................................................7
Potential Steps for Reducing the Risk......................................................................................................8
Conclusion...............................................................................................................................................9
References.............................................................................................................................................10

Implication of ASX Corporate Governance Principles in Jb Hi-Fi
JB Hi-Fi is a widely recognized Australian retailer of consumer goods specializing in
providing electronics consumers products such as home appliances, mobile phones, video games
and others. The company is listed on ASX and therefore has to comply effectively with the
corporate governance statement rules in accordance with the council principles and
recommendations. The compliance of the company in accordance with the ASX CGC principles
is carried out as follows:
Presence of Solid Framework for Management and Oversight
This CGC principle of ASX has stated that business companies need to establish clear
roles and responsibilities of the board and management. The primary role of Board as per the
ASX principle is to create long-term value for the shareholders. Board is responsible for
providing detailed information of the company performance to the shareholders and thus
managing the business operations on their behalf. In this context, the Board overviews the
company’s operations to ensure that all the procedures are carried out in an ethical and honest
manner. The Chief Executive Officer, top management of the company, is accountable directly
to the Board and holds the responsibility to manage, direct and promote the profitable growth
and development of the company. In addition to this, as per ASX principles, the company also
carries out regular monitoring of the Board performance and its various committees for ensuring
that board carries out its function independently. Board has also established its nomination
committee for selection, appointment and continuous evaluation of the performance of Chief
Executive Officer ( ASX Corporate Governance Council, 2014).
Structuring of Board to Add Value
The company in accordance with this ASX corporate governance principle should
develop a board having an adequate size, composition, skills and commitment for carrying out its
duties in an appropriate manner. Board composition consists of different members having
required skills, knowledge and competency to effectively carry out their assigned duties and
responsibilities. This ensures that there is presence of strong governance and decision-making
within the company. There is presence of majority of non-executive directors in the Board
including Chairman and six directors and executive directors that is CEO of the company. The
board members excepting the CEO is re-elected by the shareholder on an average time-period of
3 years.
Acting Ethically and Responsibly
The company in response to this ASX principle ensures that there it carries out its
business operations in a sustainable manner. It adopts the use of sustainable business practices
for ensuring that it is responsible and ethical towards its stakeholders. It has developed an
appropriate code of conduct to ensure that all its employees and business leaders comply with
highest ethical standards in carrying out their roles and responsibilities. The code of Conduct

provides guidance to the employees and the management regarding the acceptable behavior
within the workplace and that should be maintained by them. The code of conduct is defined on
the basis of the company and the employee separately. The code of conduct in relation to the
company is providing a safe work environment, protecting employee rights, respecting
customers and complying with all the relevant laws and regulations. In context of an employee,
the code of conduct is to treat every customer with honesty, performing the job roles effectively,
work accordance with the standard policies and laws and contribute actively towards the
fulfillment of the company long-term objectives.
The corporate governance statement of the company also discloses that the company has
effectively recognized the importance of being responsible towards its shareholders, employees,
suppliers and customers. It has developed effective programs for supporting the community
development. In addition to this, the company has also disclosed its environmental statement
provides a complete overview of all the measures taken by it to promote environment
sustainability (JB Hi-Fi Limited, 2015).
Presence of Integrity in Corporate Reporting
As analyzed from its corporate governance statement, the company has implemented
effective controls to ensure the presence if integrity in its financial reporting. This is essential so
that the company complies with all the regulations in relation to corporate reporting. The
corporate reports are developed as per the Corporations Act and ASX recommendations to
ensure the presence of reliability and accuracy in the financial reports developed. The general
purpose financial statements are developed as per the relevant accounting standards for providing
a fair view of its financial position.
Timely and Balanced Disclosure
As per the ASX corporate governance principle, JB Hi-Fi seeks to make timely and
balanced disclosure of all the materialistic information having an impact on the securities prices.
In this context, the company annually prepares and discloses its financial results by the general
purpose financial statements developed in accordance with the AASB standards. In addition to
this, it also discloses non-financial information related to its sustainability measures in the
sustainability report. This is because the sustainability performance has a large impact on the
trust and belief of the stakeholders and therefore impacts the price value of the securities. The
increases trust and confidence of the investors would promote them to make greater investment
in the company and thus support their decision-making process (JB Hi-Fi Limited, 2015).
Protection of Security Holders Interest
This ASX CGC principle directs the business entities to respect the right of the security
holders through disclosing them adequate information so that they are able to exercise their
rights effectively. In this context, JB Hi-Fi board has developed and implemented a Securities
Trading Policy that has defined the rules and procedures applicable to the directors, officers and
employees involved in trading of its securities. The website of the company also provides

