HI6026 - Audit Assurance: CBA's Compliance with ASX Principles

This report provides an in-depth analysis of Commonwealth Bank's (CBA) compliance with the ASX Corporate Governance Council's Principles and an assessment of the risks faced by the organization. The report begins with an executive summary, followed by a detailed examination of how CBA implements the ASX Corporate Governance Principles, focusing on aspects such as board structure, ethical conduct, financial reporting integrity, timely disclosures, shareholder rights, and remuneration policies. It then assesses CBA's risk profile, including a beta calculation and an analysis of key financial ratios derived from the income statement and balance sheet, such as operating profit margin, net profit margin, and return on equity, to evaluate the bank's financial health and stability. The analysis concludes that CBA demonstrates a strong commitment to corporate governance and actively manages its risk exposure.

Running head: AUDIT ASSURANCE AND COMPLIANCE
Audit Assurance and Compliance
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Authors’ Note

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Table of Contents
1. Executive Summary...............................................................................................................2
2. Compliance to ASX Corporate Governance Council's Principles.........................................2
3. Assessment of Risk of Commonwealth Bank........................................................................7
References................................................................................................................................11

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1. Executive Summary
Auditing at a regular basis and maintenance of compliance are essentially designed to
enhance value of the corporation. As such, this can in ensuring that the business enterprise is
meeting the regulatory obligations. The study at hand intends to analytically appraise the
degree and extent to which the chosen firm Commonwealth Bank (CBA) maintains
compliance with the directives stipulated under ASX Corporate Governance Council's
Principles. In addition to this, the current study has the intention to critically examine
different risks encountered by the enterprise.
2. Compliance to ASX Corporate Governance Council's Principles
Institution of foundation/ base for proper management
It is necessarily the liability of the board to manage businesses of the organisation. The board
is also accountable to the company’s share holders for carrying out this role. Essentially, the
board has the duty to delegate tasks involved in daily management of business to the
company's chief executive officer. Also, it is the role of the board to direct as well as control
the company on behalf of the shareholders. Primary responsibilities comprises of the
following:
-Ascertainment of Strategies as well as financial objectives of the firm (Commbank.com.au
2018).
- Ascertainment of risk appetite of the business tracking of the risk management framework
- validating financial statements (Taylor et al. 2015)
- approving various initiatives
- Ascertainment of sequences of the remuneration strategy

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Examination of Structure as well as composition of CBA’s board
Commonwealth bank's board has the intent to assure that it can function and can efficiently
undertaker delegated roles as well as responsibilities. Yearly declaration of the company
shows that there are 12 board members in the company. This bond also wants to augment the
performance by establishing committees, planning various programs of the board and
reviewing level of performance on a regular basis (Cengiz et al. 2017). There are certain skill
sets that members of the board of CBA possess (Commbank.com.au 2018).
Skill set of Board in CBA
(Source: Commbank.com.au 2018).
Examining whether CBA function ethically and responsibly
Detailed analysis of the annual report of the firm CBA reveals that the firm focuses on its
own commitments for acting responsibly and ethically. The business concern has set 8
commitments for this purpose. In addition to this, CBA also has designed policies zero
tolerance towards cases of bribery and scams. Furthermore, the business also carries out

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ethical and accountable exercises by adhering to the formulated Securities trading Policy of
its own. This policy prohibits insiders of the corporation pet in any kind of security dealing,
trading, hedging or insider trading in any form. Also, firm has established a whistle blower
policy for developing the culture that can in inspiring people to raise their voice any kind of
concerns, wrongdoings or misconduct of any sort (Omar et al. 2014). Moreover the business
enterprise has also declared statement on slavery and human trafficking. This is essentially in
compliance with the directives mentioned under UK modern Slavery Act. Management of the
firm analytically appraises and at the same time updates the code of conduct for suppliers for
supporting human rights. Basic strategy/ principle of CBA's code of conduct represent the
level of commitment of the business enterprise (Commbank.com.au 2018).
Maintenance of integrity in financial reporting
CBA' s policy of code of conduct is imperative for attainment of vision of the firm. The
vision of the farm is to excel at improving financial soundness of (individual unit) people
involved, society as well as business. Administration of the business enterprise also
maintains values for the purpose of attaining integrity, collaborative operation, excellence
and higher accountability (Arens et al. 2015).
As per the suggestions in the listing rules of ASX and directives mentioned under corporation
Act of financial year 2001 it can be here by said that administration of CBA has devised
measures for maintaining integrity of financial reporting. According to the perspective of
chief executive officers (CFO) and Chief financial officers CFO, CBA has prepared as well
as presented financial assertions as per the regulations of the Corporation Act. Monetary
reports and different continuous disclosures are prepared and presented keeping in mind
applicable standards (Knechel and Salterio 2016). Adherence to the accounting standards can

