Corporate Governance and Risk Management: A Case Study of Elders Limited

This article is a case study on Elders Limited, a company involved in wholesaling of materialistic objects. It discusses the corporate governance principles and risk management concept of the company in detail. The role of auditors in tracing risks and different mechanisms selected are also highlighted.

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Elders Limited
AUDIT & ASSURANCE
1

Executive Summary
Corporate governance and risk management assumes a place of special importance because it
helps the company to operate smoothly. Hence, every company need to comply with the
regulations of the ASX. To conduct the study, Elders Limited, listed in the ASX top 300 is
selected. The company is involved in the basic business of wholesaling of the materialistic
objects. The corporate governance principles of the company together with the risk
management concept have been studied in an in-depth manner. Further, the role of the
auditors is highlighted when it comes to tracing of risks and different mechanism are
selected.
2

Contents
Introduction...........................................................................................................................................3
Main uses and meaning of the ASX corporate Governance principles..................................................3
Risk assessment.....................................................................................................................................6
Conclusion.............................................................................................................................................9
References...........................................................................................................................................10
Appendix.............................................................................................................................................12
3

Introduction
The company Elders Limited is a public entity that holds the 266th rank of the top 2000
companies working in Australia. The company usually have conducted the basic business of
wholesaling of the materialistic objects. The company has generated huge profits of
$1,660,526,000 including the sales figure and all another basis of revenue. There were about
1977 employees working hard for the accomplishment of the goals and objectives of the
Elders Limited Company. There have been many directors, executive of assigned who been
assigned to their field of work.
The elder limited had various services and products that it provides the customers. They
divide them by making seven major decisions. Farm decisions help the company to decide
the range of the agricultural products like the seeds, fertilizers, pesticides and the animal
healthcare products. Livestock’s data can be analyzed to find the amount of the food grains
required and also it will help to find the real value of the cattle’s for the services of import
and export (Elder, 2017). Wool also tends to affect information like the market concepts
managerial reports. The business of selling grain should only be taken into account if there
are successful marketing strategies (Needles Powers, 2010). Real estate business requires a
proper property management and leasing services. Financial services like providing the loans,
evaluating livestock and financial planning process are also being offered by the firm
(Merchant, 2012).
Main uses and meaning of the ASX corporate
Governance principles
The elder limited had various services and products that it provides the customers. They
divide them by making seven major decisions. Farm decisions help the company to decide
the range of the agricultural products which may be used by the firm (Elder, 2017). There
have been many laws and corporate governance closing company’s management. The main
principles required for the deals:
1. Assessment of oversight management and performance.
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The company’s composition of the employees must be reviewed on an annual basis that their
expertise and knowledge in the particular file can be checked. In the company Elders limited,
the company structure has been divided into many different levels, like the director will have
three years of tenure and can stand for re-election after the completion of that period. The
directors need to learn new and innovative things every day and time. Directors are needed to
be defined on the basis of the industry, technicality and legislative issues impacting the
group. The directors are bound to have one meeting in a year where the conjunction with one
of the Elders operations. The nonexecutive officers are also bound to do the work and then
check that their work is complete or not.
2. Structuring of board toad value
The company has two different bodies of the committee in the place of the board of directors
and the committee. The main target goal set by the company and the committee is to help the
board of directors in carrying out their job in an easier manner so that the shareholders can be
made happy. The board also looks after the nominations and the recruitment of the people
with the right amount of balance and skill. The independence of the nonexecutive officers can
also be checked. The board evaluate the position of the committee members and thus try to
fix the vulnerabilities by identifying them. The board also uses the good qualities of the
directors so that the opportunities of the future are not regarded by the firm in future.
3. Acting ethically and responsibly
The board has a code of conduct which states that the details and the standards which have
been accepted by the Elders limited and its employees of the proper time to time practice of
work and the behavior responsibilities expected of them. The employees mean all the people
including the directors, employees, agents, contractors, and consultants who are in no
difference in relation to the seniority of the group. This code was established to ensure that
the elder limited firm will touch high ends of success in the future. The employees are needed
to act in accordance with the present situation and also in accordance to their colleagues. The
business should also remain clean and all the important safety and precautions must be taken
into account. The board is also needed to report the issues which are related to the improper
management of the account and the irresponsible and ineffective investigation. Also, the
policy that relates to the fraudulent activities is unacceptable and encourages the reporting of
the whistleblower policy.
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4. Protecting the honesty of the financial reporting
The company is entitling to approach in a transparent manner for the reporting and auditing
of the performance. The board has also prepared a risk committee for these kinds of purposes.
It is also needed by the firm to educate its directors about the necessary skills to enhance the
working of the firm and the quality of the account which further helps the stakeholders to
make decisions in accordance to the firms working progress. Also, the approval of the board
is required while [passing the financial statements of the firm. The board needs to attain a
declaration from any of the CFO or CEO about their vision regarding the matter. Thus
maintained and equipped financial records are kept which can further be used for the purpose
of generating the true and fair view of the company’s official financial performance and
position.
5. Make a balanced and timely disclosure
The company has also decided to have taken into force various practices and policies that can
help with the disclosure of the significant matters which are directly associated with the
honesty, punctuality, and balance that can ensure the perfect and value-based materialistic
information for the assessment of the company’s governance, performance, ownership and
position (Leo, 2012), 200eo, 200eo, 200eo, 200eo, 200. Also, the firm needs to make a
cautious and integrated approach towards the theme of the disclosure policy programme and
is reflected in the official website of the firm wherein the stakeholders can use the same for
the attainment of the relevant tasks and decision making. Also, timely disclosure will help the
investors to have a better view of the firm’s financial statements. The financial information
will help the investors to know where they should invest and where they should keep calm.
And thus make the dealing profitable for both them and the firm (Laux, 2014). Timely
disclosure is also necessary for the attainment of the self-trust and the public trust which will
help the company to gain the expertise of good deed in the near future.
6. Respecting shareholders’ rights
The company board has been attentive towards its rule and so the interacting plan of the
company has been working well with the shareholders of the company. The External
Disclosure and Market Communications Policy are c0nstyructed in such a way that it will
share all the financial and market related sensitive information with its shareholders and also
6

