Corporate Governance and Auditing: ASX Principles and BHP Billiton

This report delves into the ASX Corporate Governance principles and recommendations, examining their significance in the context of auditing. The assignment focuses on analyzing the corporate governance requirements that senior managers must adhere to. It explores the eight key principles and recommendations outlined by the ASX Corporate Governance Council, highlighting their implications for companies like BHP Billiton, which is used as a case study. The report discusses how adopting these principles affects risk assessment, audit strategy, and the overall efficiency of business operations. It emphasizes the importance of ethical conduct, corporate reporting integrity, shareholder rights, and risk management. Furthermore, the report analyzes the effect of full adoption of corporate governance principles on BHP Billiton. The report examines the impact of these principles on the audit process, including audit approach, strategy, and evidence. The report concludes by summarizing the key findings and emphasizing the importance of corporate governance in maintaining transparency, accountability, and stakeholder trust. The analysis includes a discussion of the role of the audit committee and the importance of independent auditors. The report also highlights the need for timely and balanced disclosure and the significance of fair and responsible remuneration practices.

Running head: AUDITING THEORY AND PRACTICE
Auditing Theory and Practice
Name of the Student:
Name of the University:
Author’s Note

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Executive Summary
The focus of the assignment is to analyze the corporate governance requirements which the
senior managers of the business needs to adhere with while conducting the operations of the
business. The ASX Council’s principles and recommendations which are suggested in relation to
corporate governance are discussed in details in the assessment which is shown below. The
discussion would be covering the business of BHP Billiton ltd which is engaged in mining and
extraction business and the corporate governance principles are covered in the governance report
issued by the business. The discussion would also be showing how the same has an impact on the
auditing process as a whole.

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Table of Contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................3
Corporate Governance Principles and Recommendations..........................................................3
Effect of Full Adoption of Corporate Governance principles.....................................................8
Risk Assessment Process...............................................................................................................11
Audit Approach.............................................................................................................................11
Audit Strategy................................................................................................................................12
Audit Evidence..............................................................................................................................12
Conclusion.....................................................................................................................................13
Reference.......................................................................................................................................14

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Introduction
The assignment would be aiming to focus on ASX Corporate Governance principles and
recommendations which all companies are required to follow for effective adherence to
governance principles of a business. The company which would be considered for the analysis is
BHP Billiton ltd which is engaged in mining activities. The discussion would be showing how
adoption of principles and recommendation relating to corporate governance have on the overall
efficiency of the operations of the business (Bhp.com. 2019). The discussion would also be
revealing the impact which good corporate governance practices have on risk assessment process
and audit strategy which is followed by the business. The importance of recommendations and
principles which are set out by ASX are effectively shown in relation to the company which is
considered.
Discussion
Corporate Governance Principles and Recommendations
Corporate Governance are rules and regulations which are established by a business for
effective operations of the business. The corporate governance principles are established by a
business so that the employees can operate in a controlled environment and the operation process
of the business is directed towards achieving the goals and objectives of the business. It is a
common knowledge that good corporate governance principles in a business attracts
shareholders for making investments in the shares of the business. ASX has listed its principles
and recommendations so that listed entities can appropriately follow the same in order to meet
the expectations of the shareholders of the company (Asx.com.au. 2019). The ASX principles
and recommendations for corporate governance depends on the management of the company and

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those charged with governance. However, there are several benefits associated with such
principles and recommendations if the same are properly implemented. The eight principles and
recommendations which are provided by ASX Corporate Governance Council are explained
below in details:
Lay Solid Foundations for Management and Oversight:
This principle requires a business to have a board of charter which expressively discloses
the roles and responsibilities of those charged with governance. The senior management has an
important role to play in implementing different governance regulations. For instances, appoint
of directors needs to be effectively considered by the management and proper material
information needs to be provided to the shareholders so that they can also contribute to the
selection process of a director of a business (Tricker and Tricker 2015). The principle covers an
effective diversity policy which nee to be maintained by the business and the same needs to be
stated in the charter of board. The management also needs to recognize gender diversity and
progress of the business towards achieving such objectives. The management should also have a
process established for measuring the efficiency of the board’s performance. These principles
need to be followed by a company effectively for establishing a strong base for corporate
governance practices in a business.
Structure of the Board of Directors
The board of director’s size for a listed company should be of appropriate size and the
business needs to be demonstrate commitment and knowledge while handling the business
processes so that the board can add value in the operational process of the business. The board
should have a nomination committee which needs an independent director to lead and should be

