Corporate Governance and Risk Assessment for AGL Energy Audit

This report provides an in-depth analysis of AGL Energy, focusing on its corporate governance principles and risk management strategies. The report examines AGL Energy's adherence to ASX corporate governance principles, including oversight, board structure, ethical conduct, financial reporting integrity, and stakeholder rights. It assesses the company's risk management approach, including market overview, business approach, and identification of audit risks. The report discusses the application of ASA 570, relevant financial ratios, and the auditor's role in evaluating financial statements. The analysis includes profitability, liquidity, and capital structure ratios to provide a balanced opinion on the company's financial health and risk profile. The report aims to provide a comprehensive understanding of AGL Energy's financial performance and governance practices.

qwertyuiopasdfghjklzxcvbnmqwertyui
opasdfghjklzxcvbnmqwertyuiopasdfgh
jklzxcvbnmqwertyuiopasdfghjklzxcvb
nmqwertyuiopasdfghjklzxcvbnmqwer
tyuiopasdfghjklzxcvbnmqwertyuiopas
dfghjklzxcvbnmqwertyuiopasdfghjklzx
cvbnmqwertyuiopasdfghjklzxcvbnmq
wertyuiopasdfghjklzxcvbnmqwertyuio
pasdfghjklzxcvbnmqwertyuiopasdfghj
klzxcvbnmqwertyuiopasdfghjklzxcvbn
mqwertyuiopasdfghjklzxcvbnmqwerty
uiopasdfghjklzxcvbnmqwertyuiopasdf
ghjklzxcvbnmqwertyuiopasdfghjklzxc
vbnmqwertyuiopasdfghjklzxcvbnmrty
uiopasdfghjklzxcvbnmqwertyuiopasdf
ghjklzxcvbnmqwertyuiopasdfghjklzxc
AUDIT & ASSURANCE

AGL energy
Executive Summary
In the current scenario, the organization is vulnerable to many external factors. It is therefore
imperative that the organization should have sound corporate governance together with the risk
management approach. In this report, AGL energy is selected that is listed in the Australian stock
exchange that is ASX 300. In the light of this company, the principles of corporate governance
are studied. In totality, eight principles of corporate governance are studied followed by the risk
management approach. Moreover, the standard of ASA 570 is discussed and highlighted in the
report. Moreover, the ratios are computed that can be used by the auditor to make a valid
decision.
2

AGL energy
Contents
Introduction.................................................................................................................................................3
Implications of ASX Corporate Governance Principles................................................................................3
Risk assessment...........................................................................................................................................6
Conclusion...................................................................................................................................................9
References.................................................................................................................................................10
Appendix...................................................................................................................................................12
3

AGL energy
Introduction
A consistent and a much developed energy for Australia is the aim of the AGL Company.
According to the records, it is seen that the AGL is the greatest production house of the energy
portfolio and also tops the ASX list in the field of renewable energy with a massive amount of
3.6 million customer accounts. The company is Australian from its core and it has taken up the
perfect duty to provide a consistent, affordable and a safe mean of energy for its country in the
future times. The company wants to run itself on the views of its customers once they are set and
is planning to strengthen its foot in the carbon-constrained sector (AGL Energy, 2016). In order
to do so, the company has planned to get itself removed from the coal-fired power production by
the year 2050 and is planning to do things strategically and with futuristic ideas.
Implications of ASX Corporate Governance Principles
It is said that the AGL Ltd has been working in accordance with the ASX Corporate Governance
Principles and Recommendations and as a proof, the financial and corporate governance
statements are available for the year 2016 which defines exactly the same statements written
above.
 Lay solid foundations for oversight and management
The Board can be solely held dutiful to the shareholders for the financial state and the
performance of the company in the market. It is the duty of the board to safeguard the value risks
of the shareholders. Financial help to the customers in their retirement stage is also like a duty to
the board. This can be seen as the long-time plan and the board continues to instill some new
features year after year to execute the same. Many advisory groups are also designed by the
board to stick on to small matters with examination of every minute detail. But the powers to
execute all these plans are in the hands of the CEO and he is the one who decides the procedures
by which the company must run (AGL Energy, 2016). A group generally known as the
nomination committee is also set up to keep a continuous and periodic check over the capability
of the members of the board. The board has itself offered programs to check its own capability
along with the performance of the committees under the board and also of the individual
4