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subsequently help in presenting both true and fair view regarding level of stability and health
as well as performance of the business concern
Presentation of timely and properly balanced disclosures
Analysis of the annual report that the company has a written policy for satisfying the
obligations of the regulations mentioned under corporation Act (2001) as well as listing
regulations presented by Australian Stock Exchange (Commbank.com.au 2018). Addition to
this the business enterprise also pronounces all the material information in a well timed way
so as to meet the requirement of communication policy set by the business entity (Chan and
Vasarhelyi 2018).
Respect towards rights of shareholders
CBA values rights of shareholders take them into account as business owners. Company in
tends to present all the requisite information that is needed by the shareholders in a well
timed manner. Also the information presented is of good quality and at the same time
relevant for the users (Leung et al. 2014). In addition to this CBA also enthusiastically listens
to the concerns of the shareholders and apps in response to various feedback gathered from
the shareholders. It can also be seen that management of the firm encourages higher
attendance of firm's share holders Annual General Meeting. This is how management of the
farm intends to communicate all the requisite material information to shareholders and help
them in investment decisions.
Detection and management of risk
Board of CBA keenly monitors the area material risk evaluation and at the same time
prioritisation. CBA's board analyses material risk on a frequent basis and subsequently

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modifies the same reflect functional as well as strategic necessities of the corporation. The
business enterprise appoints chief risk officer accountable for recognition and administration
of risk in the business enterprise (William Jr et al. 2016). Apart from this, CBA also has a
risk committee that intends to assist the board in meeting their responsibilities.
Risk committee of CBA appraises the designed risk management Framework in place and
presents reports on the same. Also that is committee evaluates overall risk appetite of the firm
declares the risk appetite statement along with diverse policies of risk management and their
implementation (Weirich et al. 2017). Besides this, the company also reduce the risk profile
on a time to time basis by monitoring compliance of the same to pertinent risk policies. It is
the risk committee that also oversees matters associated to appointment of CRO, level of
performance, particular aims and process of removal (Commbank.com.au 2018).
Fair and responsible remuneration policies
According to the pertinent necessities of the principles issued by the ASX Corporate
Governance Council, the enterprise under deliberation has the intention of fair and
responsible remuneration policies. CBI has a remuneration committee in place that can
facilitate board in meeting all the accountabilities (Tricker and Tricker 2015). The
remuneration committee can handle considerable transformations in the remuneration
strategies as well as framework of the company. The company meets the obligations of CGS
principal as regards remuneration by presenting remuneration schemes together with its
specific outcomes for specifically chief executive officer, risk personnel, people belonging to
the finance department, as well as those who might get influenced by the financial condition
of the business concern. The company also aptly presents definite equity plans of work force,
schemes of superannuation, payments made at the time of termination besides other
significant benefits. Remuneration report prepared by the firm also discloses specific

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information that in turn can help in the process of evaluating performance chief executive
officer of the company along with other personnel (executives).
Thorough evaluation of the assertions presented by the firm reflects strong commitment of
the firm towards achievement of superior corporate governance. In conclusion it can be said
that CBA has a fitting framework for corporate governance upholds performance of the firm
in the long term, insures sustainability and shields shareholders' interests. Furthermore, it cab
also be hereby stated that the business entity undertakes assessment of framework of
corporate governance along with business exercises for making certain developments in
definite areas of regulations (Soh and Martinov-Bennie 2015). This assessment process can
also check extent of fulfilment of expectations of firm's shareholders and market practices.
Fundamentally, in the present case it can be hereby observed that all the suggestions
stipulated under it Governance Principles of ASX have been appropriately followed.
3. Assessment of Risk of Commonwealth Bank
Commonwealth Bank offering specialised financial services offers facilities of retail banking,
investments and facilities of share broking, specialised insurance related services together
with institutional and individual business banking services. This financial service company is
registered under the Australian Stock Exchange. Therefore, one of the primary regulators of
the firm include the Australian Stock Exchange and the company is also under the Morgan
Stanley Global Index, FTSE 4 Good Index as well as under the Dow Jones Sustainability
Index (Rezaee et al. 2018).
Management of the firm follows the business strategy of acquiring greater share of the market
pie particularly in the quarters of loan business (particularly home loans), stock broking,
products such as personal loans as well as credit cards. There is this intention of the

