An In-depth Analysis of AGL's Corporate Governance and Risk Management

This report provides an in-depth analysis of AGL, an Australian Stock Exchange (ASX) listed company operating in the integrated energy resources sector for over 150 years. The analysis focuses on AGL's adherence to the ASX Corporate Governance Council principles, examining its board structure, ethical business practices, corporate reporting integrity, disclosure policies, shareholder relations, and risk management strategies. The report assesses AGL's financial performance through income statement, balance sheet ratio calculations, and common-size financial statements, evaluating the company's debt-equity ratio, liquidity, profitability, and shareholder returns. The report also highlights AGL's risk management approach, detailing the identification and review of internal controls, the development of a sound risk management plan, and the use of internal control consultants to mitigate identified risks.

Running head: AUDITING ASSURANCE AND COMPLIANCE
Auditing Assurance and Compliance
University Name
Student Name
Authors’ Note

1AUDITING ASSURANCE AND COMPLIANCE
Executive Summary
The mechanism of the process of audit, assurance and the compliance are necessary
elements of a business that are made to improve and assess the business performance.
Moreover, it ensures that the business enterprise is meeting its financial obligations. The
main scope of this report is to find out and highlight the Corporate Governance principle of
the chosen Australian Company listed under the ASX, and checks whether it adheres to the
ASX principles of corporate governance in its operations. The discussion gives a vivid
analysis of the risk of the firm and their strategy to reduce the them. The company risk of has
been evaluated analytically in the report by the computation of the income statements,
balance sheet ratio, and common size financial statements.
Principles of Corporate Governance issued by Corporate Governance Council
The chosen company whose corporate governance and risk is to be analysed is AGL,
which a company that deals with integrated energy resources and is in the industry for more
than 150 years. Throughout FY2017, AGL’s corporate governance arrangements were
consistent governance statement AGL’s has committed to comply with the corporate
governance framework, policies and practices as per the ASX Corporate Governance Council
(Grayson-Morison & Ramsay, 2014).
From the Annual report of 2017 the ASX Corporate Governance principles are as follows:
Establishment of strong foundation for particularly management as well as oversight
From the annual report it can be identified that in the concerned company, it is the
board of directors who are in charge of the corporate governance. It is their duty to maintain

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the interest of the company and the individuals who are associated with it (Chandrakumara,
McCarthy & Glynn, 2017).
The board of directors creates a sustainable value while considering the interest of the
employees, customers, shareholders, communities and other stakeholders. They are
responsible for analysing and a approving the strategy of the company that helps in sound
management and monitors and appoints the members of the company including the CEO.
They also make various announcements that are significant to the company and make sure
that it is according to the ASX obligations. When it comes to formulation of policies board of
directors, they builds a strong relationship within the stakeholders and protects the matters of
environment employment occupational health and safety.
Structure and composition of the board for enhancement of value
In order to understand the composition and structure of the AGL Company, it can be
said that the company has a strong board of directors who are responsible for maintaining
integrated energy and transform and evolution. The structure consists of 4 committees
including the committee of Risk Management, Committee of nominations, committee of
people and performance and the committee of safety sustainability and corporate
responsibility (Winners Joseph, 2014). Each of the committees have respective separate
responsibilities and roles that are taken care by the Board of directors. The details of the
committee is set out in the company charter. The details including the meetings are held in
the Directors attendance in 2017 as mentioned in the annual report of 2017.
Undertake business practices ethically as well as responsibly
The company of AGL focuses on the Code of conduct and the various principle
associated with the operations of the company that are related to the stakeholders like the

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employees, directors and the contactors. The set of Code of conduct is collectively known as
the employees code of conduct the sets the various rules and Standards to maintain the
company’s ethical conduct (Fox, 2014). For this company makes several appointments that
includes maintaining and of valuing of professionalism in their dealings and maintains a
confidentiality within the business to manage the conflicts of the members of the company.
The code also states to take care of the workers concerned and to act with integrity and
honesty. It also follows the law, commitments and internal standard set in order to get better
results. The company also uses a sound process of training to establish the employees the
code of conduct.
Preserve integrity in particularly corporate reporting
The board receives reports from the management of the company’s financial
condition and operational results at each scheduled board meeting. The AGL board also
approves the financial statements for financial stability miss and the CEO and CFO of the
company provides declaration to the board that is in the form of opinion of the financial
records of the company to maintain and ensure whether it is in compliance with the
accounting standards and so that it gives a true and fair view of the company's position and
performance(Cole, 2016).
Perform the balanced disclosure timely
The Policy of disclosure states about the continuous obligation of the company’s
disclosure and the procedure in which they are managed. AGL has recognised a Market
Disclosure Committee that consist of the CEO, the CFO, the Company Secretary and the
Manager in General. The duty of the Committee is to monitor the compliance with the
Market Disclosure Policy that includes determination of the information that is market

