Part (a). As per the principle 7 of ASX Corporate Gover
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Part (a)As per the principle 7 of ASX Corporate Governance Principles and Recommendations, it ismandatory that a listed company shall establish a profound and structured risk managementframework along with a periodical review of the effectiveness of that framework. As per the facts given in the passage and the course of the events taking place inside theCompany, Golden’s approach to Principle 7 of the ASX Corporate Governance Council’sCorporate Governance Principles and Recommendations has been clearly inappropriate to saythe least. It was the management, as per the explanation provided by CEO to CFO, which tooksteps in the line of reasoning that impromptu actions would be enough for managing the risks.However, this is not the structure on which management of risks is based in any organization,more so, in a mining company. As the CFO, Mr. New, came to terms with the fact that abovementioned Principle 7 of ASX, has not fully complied with. He now has to draft measures andsuggest the Board to put them in place in a best possible ways in order to facilitate and recognizethe management of risks. As per the new principles of ASX Corporate Governance Council1, theBoard of a listed company is needed to have a committee to oversee the associated risk. Thenthese responsibilities and characteristics are listed as is expected of such a committee. It is important to note here that the new CFO is also acting as the Company Secretary2, so he hasto perform this role as well with added responsibilities. So, as per the Australian CorporationsAct (CA)3, the Company’s Constitution as well as the listing rules of Australian stock Exchange,the duties and responsibilities of a Company Secretary are: Ensuring the compliance of the company towards its statutory obligations as per laws andregulations.Maintaining statutory recordsEnsuring the completion of statutory records as well as their reporting under the CA, ASXregulations.Ensuring the compliance under the Continuous Disclosure requirements of CA.Arrangements and coordination of board meetings and setting agenda to take decisions fortaking direct actions.Advising ASIC/ASX declarations, addressing conflict of interests and assisting to the signingof contractsPerforming their duties regarding corporate administration by taking proper actions.Preparing a company secretarial report and policies for ensuring proper corporategovernance.Guiding Directors and management on various matters, processes and shareholders relations.1 Corporate Governance Principles And Recommendations With 2010 Amendments asx.com.au <http://126.96.36.199/~firstgro/wordpress/wp-content/uploads/2010/11/ASX-Corp-Goverance-Principles-and-Recommendations-including-2010-amendments.pdf>.2 Company Secretary Service - Duties And Responsibilities Companysecretary.com.au <http://www.companysecretary.com.au/duties.html>.3 Maria C. A. Balatbat, Stephen L. Taylor and Terry S. Walter, "Corporate Governance, Insider Ownership And Operating Performance Of Australian Initial Public Offerings" (2004) 44 Accounting & Finance.
Liaising with accountants, lawyers and other professional advisors regarding variouscorporate matters. Now, as far as the guidance to the CFO regarding the violation of Principle 7 of ASX4, that is,Recognizing and Managing Risks, there are a number of aspects that are needed to be lookedinto. It is crucial on the part of investors to get sufficient information for making informeddecisions regarding the investment risks. So, it is imperative for the Board and management torecognize and manage risks. Therefore, a failure by a listed company in doing so would not onlydamage its reputation but adversely impact its shareholders as well, including its employees,customers, suppliers, creditors as well as taxpayers. The sound risk management practices notonly help to retain the reputation of the company but makes the value addition5. So, thesepractices can go a long way in assisting and identifying and capitalizing on the opportunities forcreating value. The board, therefore, of a listed company, is the most responsible body to decidethe nature and extent of the risks.In the present scenario, the gold mining company, Golden, will require its CFO to enable theBoard to have an appropriate framework for identification and management of risk. In light ofthis fact, the role of management of Golden will come into play, which will help in designingand implementation of the required framework. The role of the Board is to ensure the riskappetite for the company as well as overseeing its risk management framework and making surethat the framework is sound and structured. So, the recommendations for the Board underPrinciple 7 are listed below:1.As per the Recommendation 7.1, the board should form a committee, in order to oversee therisk, will:a)Constitutes at least members and most of them are independent directorsb)Be chaired by an independent directorc)Disclose its charter and membersd)Allow them to meet at the end of each reporting period.2.If the company fails to form such a committee to satisfy above, then disclose the processesthat will be used to oversee the company’s risk management system.As per the 2014 edition, it is imperative that the Board shall establish a separate committeehaving an independent chair with a majority of independent directors as far as risk managementis concerned. The role of risk committee in terms of recommendations to the Board is prescribedin three areas:The company’s adequacy for carrying out the processes required for managing risksOccurrence of any incident that involves fraud or other breakdowns in internal controls.The company’s insurance programs that concern to the company’s business and insurablerisks.4 L�o Goldschmidt and Marco Becht, "EASD Corporate Governance Principles And Recommendations" SSRN Electronic Journal.5 R. Ian Tricker, Corporate Governance.
It is also important to note that the risk committee should adopt a charter that confers on it all thenecessary powers to perform that role, such as obtaining information, interview the management,internal and external auditors as well as seeking advice from the specialists. It should possessnecessary technical knowledge and enough understanding of the industry. Under the AustralianCorporation Act, any listed company is required to include the operation and financial review inits Director’s report. This report consists of discussion of the important internal and external risksources that could otherwise adversely impact the company’s prospects for the future financialyears.The Recommendations under Principe 7.2 of ASX6, requires that the Board or Committeeshould:1.Review the company’s risk management structure on half yearly or annual basis to satisfy allthe required procedures, and2.Make a disclosure at the end of each reporting period as to whether such a review has takenplace.It is pertinent for the Board or Committee to disclose any insights it has incorporated from thereviews and the required changes it has made to its risk management system.The Recommendations 7.3 under Principle 7 of ASX, a listed company is needed to disclose:1.If it has constituted a system of internal audit function along with its function and structure asto what kind of role does it perform,2.If in the event of absence of an internal audit, the processes it has employed for the purposeof evaluation and improvement of the effectiveness of risk management.The internal audits in any organization are important because it helps it in achieving itsobjectives by using a systematic and disciplined approach for the evaluation and improvementand effectiveness of its risk management framework. Whenever, an internal audit function existsin a company, the head of that system shall be given a direct reporting line to the Board or thecommittee is required to bring the requisite degree of independence as objectivity to the role.The Recommendation 7.4 under the Principle 7 of ASX Corporate Governance Council7, anylisted organization is needed to disclose whether it has any solid exposure to economic,environmental as well as social sustainability risks and if in case, it makes the disclosure, thenhow does it intend to manage those risks. The way any listed entity carries out its businessactivities, whether with sustainable approach, it can impact on the society and environment in along run. The listed companies are expected to be aware of the increasing calls even around theworld for all the businesses to address issues of economic, environmental as well as socialsustainability. Not only this, there is an increasing demand on the part of investors, especiallyinstitutional investors for acquiring greater degree of transparency on these matters because itwill them in a proper assessment of the investment risks. However, for meeting this6 Corporate Governance Principles And Recommendations asx.com.au <http://www.asx.com.au/documents/asx-compliance/cgc-principles-and-recommendations-3rd-edn.pdf>.7 Corporate Governance Council (2013) Asx.com.au <http://www.asx.com.au/regulation/corporate-governance-council.htm>.
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