AGL energy
directors. This can be concluded to the fact that the board has been working to diversify and
expand the company in all terms and this is why they include 30 percent woman power in the
board system (AGL Energy, 2016).
 Structure the board to add value
Non-executive individual directors are the one who comprise majority of the board members.
The professional skills, experience and performance in the day-to-day office tasks are embedded
in the director’s report. The nomination committee also acts as a check and strict track full group
to make the board follow the main objectives of the company with suitable balance, commitment
and oath to see for the welfare of the company. The performance of each and every director of
the board is recorded over the year and the result can be seen in the skills matrix table made for
the directors. The members of the board have skilled knowledge and a firm grip of experience
and professionalism over the areas which are important for the welfare of the particular business
(Peirson et. al, 2015). Risk management, Operational position, Strategic management, financial
management and challenges of the business are the training program schedule of the new ones
who are to be directors and members of the board (AGL Energy, 2016). The company also has
policy which states that the work of the directors are advisory only and are not related o the
business and its terms by any means. The board also has committees like remuneration
committee, nomination committee, group audit committee, and group and risk committee
(Lapsley, 2102).
 Act ethically and responsibly
The honest relationship of the board with the company’s welfare can be clearly seen in the
company’s statements and policies set up. All the members of the company must work in a
direction to expand its parameters which is governed by a particular policy which implies on
everyone and even the contractors and the Group (Niemi & Sundgren, 2012). It is also seen that
no member of the company can make political donations on the behalf of the company in areas
where the company operates (AGL Energy, 2016). A policy has also been set up according to
which the transactions of the company’s assets are possible.
 Safeguard integrity in financial reporting
Accurate and factual delivery of information about the financial position of the company is a
major responsibility of the board. For helping the board to sort these out, a group audit
committee has been constructed which will help the board in doing the same as written above
5

AGL energy
with undertaking and examining all the reviews, appointments, removal of external auditors,
their extent of freedom, their assessment of independence, and impact of the non-audit services
on the welfare of the company.
 Make balanced and timely disclosure
It is seen that the company AGL Ltd is most dutiful towards its customers and sees that every
investor and updated and accurate knowledge about the doings of the company as soon as the
matter is released. All this is done upon the policy of disclosure set up by the company (AGL
Energy, 2016). A continuous disclosure committee has also been constructed which will lead and
release all the disclosures of the company as and when provided and needed (Bauer & Hann,
2010).
 Respect the security holders’ rights
AGL follows a well planned method by which can interact with its user and customers in more
than one way. The company holds seminars wherever and whenever possible so its customers
can be well educated about the doings and happenings in the company. They also take into
concern the view point of its customers. AGL also works in association with some advisory
enterprises and shareholder representative groups so that they can cater with the market trends
(Matthew, 2015).
 Manage and identify risk
AGL is very strict in terms of risk management and so it has set up every procedure and function
with such effectiveness that it will cater to the welfare of the business and also eliminate any risk
management if it occurs. A Risk Management policy has also been constructed by the board of
the company so that every employee of the company follows the same and this helps the
company to tally with its objectives (AGL Energy, 2016). AGL has also made its strategically
made plans with risk management programs so that the company is executing its tasks smoothly.
‘Three line of defence’ is the personal term of AGL while constructing risk management
programs. Policies which control the assets of the company like the power production in its
plants are also controlled by embedded policies.
 Remunerate responsibly and fairly
There are certain rules which each working member of the AGL must follow if they have to keep
working with and in the company. This also applies for the CEO of the company. Service
Agreement is the one which describes the rules and also sets-up the aims and duties of the
6

AGL energy
working members (Laux, 2014). Non-following nature or breach of the set of rules can result in
termination from the AGL and this will be done with prior notice and after the clearance of all
dues from the AGL Company.
Risk assessment
Market overview and nature of the company
AGL Ltd is at the top of the fund manager list and it has 600 employees which manage a massive
asset of $70 billion with equity being $2.9 billion. New York, Australia, Stockholm and London
are some of the places where the company is settled. AGL Life company is under Life segment
sector which assures retirement benefits. Accurium PTY Ltd that comes under Fund
management sector which provides self-managed superannuation certificates. Fidante and CIP
are also a part of the same (AGL Energy, 2016).
Company’s business approach
The company gives major attention to these sectors of the business:
 Financial security to the retired customers of the company with remarkable result for the
other shareholders is the aim of the company.
 Customer satisfaction is most important and so the company stays on its honest image
and though it is suffering from risks it is firm on its aim and objectives wisely (Leo,
2011).
 The company intends on becoming a partner and leader of choice in retirement income
outcomes with a wider offering of products.
Focus on significant audit risks and steps to mitigate the risk
Detection of audit risks can be done in following ways:
 Examination and surveillance processes.
 Exploitation of sources like audit and systematic features.
 Administrative investigations related to the company dealings and staff or professionals
hired within the company.
7

