Corporate Governance Principles of ASX and its Application in FFA

This article discusses the corporate governance principles of ASX and their application in FFA. It examines the composition of the board, disclosure of independent directors, and the role of the chairman. It also explores the ethical dilemma faced by Steve Barker in issuing a dissenting statement. The report further analyzes the concepts of due care, contributory negligence, and duty of care in the auditing profession.

Running head: MASTERS OF PROFESSIONAL ACCOUNTING
Masters of Professional Accounting
Name of the Student
Name of the University
Author’s Note

1MASTERS OF PROFESSIONAL ACCOUNTING
Table of Contents
Answer to Question 1.................................................................................................................2
Answer to Question 2.................................................................................................................3
Answer to Question 3.................................................................................................................5
References..................................................................................................................................8

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Answer to Question 1
The Australian Securities Exchange (ASX) has provided the Australian listed
companies with certain principles and recommendations with the aim to implement robust
corporate governance mechanism within the business organizations; these principles are
laying solid foundation for management and oversight; correctly structure the board for
adding value; acing ethically and responsibly; safeguarding corporate reporting integrity;
making timely as well as balance disclosure; respecting the rights of security holders and
remunerating in fair and responsible manner. These are the eight corporate governance
principles of ASX (asx.com.au, 2019).
The second principle is vastly related to the case of FFA. According to the second
principle, a listed company must should have a board having correct size, composition, skills
and commitments for properly discussing their duties. This principles also states that a high
performing and effective board is required for effective governance in the listed companies. It
is also mentioned in the statement that board of a listed company must have sufficient size in
order to meet the requirements of the businesses. An appropriate size of board helps in
changing the board composition and committee without any disruption (Christensen et al.,
2015).
According to Recommendation 2.1 of this principle, the board of a listed company
must have a nomination committee that includes at least three members and majority of them
needs to be independent directors. At the same time, the Chairman of the Board must have an
independent director. It can be seen from the statement of Samantha Gabrielle that the Board
of FFA includes three non-executive directors (Tricker, 2015). The non-executive directors
are the directors who do not take part into the company’s daily business operations as the
responsibilities of them can be seen in the areas of organizational strategy and policymaking.
According to the 2.3 Recommendation of ASX Corporate Governance Principles, it is needed
for a listed entity to consider disclosing the name of the directors that the board considers to
be the independent directors. It can be seen from the provided information of FFA that the
company has not disclosed the names of the directors considered as independent directors as
they have only mentioned which are the non-executive directors (Appuhami & Bhuyan,
2015).
FFA has not mentioned which are the independent and non-independent directors in
their Board. It clearly indicates towards the fact that FFA has not complied with these two

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recommendations ASX. Hence, as a corrective measure, they are needed to disclose which
directors are independent and non-independent (Salim, Arjomandi & Seufert, 2016).
It can also be seen from the recommendation of this principle that the chairman of a
listed company should be an independent director. According to the statement of Samantha
Gabrielle on FFA, Kevin Oliver is the chairman of the Board of FFA who is a non-executive
director in the company. At the same time, it needs to be mentioned that he has an 11 percent
shareholding in the company. It indicates towards the fact that Kevin Oliver has interest in
the company and thus, not free from material interest. Thus, he cannot be considered as an
independent director in the presence of his interest in the company. The appropriate action
will be to remove him from the position of chairman and to make someone the chairman of
the board who is independent (Tricker, 2015).
Answer to Question 2
American Accounting Association Model Decision-making process
1. Determine the facts
The fact are that Steve Barker has
identified the used revenue recognition
process of FFA as questionable or faulty as
the ASIC has confirmed the same. Steve
Barker informed this to the senior audit
partner, Skye Martin and wanted to issues
a dissenting statement. However, Skye
Martin has showed her disagreement on
this and offered to take the full
responsibility of FFA’s audit by wiring a
letter. Later, Skye Margin made some
negative comment related to the chances to
promote as an auditor.
2. Define the ethical issues
In this case, the main ethical issue is
whether Steve Barker should issue the
dissenting statement in the audit working
paper since there are major issues in the
revenue recognition model of FFA or he
should agree with the verdict of Skye
Martin that there is not any issue in the
revenue recognition process and accept the
letter from her (Cianci et al., 2014).
3. Identify the major principles, rules, and values In this situation, one major involved
principle is integrity that puts the
obligation on the auditors to be honest and
straightforward in all business and
professional relationships. At the same
time, objectivity is also involved in this

4MASTERS OF PROFESSIONAL ACCOUNTING
American Accounting Association Model Decision-making process
case as Skye Martin might be under any
kind of undue influence, conflict of interest
and bias for not taking the right decision.
At the same time, the principles of
professional behaviour is also involved
here as Skye Martin is not acting as per the
laws and regulations of the profession
(apesb.org.au, 2019).
4. Specify the alternatives
In this situation, the presence of two
alternatives can be seen.
Option 1: Under this alternative, it is
needed to take into consideration the
provided information of Steve Barker that
there is major fault in the revenue
recognition process of FFA. For this
reason, it is needed to provide the company
with the correct method of revenue
recognition as the current method is
questionable. At the same time, it is
needed for Steve Barker to issue dissenting
statement in the audit working paper.
Option 2: Under this option, the
requirement is to agree with the decision of
Skye Martin as there is not any need for
bringing change in the revenue recognition
process and accept the offer from her that
she will take all the responsibility of the
audit of FFA (Martinov-Bennie &
Mladenovic, 2015).
5. Compare values and alternatives
In this step, it needs to be mentioned that
the course of action consistent with the
principles, rule and values is to issue the
dissenting statement in the audit working
paper by providing the correct alternative
of the questionable revenue recognition
process by FFA. On the other hand, the
adoption of the second option will lead to
the violation of the earlier-mentioned
auditing principles, rules and values
(Martinov-Bennie & Mladenovic, 2015).
6. Assess the consequences Under Option 1, Steve Barker will issue a
dissenting statement as the revenue
recognition process is questionable while
providing the correct method of revenue
recognition. In this manner, it would be
possible to maintain compliance with the
auditing principles, rules and regulations.
In addition, Steve Barker would be

