HI6026 - JB Hi-Fi Limited: Compliance with ASX Corporate Governance

This report assesses JB Hi-Fi Limited's compliance with the ASX Corporate Governance Principles, examining the company's adherence to guidelines related to management oversight, board structure, ethical conduct, corporate reporting integrity, timely disclosures, security holder rights, risk management, and executive remuneration. The analysis includes a market overview and risk assessment, utilizing measures such as beta, volatility, and ratio analysis of the income statement and balance sheet. The report identifies potential risks associated with increased finance costs, occupancy expenses, and sales and marketing expenses, as well as concerns related to the company's quick ratio and inventory management. The overall objective is to determine the extent to which JB Hi-Fi meets the requirements of the ASX Corporate Governance Principles and to evaluate the company's associated risks.

Running head: AUDIT, ASSURANCE AND COMPLIANCE
Audit, assurance and compliance
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Table of Contents
Part 1..........................................................................................................................................2
Executive summary....................................................................................................................2
Part 2 – ASX CGS Principles.....................................................................................................3
Part 3..........................................................................................................................................6
Risk assessment..........................................................................................................................6
Reference....................................................................................................................................9

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Part 1
Executive summary
The main objective of the report is to focus on the compliance of ASX Corporate
Governance principles by JB Hi-Fi Limited. The report will explain whether all the
requirements under the ASX CGS principles are complied with by the company or not.
Thereafter, the report will assess the risk associated with the company through various
measures like the company’s ratio analysis, trend analysis and market overview.

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Part 2 – ASX CGS Principles
1. Foundations for management and oversight
The responsibilities of the board of JB Hi-Fi includes looking into the matter of
company’s affairs and businesses, setting up the financial and strategic objectives and
looking into the implementation of management to fulfil these objectives, monitoring
performances of the management, approving the adoption for major corporate policies of the
company (Council and Exchange 2014).
2. Board structure for adding value
The board perform the duties and responsibilities with regard to safeguard the
interests of the shareholders, customers, staffs and the community under which they operate.
It can empower and establish the board committees to help performing the functions. Further,
the board is also responsible for managing the affairs and business of the company. Further,
the board communicates with the shareholders whenever required (Lama and Anderson
2015). While performing the duties the board operates in such a way that reflects the values
of the company and complies with the Corporation act 2001 and various other applicable
regulations and laws. At present the board has 8 members in the board, out of which except
the CEO all other members are non-executive director.
3. Act responsibly and ethically
The board of JB Hi-Fi is committed towards assuring that the business of the
company is ethically conducted and as per high standard of the corporate governance.
Further, the board is in the view that if otherwise not disclosed under the statement of
corporate governance the practices and policies of the company shall comply with 3rd edition
of ASX corporate government council principle and recommendations. Further, the company

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acknowledges that the directors, employees and executives are required to maintain highest
ethical standards of the corporate behaviour (Jbhifi.com.au 2018).
4. Safeguard integrity in the corporate reporting
JB Hi-Fi has put the designed controls to assure that integrity of the financial
reporting is maintained and the company fulfills with the entire relevant regulatory
requirement. As per the ASX recommendations and Corporation Act, the CEO and CFO of
the company stated that as per their opinion –
 The financial report of the company has been maintained properly as per Corporation
act, section 286 (Jbhifi.com.au 2018).
 Financial reports for relevant year and the related disclosure notes as per the
accounting standard gives true and fair view of company’s financial performance and
position and are complied with the standards on accounting.
 The financial statements of the company are founded to have sound system for
internal control and risk management that is efficiently operated (Chan, Watson and
Woodliff 2014).
 No alterations or other matters arose that may have material impact on company’s
operation for internal control and risk management after 30th June 2017.
Further, the financial statement of the company are subjected to annual audit by the
professional and independent auditor
5. Make balanced and timely disclosures
The company ensures to provide timely and relevant information to the shareholders
and is also committed to fulfil continuous obligation for disclosures. Boar of the company has
approved the policy for continuous disclosures for assuring that the process for recognizing

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and disclosing the material information as per ASX listing rules and Corporation act are
articulated clearly (Tao and Hutchinson 2013). The policy also sets out an obligation on the
employees with regard to such information. The CEO of the company in discussion with
Chairman is responsible to communicate with ASX, wherever applicable. Further, the copy
of the policy for continuous disclosures is available in the official website of the company at
www.jbhifi.com.au under the sections of governance and investors.
6. Respecting rights of the security holders
The official website of the company includes a section called investors that include
the below mentioned information –
 Details of company’s executives and directors
 Board committee and board and documents related to corporate governance
 Details regarding how the investors can communicate with the company and share
register
 All the market announcements and documents associated with it that are immediately
posted after its release to ASX.
Further, the shareholders have right to receive communication from share registry of
the company electronically that also entitles the shareholders an opportunity for managing the
details of account electronically. Shareholders also possess the right to send the
communication to company and receive any responses on those electronically. Moreover, the
company holds the annual general meeting where all the shareholders are invited and if any
shareholder is not able to attend the meeting he can send the proxy or can vote electronically.
7. Mange and recognize risk