with the new one so as to help them in taking their decisions wisely. (Elder, 2017) The
function of the policy includes the fact that the board is attentive towards its work and is
doing it wisely. Elders communicate with its shareholders and the investment markets
through a number of channels, including the ASX announcements platform and its website.
The advantages of the provided website to the shareholder are as follows:
• Explanations on Elders’ developments and events.
• Historical market announcements.
• Information released to the ASX in the form of an announcement.
• Annual reports and explanations of half and full year results for a limited number of years.
• It also provides the interested one to gather information about the ASX and other media
announcements.
7. Manage and recognize the risk
For the Elders increment in the performance and to achieve all its aims, the board is very
attentive in analyzing the company’s policy and the entire framework annually. Because of
such attentiveness, it is seen that the company is well protected in case of financial losses and
all the loopholes in the business defect with instantaneous action on it by the Board (Gay &
Simnet, 2015). It is the Board’s responsibility to see that the all the threats are well captured
by the company which will develop the reports which are in accordance with the risk
management, resilience planning, crisis management and an impartial utilization of the
important internal control systems Elder, et. al, 20101).
8. Remunerate responsibly and fairly
The main purpose of A People and Remuneration Committee is to make a diversified and yet
brilliant plan for the payments made by the company which will have a positive impact on the
same and also on its shareholders. The company is serious in making payments to its
customers and so the company wants that this policy should be paid utter attention to as it
will enhance the both the company’s performance and performance of its shareholders.
7