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sensitive (O’Connell, 2016). Moreover, Executive Team members provide confirmation that
is a quarterly in relation to continuous disclosure compliance.
Maintain respect and rights of the security holders
The shareholders of the AGL Company are required to submit questions before the
Annual general meeting. This enables the Board know shareholder concerns and issues to
address key areas of shareholder feedback. There is the Chairperson who encourages
shareholders at the AGM to ask questions and make comments about AGL’s operations
and the performance with respect to this. There is also various relations program that the
AGL operates to facilitate effective two-way communications with the business and the
shareholders. This enables the shareholders to get the knowledge of the AGL’s activities
and send feedback accordingly.
The company of AGL on a regular basis engages with corporate governance advisory
firms and shareholder representative bodies to understand market expectations on topics
like ESG, governance, and remuneration.
Managing and recognising the of risk of the company
There are a wide range of risks with different its nature in the operations of the AGL. In
the Sustainability Report there are various details of the strategic risks that is concerned
about the economic, environmental and social sustainability risks. It also consist of
including how these risks are managed. There exist a risk management Policy that sets
out the objectives of AGL for risk management and articulates the responsibilities of the
individuals in relation to the management of risk. AGL alos consist of the risk

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management principles and practices and implements them into strategy for development
to achieve the favourable outcomes.
Responsible and fair remuneration
The remuneration report as mentioned in the 2017 Annual Report states the policies
and practices of AGL for remunerating non-executive Directors and executives. According to
their obligations of ASX, the company intends to remunerate responsibly as well as fairly.
There is a remuneration committee that aids the board in fulfilling all the accountabilities of
the company (Morison & Ramsay, 2015). The board of directors accepts that the structure of
remuneration should motivate, reward, attract, and retain the valued executives effectively
and should be designed in such way that will create shareholders value.
Assessment of Risk of AGL
Overview of the nature of the company
The ASX based company AGL has more than 180 years of experience in the industry
and is s public listed organisation that deals with gas, electricity, solar PV and related
products and services to more than 3.6 million customer accounts across Australia. It is the
oldest company, which at present 50 S&P/ASX companies and is the
largest electricity generation body with largest ASX-listed investor in renewable energy.
Regulation of client
The clients are regulated by the subordinates and managements who are employed by the
board of directors.
Market Overview

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The market share of the Australian AGL company is 90%. It is the oldest airline
company all over the world dealing with the energy and power generation for more than 150
years. Focuses of the company on differentiating and cost advantages for reaching the
competitive advantage. The main strategy of the company is to retain the sustainability of the
resources with smart technology and personified service.
Income statement and balance sheet ratio calculation
Refer to the appendix given below
Analysis of Common size statement-horizontal analysis
Refer to the appendix given below
Analysis Balance sheet
Refer to the appendix given below
Risk assessment
 From the analysis if the balance sheet and income statement ratios as per the 2017
annual report of the company of AGL, it has been identified that the debt equity ratio
of the company is 0.91. In general the debt equity ratio is calculated by dividing the
total debt of the company by its total equity. High ratio like more than 1 represents
that the company is highly leveraged and the higher interest burden can lead the
company to unsustainable level (Haimes, 2015). In case the ratio is less than one that
it is in the present case which is 0.91, the company has a low leverage.
 Both the quick ratio and the current ratio that represents the liquidity position of the
company is very low like less than 1.20 and 1.33 respectively. This shows that the

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current assets of the company are considerably low if it is compared to current
liabilities. Hence it can be said that the company is inefficient in paying off the short
term obligation with their short term assets.
 The shareholders return is low that is 7.12%, the operating profit margin as well as
the net profit margin of the company are as low as 6.07% and 4.28% respectively. It
signifies that the company is not so efficient in earning return.
Steps for Risk reduction
Risks of the Business is a rising concern, in the recent economy. Business needs to
take control of their companies, assess the risks inherent in both their firms and industries and
determine how to best reduce these risks (Hollnagel, 2017). The various steps to reduce the
risk in the company are as follows:
1. To identify and review the internal controls of the company: The management must
checks the balances of the company (Sadgrove, 2016). With regard to safety issues, internal
controls can be as simple as implementing a checklist of precautions before entering a work
zone.
2. To develop a sound plan of risk management: Having sufficient insurance to protect
against losses is only one aspect (Brindley, 2017). Taking proactive steps to cross-train is
another key way to avoid risk. However, a suitable risk management plan will provide a
measure for reducing the risk.
3. To Employ internal control consultants: An outsider completely unconnected to a
company's daily operations who can view the situation more objectively and more readily
identify areas in need of improvement (Sekaran, & Bougie, 2016). Thus, he should be
employed.