5MASTERS OF PROFESSIONAL ACCOUNTING
American Accounting Association Model Decision-making process
satisfied on the fact that he has taken the
right decision. It would be possible to
maintain the overall integrity of the
auditing profession.
Under Option 2, no action would be taken
against the questionable revenue
recognition of FFA and there would not be
the issue of dissenting statement. This
would lead to the violation of the crucial
auditing principles like integrity,
professional behaviour and others.
However, this option will serve the best
interest of FFA and Skye Martin (Elvy,
2015).
7. Make your decision Based on the above discussion, the best
ethical decision would be option 1.
Answer to Question 3
Introduction
This report takes into consideration three crucial aspects that are related to the given
situation of FFA; these three aspects are due care, contributory negligence and duty of care. It
needs to be mentioned that the auditors are needed to take into consideration these three
crucial aspect while providing the professional services to their clients as non-compliance
with these aspects can affects the outcome of the audit operation.
Due Care
Due care is considered as a crucial principle in the audit profession and in the
presence of this particular principle, it is needed foot the auditors to maintain their
professional knowledge and skill level in the most correct manner in order to ensure the fact
that the clients receive appropriate professional services from them. It is also the obligation
on the auditor acting diligently in accordance with the applicable professional standards in
the audit profession (Furiady & Kurnia, 2015). In FFA, the independent expert of SBF
analyzed the whole system and reached to the point that the system was fully reliable in the
presence of the fact that the expert successfully conducted the process of changeover. This
particular aspect helps in ascertaining the crucial fact that the management of FFA did not
face any difficulties while using the system as it is mentioned that there was not any issue in
the system in the audit period of SBF. Hence, it can be understood from this specific scenario

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that the auditors of SBF was successful in the application of the needed knowledge and skills
for testing different aspects of the new system with the aim to satisfy FFA with the correct
service. In this context, it is also essential to mention the fact that the auditors discovered the
error in the system after the completion of the audit that is in July 2019. For all these reason,
the auditors of SBF have not failed in exercising due care (Knechel & Salterio, 2016).
Contributory Negligence
Contributory Negligence is also considered as a crucial aspect due to its relevancy
with the auditing profession. In this aspect, contributory negligence can be regarded as a
common regulation defense and in this, a person or an organization contributes towards the
harms they suffered as a result of their own negligence. It needs to be mentioned that major
relevancy of this concept can be seen in the provided situation of FFA. It can be seen from
the provided information of FFA that the company hired a well-regarded IT consultant for
undertaking the upgrading their accounting information system with the aim to manage their
inventory in more efficient manner (De Mot, 2013). However, it was seen later that there
were certain major issues in the program that contributed towards the errors in the whole
program. This particular aspect indicates towards the negligence of the management of FFA
in properly examining as well as checking the program after the process of upgrading tool
place. For this particular reason, they had to face material misstatements in both the valuation
of inventory and assets for a large value which affects its deal with McCarran Pastoral. In the
presence of these reason, it can be said that FFA is guilty for contributory negligence (Gifford
& Robinette, 2013).
Duty of Care
In the audit profession, duty of care is considered as another major aspect as it has
relevancy with the audit profession. Duty of care can be regarded as the responsibility of the
auditors to confirm the fact that the financial statements of their audit clients are
appropriately presented and they show the correct financial standing of them (Spamann,
2016). This aspect is related with the provided scenario of FFA. It can be seen from the
provided information that the audit program of FFA ended on June 30, 2019. On the other
hand, the errors or issues in the accounting information system were detected on July, 2019
that is after the completion of the audit program of FFA by SBF. Hence, it can be understood
from the provided information that the errors were not detected while SBF was auditing the
financial statements of FFA. According to the auditing regulations, the audit client cannot

7MASTERS OF PROFESSIONAL ACCOUNTING
blame the auditor for any incident that takes place after or before the audit tenure. Thus, in
the presence of these aspects, McCarran Pastoral cannot blame SBF for violating the
principles of duty of care (Samsonova-Taddei & Siddiqui, 2016).
Conclusion
It is evident from the above discussion that the auditors of SBF have not failed in
exercising the due care as they have audited the financial statements of FFA with adequate
professional knowledge and skills. After that, FFA is guilty for contributory negligence as
they have ignored to test the upgraded accounting information system in proper manner.
Lastly, SBF does not owe duty of care to McCarran Pastoral as the errors in the accounting
information system did not occur at the auditing tenure of SBF.

8MASTERS OF PROFESSIONAL ACCOUNTING
References
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April 2019, from
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Asx.com.au. (2019). Corporate Governance Principles and Recommendations. Retrieved 5
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