Risk assessment
Corporate governance plays a key role in detecting and reporting all the major loopholes and
threats to the Board of the company like crisis management, risk management. It is known
that the employees of the Elders are to maintain and the responsibility of the elimination of
all the threats is on them. The Audit Risk and the Compliance Committee have the duty to see
that all the internal function are up to the mark and are in accordance with the World Health
and Safety Committee which will ensure that no WHS risks arise (Elder, 2017).
The company Elders Ltd comprises of various dealings in seeds, fertilizers, pesticides and the
animal healthcare products. In altogether, it has a huge enterprise and operates the business
on a grand scale (Carmichael and Graham, 2012). Moreover, the group functions in a market
that is prone to various kind of risks that is financial, operational, strategic and risks related to
compliance. Therefore, the group has a strong risk management system framework that
stresses upon material risks (Benabou & Tirolee, 2008).
Further, Elder Ltd is governed and managed by the country’s applicable laws, the agreement
of contractual nature and the regulations that prevail. In altogether the group as a whole is
bound by legislative changes and any breach of norms shall deplete the reputation and image
of the group (Elder, 2017).
Audit risk can be accessed through the following methods :
i. Enquiring from the management and the personnel hired within the organization.
ii. Use of audit procedures and analytical procedures.
GP ratio
=GP/ net sales *100 19.71067 19.14446 19.54937 18.25397 20.52566
Net profit
= net profit. Net ales
*100 -30.44 0.210379 2.518224 3.174603 7.259074
iii. Observations and inspection.
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In the first method, the auditor can make inquiries from the management, internal auditors,
lawyers, accounts section and audit committee of the organization regarding the accounting
policies and methods used, risks of misstatement involved, the risk mitigation factors,
application and effectiveness of risk reduction methods, etc (Merchant, 2012).
In the second method, the auditor uses his audit procedures outlined in audit program to
understand the risk attached to the business. Some risks may be inherent in nature while other
risks may be arising due to business operations. There are various analytical ratios that
provide a sound explanation regarding the company (Needles and Tirolee, 2008).
In case of observations and inspection, the auditor observes the activities of the organization,
does an inspection of the records and account books maintained, studies the reports prepared
by the management, takes sample testing in the client workplace, etc.
ASA-570 is concerned with the use of analytical procedure by the auditors. The standards provide a
proper explanation of the use of analytical mechanism by the auditor. Opinion can be framed with
the help of this procedure and an overall judgment can be provided for the financial statements
(Francis et.a l, 2013). Further, the auditors can investigate the fluctuation and differences from the
values that are expected.
Current ratio =
Current assets/
current liabilities 0.914573 1.011211 1.087527 1.130785 1.078505
Quick ratio =
Quick assets /CL 0.658291 0.7287 0.868709 0.909457 0.871028
9

Conclusion
Potential steps to reduce or mitigate risk can be hiring and appointing of independent
statutory and internal auditors, Hiring of experts in case of valuation, merger or starting of
new ventures etc, Implementation of High end digital technology and use of digital media to
store and recover data in case of any data loss, hiring fund managers and experienced
accountants for regular MIS and reporting from time to time. The auditor of Elders Ltd
should carefully audit the financial transactions and its implications. He should not believe in
any assertions but he should himself acquire the underlying documentation of each
transaction. There is also a risk to fulfill environmental and social responsibility so the
auditor should try to fulfill the statutory responsibilities.
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References
Benabou, R. and Tirole, R. (2010) Individual and Corporate Social responsibility. Ecnomica.
[online]. 11, pp. 1-19. Available from: https://doi.org/10.1111/j.1468-0335.2009.00843.x
[Accessed 28 April 2018]
Elder Ltd. (2017) Elder annual report and accounts 2017 [online]. Available from:
https://www.blackmores.com.au/about-us/investor-centre/annual-and-half-year-reports
[Accessed 27 April 2018]
Carmichael, D.R. and Graham, L. 2012. Accountants Handbook. Financial Accounting and
General Topics, John Wiley & Sons.
Elder, J. R, Beasley S. M. and Arens A. A. (2010) Auditing and Assurance Services. Person
Education, New Jersey: USA
Francis, R. N., Harrast, S., Mattingly, J. and Olsen, L. (2013) The relation between
accounting conservatism and corporate social performance: An empirical investigation.
Business and Society Review. [online]. 118 (2), p. 193 - 222. Available from: doi:
10.1111/basr.12008 [Accessed 26 April 2018]
Gay, G. and Simnet, R. (2015) Auditing and Assurance Services. McGraw Hill
Laux, B. (2014) Discussion of The role of revenue recognition in performance reporting.
Accounting and Business Research. [online]. 44(4), 380-382. Available from:
https://doi.org/10.1080/00014788.2014.897867
Leo, K. J. (2011). Company Accounting. Boston:McGraw Hill
Peirson, G, Brown, R., Easton, S, Howard, P. and Pinder, S. (2015) Business Finance, 12th
ed. North Ryde: McGraw-Hill Australia.
Lapsley, I. (2012) Commentary: Financial Accountability & Management. Qualitative
Research in Accounting & Management. [online]. 9(3), pp. 291-292. Available from
https://doi.org/10.1111/1468-0408.00081
Bauer, R. and Hann, D. (2010) Corporate environmental management and credit risk.
Maastricht University.
11

