HI6026 - Medibank Private Limited: Analysis of Governance & Risk

This report provides an analysis of Medibank Private Limited, focusing on its corporate governance principles as per the Australian Stock Exchange (ASX) guidelines and its risk assessment procedures. It examines how Medibank implements these principles, covering aspects such as board structur...Read More

MEDIBANK PRIVATE LIMITED
ANALYSIS OF CORPORATE GOVERANANCE PRINCIPLES AND RISK ASSESSMENT PROCEDURES
Student Name: Student ID:
4/21/2018

Table of Contents
EXECUTIVE SUMMARY.................................................................................................................................3
INTRODUCTION...........................................................................................................................................4
PRINCIPLES OF CORPRATE GOVERNANCE AS PER AUSTRALIAN STOCK EXCHANGE....................................5
PRINCIPLE -1 LAY SOLID FOUNDATION FOR MANAGEMENT AND OVERSIGHT........................................5
PRINCIPLE-2 STRUCTURE THE BOARD TO ADD VALUE.............................................................................5
PRINCIPLE-3 ACT ETHICALLY AND RESPONSIBLY......................................................................................5
PRINCIPLE -4SAFEGUARD INTEGRITY IN CORPORATE REPORTING..........................................................6
PRINCIPLE -5MAKE TIMELY AND BALANCED DISCLOSURE.......................................................................6
PRINCIPLE -6RESPECT THE RIGHTS OF SECURITY HOLDERS.....................................................................6
PRINCIPLE -7 RECOGNISE AND MANAGE RISK.........................................................................................7
PRINCIPLE -8 REMUNERATE FAIRLY AND RESPONSIBLY..........................................................................7
ASSESSMENT OF RISK AND ITS PROCEDURES..............................................................................................7
COMPANY’S BUSINESS ENVIRONMENT...................................................................................................8
CONTROLLING AUTHORITY......................................................................................................................8
BUSINESS POLICY.....................................................................................................................................9
PERFORMANCE AND POSITION STATEMENT RATIOS..............................................................................9
METHODS TO MITIGATE AND DIMINISH RISK FACTORS........................................................................10
RECOMMENDATION AND CONCLUSION...................................................................................................11
REFERENCES..............................................................................................................................................12
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EXECUTIVE SUMMARY
Corporate governance relates to systems, methods, regulations, procedures, rules and laws with
the help of which the corporate is being run, direct and controlled by its stakeholders. It helps in
maintaining the equal balance between the shareholders, other stakeholders and their interest
from the investment made in the corporate. This statement helps in understanding in detail how
the corporate governance principles applied by an organization and what are its impacts on the
performance and management of an organization.Along with corporate governance, risk
assessment and its analysis plays a major role in working of an entity. Through risk assessment,
the key areas which are more attention from management can be identified along with the
necessary actions which are require to prevent the danger if any from the identified risks. With
this intent, the statement has been formed with proper structure which will be bifurcated in
different captions to assess the corporate governance and risk assessment in Medibank Private
Limited.
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INTRODUCTION
The statement has been formed with considering its title which actually helps in understanding
the working of an organization in relation to the corporate governance principles and risk
assessment procedures and steps to mitigate risk. Medibank Private Limited which is upcoming
and major private health insurance Provider Company in Australia has been selected to frame
this statement. In the first part of the report synopsis of the report has discussed which helps in
understanding the intention for creation of the report. The second part of the report helps in
understanding the structure of the report. The third parts helps in having an analysis on the how
the Australian corporate governance principles has been applied by the given company and its
eight principles has been discussed in detailed so that compliance of the company can be
checked or assessed. The fourth part of the report helps in understanding the different risky areas
so that corrective and preventive actions can be taken by the management of the company and
correct opinion can be framed by the auditor about the affairs of the chosen company with regard
to true and fair view. The report has been concluded with proper recommendations. The report
has been prepared using the annual report and corporate governance statement of Mediback
Private Limited for the year ending 2017.