detailed information about the overview of the company performance. The investor section on
the website provides detailed information to the shareholders in relation to market
announcements, its dividend policy and other relevant details. The share registry of the company
electronically provides finromtaion to the shareholders and thus gives them an opportunity for
managing their account details and holdings (Plessis, McConvill and Bagaric, 2005).
Recognition and Management Risk
The company has also in place effective risk management policies for balancing the risk
and reward to meet appropriately the shareholder expectations. The Audit and Risk Management
Committee developed by the company works in order to ensure that all the business risk are
mitigated properly for ensuring the protection of its people, environment and the assets of the
company. The risk management framework developed by the company is in accordance with the
ISO 31000 for enabling the company to identify and manage the risk properly (JB Hi-Fi Limited,
2015).
Fair & Responsible Remuneration
The company in accordance with these ASX principles has developed fair and
responsible remuneration policies for attracting and retaining high quality directors. This is done
to ensure that executive remuneration policies are able to attract, retain and motivate high quality
senior executives for creating value for the security holders. For this purpose, the board has
developed a remuneration committee for assisting in developing remuneration for executive nod
non-executive directors (JB Hi-Fi Limited, 2015).
Risk Assessment
The Auditing and Assurance Standards Board (AUASB) has developed the auditing
standard ASA 520 to be applicable in ASX listed entities for development of analytic procedures
to identify the audit risk. The analytic procedures includes investigating the necessary
fluctuations that reports inconsistency with the other relevant information (Auditing and
Assurance Standards Board, 2009). The risk assessment procedures in accordance with the
auditing standard applied by JB Hi-Fi can be evaluated as follows:
Assessing the Nature of Company
The company is listed on ASX and is publicly traded and conducts its operations across
Australia and New Zealand through its various subsidiaries. As such, the company in accordance
with the principle of consolidation develops and publishes its consolidated financial statements
that provide integrated information about its performance as a single economic entity.
Market Overview
The company carries out its operations across Australia and New Zealand and as such has
to comply with the AASB standard and Corporations Act 2001 for development and presentation
of its general purpose financial statements. The auditors as such need to ensure that all the

financial statement are developed as per the standard accounting policies and regulations (JB Hi-
Fi Limited, 2015).
Business Strategy
The company aims to become one of the largest entity within Australia involved in
providing home entertainment products at economic process and thus attaining a competitive
advantage in the consumer goods markets of the country. Therefore, the company aims to protect
the interest of the end-users through disclosing them accurate and realistic information about its
financial performance. The auditors need to scrutinize the financial performance of the company
in accordance with the business strategy for assessing whether it is carrying out its operational
activities as per the established strategic goals and objectives (JB Hi-Fi Limited, 2015).
Computation of Income and Balance Sheet Ratio
Income Sheet ratios:
Gross profit margin: Gross profit /Net Sales
Gross Profit (2017) = 1230.5AUD million
Net Sales (2017) = 5628AUD million
Gross profit margin Ratio = 21.86%
Net profit margin = Net Profit/Net Sales
Net Profit (2017) = 172.4AUD million
Net Sales (2017) = 5628 AUD million
Net profit margin Ratio = 3.06%
Balance Sheet Ratios
Current Ratio: Current Assets/Current Liabilities
Current Assets (2017) = 1170.7AUD million
Current liabilities (2017) = 885.8AUD million
Current Ratio (2017) =1.32 times
Debt Equity Ratio = Debt/Equity