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comprised of at least three members and the same should be independent. The listed entity
should create a board which would be appropriately structured considering the skills and
efficiency of different members of the business (Samra 2016). In addition to this, the principles
also lay down the fact that the name of the directors and their tenure of service must be
disclosed. The need of independent directors in the board of directors is imperative and thereby
the nomination committee should have more of independent directors and one of such directors
should also be the chairmen of the company.
Act Ethically and Responsibly
In order to maintain ethical standards and procedures in a corporate firm, the
administration of company needs to establish a code o conduct for the directors and also disclose
a summary of the same in charter which is created by the Board. Acting in an ethical and
efficient manner would help the business to enhance the valuation of the business and thereby
enhance the revenue of the business. Good governance policy in a business needs to be
implemented in the business by the board and therefore the ethical standards should be clearly
stated in the code of conduct of the business (Christensen et al. 2015). The code of conduct of a
business needs to be consistent with the core values which are followed by the business.
Safeguard integrity in Corporate Reporting
The business needs to set up an audit committee which can look into the reporting
process of a business and the committee should comprise majorly of non-executive directors and
most of the directors should be independent. The board should be made up of at least three
members. In addition to this, the committee needs to be headed by an independent director of the
business. Further the charter of the committee should be established and the directors should be

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qualified. The audit committee is important as the same reviews the corporate reporting process
of a business and also considers the accounting judgements which are taken by the management
for the purpose of corporate reporting (Ho and Taylor 2013). In addition to this, the audit
committee also ensure that the auditor is independent in its approach. The board of company
needs to obtain from its Chief Executing Officer and Chief financial officer of the business a
declaration that the financial reports are properly prepared and maintained by the business. The
board also needs to ensure that the internal control responsibility is properly maintained by
senior managers so that the reporting framework is well maintained. The senior managers of the
business must ensure that the auditor is present in the annual general meeting of the corporate
firm and should be able to answer all the questions in the annual general meeting.
Make timely and Balanced Disclosure
The entity which is listed should have a continuous disclosures obligation and the same
should be disclosed in a summary format. The disclosure policy should be addressing the task
and duties of the directors in respect of reporting obligations of the business and also safeguard
confidentiality in reporting framework of the business (Young and Thyil 2014). The continuous
disclosure policy is applied by the management of the company for ensuring that the
shareholders or investors have proper information available to them for the purpose of taking
vital decisions for the business.
Respecting the Rights of the Shareholders
The investors should be provided all the valuable information regarding the nature of the
business and the governance of the business in the official website. The investors of the firm
needs to appropriately manage the operations. The website of the corporate firm should be

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including key information regarding the operational activities. In addition to this, investors
relations programs need to be facilitated so that a proper two-way communication process is
followed in the business (Cuomo, Mallin and Zattoni 2016). The senior managers needs to
encourage the shareholders of the company to take part in meeting proceedings of the company
so that proper they can take part in the decision-making process of the business. Further, the
shareholders should be encouraged to communicate any matter which affects them with the
management of the company and make it clear what are the expectations of the shareholders.
Recognize and Manager Risks
The board of directors of the business needs to establish its own risk committee which
would be overseeing the risks which are associated with the business and takes steps for
minimizing such risks of the business. The members of the risk committee should be at least
three and most of the same should be independent and led by one of the independent directors of
the business (Todorovic 2013). In addition to this, there should be an established charter of the
committee and the committee would be effectively working for the purpose of reducing the risks
affecting the opertaions. The business needs to review its risk management framework annually
in order to ensure that the same is working in an effective manner. The business should also
disclose its internal audit function and if the business does not have the same then the process
which is applied by the management for evaluating internal control process of the firm. The
senior executives effectively needs to disclose any material exposure which the company has to
economic, environmental and social sustainability risks and if the same exists how the
management of the company intends to manage the same.
Remunerate fairly and Responsibly