Benabou, R. and Tirole, R. (2010) Individual and Corporate Social responsibility. Ecnomica.
[online]. 11, pp. 1-19. Available from: https://doi.org/10.1111/j.1468-0335.2009.00843.x
[Accessed 26 April 2018]
Elder. (2017) Elder annual report and accounts 2017 [online]. Available from:
http://investors.elderslimited.com/FormBuilder/_Resource/_module/hmGBziN_d0SZypG-M7oDFg/
docs/Annual-Reports/Elders_2016_17_Annual_Report_Digital_1511.pdf [Accessed 27 April 2018]
Carmichael, D.R. and Graham, L. 2012. Accountants Handbook. Financial Accounting and
General Topics, John Wiley & Sons.
Elder, J. R, Beasley S. M. and Arens A. A. (2010) Auditing and Assurance Services. Person
Education, New Jersey: USA
Francis, R. N., Harrast, S., Mattingly, J. and Olsen, L. (2013) The relation between
accounting conservatism and corporate social performance: An empirical investigation.
Business and Society Review. [online]. 118 (2), p. 193 - 222. Available from: doi:
10.1111/basr.12008 [Accessed 26 April 2018]
Gay, G. and Simnet, R. (2015) Auditing and Assurance Services. McGraw Hill
Laux, B. (2014) Discussion of The role of revenue recognition in performance reporting.
Accounting and Business Research. [online]. 44(4), 380-382. Available from:
https://doi.org/10.1080/00014788.2014.897867
Leo, K. J. (2011). Company Accounting. Boston:McGraw Hill
making: Achef’s quest for creative freedom. Long range planning [online]. 43, 408-430.
Available from: https://doi.org/10.1002/job.461 [18 April 2018]
Merchant, K. A. (2012) Making Management Accounting Research More Useful. Pacific
Accounting Review. [online]. 24(3), 1-34. Available from:
https://pdfs.semanticscholar.org/6ccf/f78a452763f17ed5e4f4ddc6b96703801403.pdf
Needles, B.E. & Powers, M. (2013) Principles of Financial Accounting. Financial
Accounting Series: Cengage Learning.
12

Appendix
2013 2014 2015 2016 2017
Gross profit 327 273 295 299 328
Net sales 1659 1426 1509 1638 1598
GP ratio
=GP/ net sales *100
19.71067 19.14446 19.54937 18.25397 20.52566
2013 2014 2015 2016 2017
Net income -505 3 38 52 116
Net sales 1659 1426 1509 1638 1598
Net profit
= net profit. Net ales
*100
-30.44 0.210379 2.518224 3.174603 7.259074
19.71067 19.14446 19.54937 18.25397 20.52566
GP ratio
=GP/ net sales *100
19.71067 19.14446 19.54937 18.25397 20.52566
Net profit
= net profit. Net ales
*100
-30.44 0.210379 2.518224 3.174603 7.259074
13

2013 2014 2015 2016 2017
Total current assets 546 451 497 562 577
Total current liabilities 597 446 457 497 535
Current ratio =
Current assets/ current
liabilities
0.914573 1.011211 1.087527 1.130785 1.078505
Current ratio =
Current assets/ current
liabilities
0.914573 1.011211 1.087527 1.130785 1.078505
Quick ratio =
Quick assets /CL
0.658291 0.7287 0.868709 0.909457 0.871028
2013 2014 2015 2016 2017
Total current assets 546 451 497 562 577
stock 153 126 100 110 111
Quick ratio 393 325 397 452 466
Total current liabilities 597 446 457 497 535
Quick ratio =
Quick assets /CL
0.658291 0.7287 0.868709 0.909457 0.871028
2013-09 2014-09 2015-09 2016-09 2017-09
Total current assets 546 451 497 562 577
Total current liabilities 597 446 457 497 535
Current ratio =
Current assets/ current
0.914573 1.011211 1.087527 1.130785 1.078505
14

liabilities
Current ratio =
Current assets/ current
liab
0.914573 1.011211 1.087527 1.130785 1.078505
Quick ratio =
Quick assets /CL
0.658291 0.7287 0.868709 0.909457 0.871028
2013-09 2014-09 2015-09 2016-09 2017-09
Total current assets 546 451 497 562 577
stock 153 126 100 110 111
Quick ratio 393 325 397 452 466
Total current liabilities 597 446 457 497 535
Quick ratio =
Quick assets /CL
0.658291 0.7287 0.868709 0.909457 0.871028
15