Debt (2017) = 558.8 AUD million
Equity (2017) = 853.5AUD million
Debt Equity Ratio (2017) = 0.65
The computation of income sheet and balance sheet ratios will help the auditors to assess
the financial risk that can have an impact on its materialistic information (JB Hi Fi Limited:
Annual Report, 2017).
Audit Risk
There are three main types of audit risk present within the company that can have a
materialistic impact on its performance. These are as follows:
 Inherent Risk: This type of audit risk refers to the presence of risk within the company
due to the occurrence of any uncertainty in the internal operations. The identification of
this type of risk involves developing a clear audit plan, audit approach and audit strategy.
 Detection Risk: The risk present within a company due to inaccurate results provided by
the auditors as a result of the auditing process. This may occur due to poor planning of
the audit process that can cause the failure to detect the misstatement in the financial
information. The risk can occur due to inappropriate analysis of the financial statement,
methodology and the overall financial reporting system of the company.
 Control Risks: The risk can occur due to failure of the auditors o asses whether the
employee numbers reported by the company are accurate or not. This depends on the
effectiveness of the internal control risk procedures adopted by the company. The
auditors need toe examine their effectiveness for providing the correct financial
information to the auditors for assessment (Identifying and Assessing the Risks of
Material Misstatement through Understanding the Entity and Its Environment, 2018).
Potential Steps for Reducing the Risk
The above audit risk can be minimized by the auditors to a large extent through
implementation of accurate risk assessment procedures. The inherent risk can be reduced through
development of an effective audit plan in accordance with the business strategy. The auditors
need to develop an appropriate approach of risk analysis that is able to accurately evaluate the
procedures implemented by the company to prevent the occurrence of any risk. Jb Hi-Fi has
developed an audit and risk management committee for management of the financial risk such as
interest rate risk, liquidity risk and foreign exchange risk that can have an impact on the
materialistic information. The detection risk can be reduced by the audit team by ensuring that
the company has implemented the accounting standards and policies for development of its
general purpose financial statements. Lastly, the control risk can be reduced through ensuring

that the company has adopted an effective internal control framework for minimizing the
chances of occurrence of any type of financial risk (Bazley, Hancock and Robinson, 2014).
Conclusion
It can be stated from the overall discussion held in the report that it is very essential for a
company to implement the proper corporate governance policies and risk assessment procedures
to ensure its long-term growth and development. Jb Hi-fi has complied effectively with the ASX
CGC principles and also adopted appropriate procedures of risk assessment to control the audit
risk.

References
ASX Corporate Governance Council. 2014. [Online]. Available at:
https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-recommendations-3rd-
edn.pdf [Accessed on: 23 April 2018].
Auditing and Assurance Standards Board. 2009. Auditing Standard ASA 520 Analytical
Procedures. [Online]. Available at:
http://www.auasb.gov.au/admin/file/content102/c3/ASA_520_27-10-09.pdf [Accessed on: 22
April 2018].
Bazley, M., Hancock, P. and Robinson, P. 2014. Contemporary Accounting PDF. Cengage
Learning Australia.
Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity
and Its Environment. 2018. [Online]. Available at: https://auditinghelp.com/identifying-and-
assessing-the-risks-of-material-misstatement-through-understanding-the-entity-and-its-
environment-13914 [Accessed on: 22 April 2018].
JB Hi-Fi Limited. 2015. [Online]. Available at:
http://member.afraccess.com/media?id=CMN://3A427325&filename=20150810/
JBH_01648937.pdf [Accessed on: 22 April 2018].
Plessis, J., McConvill, J. and Bagaric, M. 2005. Principles of Contemporary Corporate
Governance. Cambridge University Press.
JB Hi Fi Limited. 2017. Annual Report. [Online]. Available at:
https://www.jbhifi.com.au/Documents/2017%20Annual%20Report.pdf [Accessed on: 22 April
2018].