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The policy of the company is to maintain the balance between reward and risk, as far
as possible for optimizing the returns generated from the business activities and meeting the
shareholder’s expectations. The audit and risk management committee of the company is
responsible for looking after the policy implementation and processes that ensures that the
operations of the company is conducted in such manner that will manage the risk adequately
(Bottomley 2016). Further, the company has effective framework for risk management
complied with ISO31000 that enables the management to recognize and manage the risk
appropriately. Moreover, the committee reviews and alters the framework on regular basis.
Risk identification and its management is managed on daily basis by a team that is dedicated
for risk management and the team is led by Group Risk and Assurance Manager.
8. Remunerate responsibly and fairly
The board of JB Hi-Fi is in the view that the executive remuneration must be
reasonable and fair and structured efficiently to motivate, attract, reward and retain the valued
executives and are designed in such way that will create value for the shareholders. Further,
the remuneration committee evaluates remuneration package annually for all the executives
and provides the recommendation accordingly (Christensen et al. 2015). Further, the
committee for remuneration may receive the independent advice for remuneration levels that
is required for retaining, attracting and compensating the group executives as per their
responsibilities and work experiences.
Part 3
Risk assessment
Market overview

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Risk score is the relevant measure for assessing the attractiveness of the company’s
stock. As per the analysis the risk score of the company is 6.00. Here, 10 states very high
level of risk whereas 0 states very low level of risk. To assess and analyze the company’s risk
various indicators are used like debt level, volatility, capital structure. Methods that are used
are as under –
 Beta – beta is the qualitative measure for volatility of stock as compared to the market
volatility. The beta of the company is 1.15 which is moderate. Therefore, the volatility
of the company is in moderate level.
 Volatility – the analysts use any specific method for estimating the volatility on the
basis of 3 months historical fluctuations in the market value (Gitman, Juchau and
Flanagan 2015)
Ratio analysis
Income statement ratio
It has been identified that irrespective of 21.86% of gross profit, the company was
able to earn only 3.06% of net profit. The main reason behind the lower level of net profit is
the increase of sales of marketing expenses of the company by 43.38%. Further, the
occupancy expenses also increased by 43.04% in 2017 as compared to previous year 2016.
Moreover, the finance cost is significantly increased by 174.36%. The risk associated with
the increase of expenses is as follows –
 Increase in finance cost states the there must have been proportionate increase in the
borrowings. Therefore, the additional borrowings will put extra burden on the
company for payment of interest and repayment of borrowing. This can also lead the
company to the level of unsustainability (Klettner, Clarke and Boersma 2014).

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 Increase in occupancy expenses and sales and marketing expenses will eventually
reduce the net profit of the company. Risk may involved there that the expenses have
been over stated to show profit at the lower level and pay lower return to the
shareholders (Du Plessis, Hargovan and Harris 2018).
Balance sheet ratio
It is recognized that the current ratio of the company is 1.32 that states that the
company is quite capable of paying off the current liabilities with the available current assets.
However, the quick ratio of the company is only 0.35 that signifies that the company is not
much capable of possessing liquid assets to pay off the short term liabilities (Tricker and
Tricker 2015). The main reason behind this is that inventories form the biggest part in current
asset group which is not easily transformed into cash. Chances are there that the inventories
may have been misstated to show them in higher amount. Therefore, to minimize this risk the
company shall check the inventories physically and match it with the inventory register to
minimize the misstatement.

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Reference
Bottomley, S., 2016. The constitutional corporation: Rethinking corporate governance.
Routledge.
Chan, M.C., Watson, J. and Woodliff, D., 2014. Corporate governance quality and CSR
disclosures. Journal of Business Ethics, 125(1), pp.59-73.
Christensen, J., Kent, P., Routledge, J. and Stewart, J., 2015. Do corporate governance
recommendations improve the performance and accountability of small listed
companies?. Accounting & Finance, 55(1), pp.133-164.
Council, A.C.G. and Exchange, A.S., 2014. Corporate governance principles and
recommendations . ASX Corporate Governance Council.
Council, A.C.G., 2014. Corporate Governance Principles and Recommendations, 3rd edn
(ASX, Sydney).
Du Plessis, J.J., Hargovan, A. and Harris, J., 2018. Principles of contemporary corporate
governance. Cambridge University Press.
Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson
Higher Education AU.
Jbhifi.com.au. (2018). JB Hi-Fi | JB Hi-Fi - Australia's Largest Home Entertainment Retailer.
[online] Available at: https://www.jbhifi.com.au/ [Accessed 20 Apr. 2018].
Klettner, A., Clarke, T. and Boersma, M., 2014. The governance of corporate sustainability:
Empirical insights into the development, leadership and implementation of responsible
business strategy. Journal of Business Ethics, 122(1), pp.145-165.

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Lama, T. and Anderson, W.W., 2015. Company characteristics and compliance with ASX
corporate governance principles. Pacific Accounting Review, 27(3), pp.373-392.
Tao, N.B. and Hutchinson, M., 2013. Corporate governance and risk management: The role
of risk management and compensation committees. Journal of Contemporary Accounting &
Economics, 9(1), pp.83-99.
Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and
practices. Oxford University Press, USA.