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Reference
Brindley, C. (Ed.). (2017). Supply chain risk. Taylor & Francis.
Chandrakumara, A., McCarthy, G., & Glynn, J. (2017). Exploring the Board Structures and
Member Profiles of Top ASX Companies in Australia: An Industry‐level
Analysis. Australian Accounting Review.
Cole, S. (2016). Good governance and the curious case of the alternate director. Governance
Directions, 68(10), 603.
Fox, J. (2014). ASX Corporate Governance Council review of'Corporate governance
principles and recommendations'. Governance Directions, 66(3), 142.
Grayson-Morison, R., & Ramsay, I. (2014). Responsibilities of the Board of Directors.
Haimes, Y. Y. (2015). Risk modeling, assessment, and management. John Wiley & Sons.
Hollnagel, E. (2017). The ETTO principle: efficiency-thoroughness trade-off: why things that
go right sometimes go wrong. CRC Press.
Morison, R. G., & Ramsay, I. (2015). An analysis of companies' business
objectives. Governance Directions, 67(2), 73.
O’Connell, D. (2016). Leadership styles and improved governance outcomes. Governance
Directions, 68(4), 202.
Sadgrove, K. (2016). The complete guide to business risk management. Routledge.
Sekaran, U., & Bougie, R. (2016). Research methods for business: A skill building approach.
John Wiley & Sons.

10AUDITING ASSURANCE AND COMPLIANCE
Winners Joseph, E. N. P. (2014). Who pays for our common wealth: Tax practices of the
ASX 200. LAMP, 43.
Appendix
Income statement and balance sheet ratio
Ratio Formula Result
Income statement ratio
Operating profit margin Operating profit/revenue *100 6.07%
Net profit margin Net profit/revenue *100 4.28%
Return on shareholder's equity Operating profit/shareholder's equity*100 7.12%
Balance sheet ratio
Current ratio Current assets / Current liabilities 132.74%
Quick ratio Quick assets / Current liabilities 119.88%
Debt equity ratio Total liabilities / shareholder's equity 90.89%
Common size statement-horizontal analysis
Income statement
Particulars 2017 in
$m
2016 in $m Amount Percentage
Revenue 12584 11150 1434 12.86%
other income 0 25 -25 -100.00%
Expenses -11131 -10979 -152 1.38%
share of profits 19 26 -7 -26.92%
Profit before financing cost and
depreciation
1472 222 1250 563.06%
depreciation and amortisation -484 -478 -6 1.26%
Profit before net financing cost 988 -256 1244 -485.94%
finance income 13 18 -5 -27.78%
finance cost -237 -236 -1 0.42%
net financial cost -224 -218 -6 2.75%
profit before tax 764 -474 1238 -261.18%
income tax -225 67 -292 -435.82%
profit for the year 539 -407 946 -232.43%

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Balance sheet
Assets 2017 2016
Amo
unt
Percent
age
current assets
cash and cash equivalents 154 252 -98 -63.64%
trade and other recievables 1944 1975 -31 -1.59%
inventories 351 414 -63 -17.95%
other financial assets 744 267 477 64.11%
other assets 231 232 -1 -0.43%
3424 3140 284 8.29%
Assets held for sales 201 447 -246
-
122.39%
Total current assets 3625 3587 38 1.05%
Non-current assets 0
Trade and other receivables 0 44 -44
Inventories 20 30 -10 -50.00%
Other financial assets 142 147 -5 -3.52%
Investments in associates and joint ventures 80 70 10 12.50%
Property, plant and equipment 6447 6482 -35 -0.54%
Intangible assets 3286 3232 54 1.64%
Deferred tax assets 792 953 -161 -20.33%
Other assets 66 59 7 10.61%
Total non-current assets 10833 11017 -184 -1.70%
Total assets 14458 14604 -146 -1.01%
Current liabilities 0
Trade and other payables 1507 1519 -12 -0.80%
Borrowings 173 22 151 87.28%
Provisions 201 226 -25 -12.44%
Current tax liabilities 13 102 -89
-
684.62%
Other financial liabilities 827 460 367 44.38%
Other liabilities 10 0 10 100.00%
2731 2329 402 14.72%
Liabilities directly associated with assets classified
as held for sale 0 224 -224
Total current liabilities 2731 2553 178 6.52%
Non-current liabilities
Borrowings 3173 3086 87 2.74%
Provisions 520 487 33 6.35%
Other financial liabilities 293 301 -8 -2.73%
Other liabilities 167 251 -84 -50.30%

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Total non-current liabilities 4153 4125 28 0.67%
Total liabilities 6884 6678 206 2.99%
Net assets 7574 7926 -352 -4.65%
Equity
Issued capital 6223 6696 -473 -7.60%
Reserves 16 -24 40 250.00%
Retained earnings 1335 1243 92 6.89%
Total equity attributable to owners of AGL Energy
Limited 7574 7915 -341 -4.50%
Non-controlling interests 0 11 -11
Total equity 7574 7926 -352 -4.65%