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management of CBA to successfully operate the business by effective operations across 1000
branches of the corporation situated throughout the nation Australia.
Calculation of Beta
For the assessment of risk, beta can be considered to be a very relevant measure. In essence
beta is a qualitative metric that can assess volatility of stocks against volatility of the entire
market (Messier et al. 2015). The enumerated value of beta for the firm Commonwealth Bank
stands at 1.22. This reflects a moderate level of risk of the business enterprise (Omar et al.
2014).
Analysis of financial condition of Commonwealth Bank using key financial ratio
Both balance sheet as well as income statement based financial ratios is taken into
consideration in this regard.
Income Statement Ratio Analysis
Operating Profit Margin
Operating margin enumerated for the firm CBA for the specified time period of financial year
2015-2016 replicates a decreasing movement. Operating margin stands at 52% in the FY
2016 as compared to the year ago figure of approximately 53%. Decline in the operating
profit margin reflects an undesirable financial situation of CBA as it represents that the
business enterprise has failed to amass adequate amount of funds from ongoing business
functions to pay for both variable as well as total costs of the corporation (Gitman et al.
2015).
Net Profit Margin

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Net Profit Margin calculated for the corporation CBA for the specified time period of
financial year 2015-2016 replicates a decreasing movement. Operating margin stands at
37.5% in the FY 2016 as compared to the year ago figure of approximately 38%. Decline in
the Net profit margin reflects an undesirable financial situation of CBA as it represents that
the business enterprise has failed to acquire higher amount of net income from the sales
revenue of CBA (Knechel and Salterio 2016).
Return on equity
Return on equity calculated for the corporation CBA for the specified time period of financial
year 2015-2016 replicates a decreasing movement. Return on equity is calculated to be 0.15
in the FY 2016 as compared to the year ago figure of approximately 0.17. Decline in the
Return on equity reflects an undesirable financial situation of CBA as it represents that the
business enterprise is generating comparatively less profit out of the equity investment of the
shareholders (Knechel and Salterio 2016)
Balance Sheet Ratio Analysis
Receivable Turnover
Receivable Turnover enumerated for CBA for the specified time period of financial year
2015-2016 replicates an upward increasing movement. Receivable Turnover is calculated to
be 2.12 in the FY 2016 as compared to the year ago figure of approximately 1.81. Increase in
the Receivable Turnover reflects an desirable financial situation of CBA as it represents
greater potential of the firm to gather receivables and in a shorter period (Griffiths 2016).
Debt equity ratio
Debt equity ratio enumerated for CBA for the specified time period of financial year 2015-
2016 replicates a downward moving trend. Debt equity ratio is calculated to be 14.4 in the FY

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2016 as compared to the year ago figure of approximately 15.64. Decrease in the Debt equity
ratio reflects an desirable financial situation of CBA as it represents greater stability of the
firm with less interest expenses. This is because low debt equity reveals higher equity based
financing in place of debt financing (Gitman et al. 2015).
Quick Ratio
Quick Ratio enumerated for CBA for the specified time period of financial year 2015-2016
replicates a downward moving trend, reflecting unfavourable liquidity condition. Quick Ratio
is calculated to be around 0.02 in the FY 2016 as compared to the year ago figure of
approximately 0.03. Decrease in the Quick Ratio reflects an undesirable financial situation of
CBA as it reflects decrease in liquid assets of the firm (Enekwe 2015). The very liquid assets
of the firm (namely cash along with equivalents of cash) have decreased by roughly 31%
whereas current liabilities of CBA have increased by around 6% during the FY 2016.

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