AGL energy
The auditor must examine all the available accounting records and data. Management data can
also be tested for any mistakes if possible.
Auditors must use the auditing skills to construct programs for risk detection other than the one
which currently prevail in the business due to the present undertakings. Systematic processes like
ratios can be brought into action.
Investigation and questions from the management, accounting department, audit committees,
internal auditors and lawyers can be done so as to gain knowledge about the terms followed in
the company by which certain risks can be detected. These can also help to strengthen the
firewalls so that future risks can be avoided (Francis et. al, 2013).
ASA-570 undertakes the processes which auditor follows which will represent the true financial
statements of a company. This honesty of the statements can only be decided after concrete
evidences are attained from various legal processes undertaking the data of the company are
performed. Comparison of trail balances, regression analysis, etc can be used to attain the proofs
(Gay & Simnet, 2015).
Audit risks in the company and steps to lessen
Legal risks, financial risks, strategic risks and operational are some of the risks to which each
and every company is mostly of guard. Most of the companies use some wicked features so they
can defy there competition in the market and also to cater with strategic risks. Cyber attacks,
non-interaction with customers are the cases which come under the operational risks.
Management disruptions, liquidity increment and others are the form which comes under the
topic of financial risks (Gay & Simnet, 2015).
Elimination of such risks is necessary for which the company may construct a legal auditor body
which will enhance the firewall features and will increase the efficiency. Opting for software and
other technological ideas like digital media can prevent data loss and store it for later usage.
These steps can be taken to eliminate the risks and to present a one-sided opinion on the
statements which can reduce the auditor’s reputation (Geoffrey et. al, 2016). Moreover, the
auditor can shed light upon the various ratios like profitability, liquidity, and capital structure
ratios to provide a balanced opinion. The profitability is affected however the liquidity is intact
8

AGL energy
meaning that the company can pay off the liabilities. Further, the debt equity ratio is high that the
auditor should consider when ascertaining the risk scenario of the company.
Profitability Ratios AGL
ROE AGL =(Net income/ Shareholder equity)*100 -5.135 2.473057289
Net Profit Margin AGL [(Net Profit after tax/Sales Revenue)*100] -3.65022 2.04158082
Return on Assets
[(Net income/ Average assets)*100]
-2.67438 1.45493376
Liquidity Ratios of AGL
2016 2015
Current Ratio (Current Assets/Current Liabilities) 1.405014 1.457649
Acid Test [(Current Assets-Inventory)/Current Liabilities)] 1.393263 1.444164
Capital Structure 2016 2015
Debt equity ratio AGL= total debt/ total equity 0.842544 0.796143
Debt Ratio AGL = Total liabilities/ total assets 45.7272 44.32514
9

AGL energy
Conclusion
As per the report it can be commented that AGL energy has adhered to the principles of
corporate governance and provided the relevant disclosure. This has helped the stakeholders and
other relevant parties. Moreover, the company has maintained its position in the industry through
effective risk management strategy. Therefore, it is clear from the report that the effectiveness of
the company is ascertained with the help of its policies and management. The company is facing
issues when it comes to profitability however, the liquidity is intact and can help the company in
the meeting the obligations.
10

AGL energy
References
AGL Energy. (2016) AGL energy 2016 annual report and accounts [online]. Available from:
https://www.agl.com.au/-/media/AGL/About-AGL/Documents/Media-Center/ASX-and-Media-
Releases/2017/170825-AGL-207-Annual-Report-ASX.pdf?
la=en&hash=013E1C115D580D678CA009DF3D256C8C511F655C [Accessed 2 May 2018]
Bauer, R. and Hann, D. (2010) Corporate environmental management and credit risk. Maastricht
University.
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 30
April 2018]
Gay, G. and Simnet, R. (2015) Auditing and Assurance Services. McGraw Hill
Geoffrey D. B, Joleen K, K. Kelli S. and David A. W. (2016) Attracting Applicants for In-House
and Outsourced Internal Audit Positions: Views from External Auditors. Accounting Horizons.
[online] 30(1), pp. 143-156. Available from https://doi.org/10.2308/acch-51309 [Accessed 30
April 2018]
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 [Accessed 30 April 2018]
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 [Accessed 30 April 2018]
Leo, K. J. (2011). Company Accounting. Boston:McGraw Hill
11

AGL energy
Matthew, S. E. (2015) Does Internal Audit Function Quality Deter Management Misconduct?.
The Accounting Review. [online]. 90(2), pp. 495-527. Available from
https://doi.org/10.2308/accr-50871 [Accessed 30 April 2018]
Niemi, L., and Sundgren, S. (2012) Are modified audit opinions related to the availability of
credit? Evidence from Finnish SMEs. European Accounting Review. [online]. 21(4), p. 767-796.
Available from: https://doi.org/10.1080/09638180.2012.671465 [Accessed 30 April 2018]
Peirson, G, Brown, R., Easton, S, Howard, P. and Pinder, S. (2015) Business Finance, 12th ed.
North Ryde: McGraw-Hill Australia.
12