PRINCIPLES OF CORPRATE GOVERNANCE AS PER AUSTRALIAN STOCK
EXCHANGE
ASX has laid and formed different policies, rules and procedures which help in maintaining the
commitment of the Australian government towards ethical business environment. The ASX has
framed eight corporate governance principles which has been conversed below:
PRINCIPLE -1 LAY SOLID FOUNDATION FOR MANAGEMENT AND OVERSIGHT
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In this the company has disclosed the different roles and positions hold by board members and
their responsibilities in relation to their roles. These included the procedures and policies adopted
by the company in formation of management. The company has divided this section into 8
headings. They are Board, Chief Executive Officer, Appointment of Directors, Appointment
Terms, Company Secretary, Diversity Inclusion and Belonging, Non Executive Directors and
their performance measurement, Chief Executive Officer and their assessment of performance
(Company Official Website, 2017).
PRINCIPLE-2 STRUCTURE THE BOARD TO ADD VALUE
The board of the company is the backbone of its management. The board of the company should
be according to the nature, need and size of the company. Medibank private limited has created
the board in bifurcated manner which helps the company to achieve its goals and objectives. The
company has divided its board work and responsibilities in Nomination committee helps in
obtaining the statutory positions in the board required to fulfill the fiduciary positions, Matrix
which helps in bifurcation of the board members as per their skills, Board members, director’s
independence, chairman, training and Induction.
PRINCIPLE-3 ACT ETHICALLY AND RESPONSIBLY
The company has a code of conduct to react and act in organizational behavior as mentioned in
its corporate governance statement. The company is taking ethical values and ethics in doing
business as a very grim matter. For making adequate decision making the company has directed
all its management people to act as per defined guidelines and within the pre defined framework
so that mistakes can be avoided at management level only.
PRINCIPLE -4SAFEGUARD INTEGRITY IN CORPORATE REPORTING
This corporate governance principle ensures the maintenance of integrity of reporting by the
company to its different stakeholders. The company has divided the three heads which helps in
maintaining the integrity of the reporting. The first is Audit committee which helps assessment
of financial data and other transactions on monthly or quarterly basis. The second is Assurance
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committee which helps maintaining the assurance that all the internal procedures adopted by
company are in proper place. The third is auditor of the company who provides his opinion on
the true and fair view of the financial statement.
PRINCIPLE -5MAKE TIMELY AND BALANCED DISCLOSURE
This principle helps in fulfilling the disclosure requirements of the company’s information to
users of accounting. The company’s management has to ensures that the right information to be
disclosed at the right time and in the lawful right manner. This also helps in preventing the
insider trading in the company. The company can sure about this fact by publishing different
report on quarterly, half yearly and annual basis.
PRINCIPLE -6RESPECT THE RIGHTS OF SECURITY HOLDERS
The security holders are owners of the company who put in their hard core money for the smooth
functioning of the company and had brought the securities issued by the company. The company
has taken major steps to ensure that the security holder’s wealth will remain maximized at all the
times. For this the company has disclosed all the information relating to its working on their
official website. They have organized the investor relations programmed under which the
security holders are in direct contact with chairman of the company through emails. Also the
company is communicated through electronic medium about the meetings schedules and
decisions in meetings to their security holders so that information can be reached to them in time.
PRINCIPLE -7 RECOGNISE AND MANAGE RISK
The company has taken positive steps in the risk assessment and its management. The company
has formed risk committee, risk management framework and its review, internal audit
committee, classification of risks as per their nature to recognize and manage risk in their
corporate governance statement.
PRINCIPLE -8 REMUNERATE FAIRLY AND RESPONSIBLY
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The company has adopted the feature of maintain the remuneration and people so that it can
survive in future and have reduce labor turnover. The has developed different approaches which
helps its employees to work more effectively and efficiently with the aim of achieving individual
goals along with company’s goals in long run.
This shows that the company has created impact in internal and external environment in which it
is working and which makes it to survive in long run with stakeholder’s wealth maximization.