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The business needs to have a remuneration committee which is made up of at least three
members and majority of the members of the committee are independent members. The
remuneration committee should have their own charter for conducting their day to day risks. The
policies and practices of the business needs to be made clear. The remuneration committee
would be responsible for paying to the management and board of directors of the business. The
remuneration committee would also be headed by an independent director of the business.
Effect of Full Adoption of Corporate Governance principles
Lay Solid Foundations for Management and Oversight:
The analysis of the BHP Billiton Corporate governance principles has mainly indicated
that the adequate foundations have been laid down for the management, as it helps in improving
their oversight and decision-making capability. The measures that has been taken by the
organization for sustaining the corporate governance principles is relevantly enlisting company
secretary to directly report the information to the chair of the board. BHP Billiton intends to
provide full access to the directors regarding the governance matter, as it would help in clarifying
the reporting line of the board (Asx.com.au 2019). The recommendation for the BHP Billion is to
utilize the company secretary of a listed entity to directly report to the board.
Structure of the Board of Directors
The structure of the board is mainly maintained appropriately by BHP Billiton, where the
organization is able to adopt and disclose Strategy on the Independence of Directors. In addition,
the organization also maintains efforts for meeting the expectations of the investors by
appointing relevant directors in the boards. In addition, the board of BHP Billiton is considered
to be independent and have appropriate inclination towards the maintenance of appropriate

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relations with the stakeholders which are important part of the business (Asx.com.au 2019).
Furthermore, the company also aims in maintaining an appropriate structure of the board, which
could help in displaying the interest of the shareholders and supports the overall operations of the
company.
Act Ethically and Responsibly
BHP Billiton act ethically and responsibly, as the organization aims in maintaining
Workplace Gender Equality (WGE) Act 2012 (Cth) (Asx.com.au 2019). The organization
directly maintains an ethical level of gender equality in their workforce, which helps in
diversifying the statics under the principles of recommendation. Furthermore, the organization
also maintains an appropriate information sending sphere, where all the relevant information is
presented in their websites, as adequate information regarding the corporate governance is
disclosed.
Safeguard integrity in Corporate Reporting
BHP Billiton also discloses adequate information regarding the economic, environmental
and social sustainability risks, which helps in safeguarding the integrity in the corporate
reporting. The company adequately utilizes the Global Reporting Initiative or disclosing the
relevant information in their financial report, as it helps in depicting the globally shared
framework of indicators (Asx.com.au 2019).
Make timely and Balanced Disclosure
The company which is considered for the assessment is BHP Billiton ltd which is
engaged in providing mining and extraction products. The board of directors are dedicated to
make timely disclosures regarding different transactions of the business. The management of

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BHP Billiton effectively makes full disclosures regarding all activities and follows continuous
disclosure policy in the operations of the business. The senior executives has disclosed the
operations and disclosures of reporting in the timely manner.
Respecting the Rights of the Shareholders
The management of BHP Billiton is dedicated towards the needs of the shareholders of
the business and therefore encourages the shareholders of the business to take active part in the
management of the company. The shareholders of the business are required to take active part in
the annual general meeting and also take part in the decision-making process of the business. The
business of BHP Billiton has its own investor relation program which assist the management of
the company in contributing to the needs of the shareholders of the business (Safari, Mirshekary
and Wise 2015). Furthermore, the shareholders of the business are informed regarding any new
development in the company’s structure through the official website of the business.
Recognize and Manager Risks
The risk management committee has been established by the management of BHP
Billiton ltd which would be established for overseeing the risks of the business. There is a
separate charter established for risk committee of the business and as per the requirement of the
principles, the risk committee is made up of more of independent directors. The risk management
committee ensures that the overall risks of the business are kept at minimum as possible
considering the nature of operations of the business. The company has a proper framework
established and the same is reviewed by the risk management committee for ensuring that the
risks of the business are kept at minimum as possible. The internal audit function of the business
is also review by the risk management committee so as to ensure that a level of transparency is

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maintained in the operations of the business. Further the risk management committee also review
if there is a presence of internal control in the business and whether the same is able to identify
ant social sustainability risks which are associated with the business and how the same are
treated.
Remunerate fairly and Responsibly
The business of BHP Billiton ltd also has a remuneration committee established which
looks after the needs of payments of the directors and senior officials of the business. The
remuneration committee is headed by a director who is independent so that a level of
transparency and accountability is maintained in the operations of the business. The
remuneration committee also looks after the different schemes of payments which are made to
the directors of the business and the same include equity-based payment schemes followed by
the business.
Risk Assessment Process
Risk assessment process are carried by the auditor to obtain a proper understanding of
company business. This includes the company business activities, its internal control system and
other activity in company business. Auditor is able to identify the risks which are stated in the
annual statements as it helps to grasp the applicability of materiality in audit (Bentley-Goode,
Newton and Thompson 2017). Risk Assessment Process is carried in mid of accounting year and
assists the auditor to gather correct amount of audit evidence in company financial statement.
The process includes carrying question and answer session with the management, request for
company’s activities.