ASSESSMENT OF RISK AND ITS PROCEDURES
One of the major areas in the corporate working which helps in development of auditing is Risk
Assessment (Leung, 2015).Risk assessment is consider as crucial in framing opinion about the
company (ACCA, 2016; Abidin&Baabbad, 2015). The risk assessment procedures are many
which can be applied but the report has more focus on identification of the business environment
of the company, identification of internal control policies, assessment of misstatement with helps
of ratios and trends so that proper opinion about the company under consideration can be framed
(AASB, 2009; Weiss, 2014 and Mock, 2015).
COMPANY’S BUSINESS ENVIRONMENT
The entity under review is an Australian company which is listed in ASX Stock exchange and is
in the business of providing private health insurance along with travel, life and pet insurance
(Company Official Website, 2017). Insurance industry is considerably at high risk prone as
compared to other industries as insurance is done to protect the future and its uncertainty. The
business environment is one of the major factor which assessing the risk for the company
(Capital Markets Advisory Committee Meeting, 2013).
.
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CONTROLLING AUTHORITY
Major controlling authority of the company is Insurance Regulatory and Development authority
of the Australia. The company has to follow all the guidelines and regulations as laid down by
the authority to work under Insurance industry. The adverse impact of not following the same
can harm the interest of its stakeholders both in terms of financial penalties and in term of
continuity of the company (Company Official Website, 2017 and Vasarhelyi, 2014).
The other controlling authority for the company is ASX Stock exchange which regulates all the
companies which are registered in Australia (Cooper, 2015). In the given company, the company
is following the guidelines in relation to committees which are required to form as specified in
corporate governance report of the company for the 2017. The company is open for huge
penalties or removing the name from ASX stock exchange if the company will not take
preventive action soon to mitigate the risk (Baird,, 2015).
BUSINESS POLICY
The company has three policies which helps the company to run the business effectively. The
first policy has main focus on customers of the company. This policy also helps the customers of
Medibank to think positive towards the uncertainty in life. The second policy which is following
by company is process simplification. The policy which the company is following is liveliness in
work environment which helps in having more skilled and talented people in the company so that
better performance results can be achieved.
The above business polices of the company are making the company more prone towards risk as
in case of process simplification, some of the customers may have trust issue of losing the
information from company’s system easily (Kharisova, 2014).
PERFORMANCE AND POSITION STATEMENT RATIOS
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One of the most commonly used methods to assess risk is Ratio Analysis (Glover, 2014; Ullah,
2014). The following is the performance and position ratios of Medibank Private Limited for the
year 2017:-
Balance Sheet Ratio
Ratios Calculation Description Potential Audit Risk
and Solution
Current ratio
(Current Assets
/Current Liabilities)
Year 2017 - 3000.40 /
1564.70 = 1.92
Year 2016 - 2812.50 /
1518.50 = 1.85
It means that the
company has current
assets to pay the
current liabilities in
comparison to the
earlier year.
The major risk is that
the current assets are
not increasing at the
rate at which the
current liabilities are
increasing.
Debt to Equity
(Debt / Equity)
Year 2017 - 1742.7/
1719.08 = 1.01
Year 2016 - 1687.50 /
1578.70 = 1.07
There has not been
much difference in the
ratios but still the debt
has been increased at
equivalent terms with
the equity.
The major risk is that
with the considerable
increase in the debt
and equity the ratio
has not changed
which doubts on the
effective management
of funds of the
company.
Equity to Total Assets
(Equity / Total
Assets)
Year 2017 - 1719.08 /
3462.50 = 0.50
Year 2016 - 1578.70 /
3266.20 = 0.48
The equity ratio has
been increase from
0.48:1 in 2016 to
0.50:1 in 2017.
It shows that the
management is taking
more debt funds in the
company capital
structure which is one
of the risk factors.
The company is
moving in high risk
environment which
results in shut down
of the business
(AASB, 2009;
Anastasia, 2015;
Chen, 2017).
.
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Income Statement Ratio
Ratios Calculation Description Potential Audit Risk
and Solution
Net Profit (Net profit /
Revenue)
Year 2017 – 449.50 /
6797 = 6.61
Year 2016 - 417.60 /
6741.80 = 6.19
The net profit ratio
has been increased
with the increasing
rate. Each dollar of
revenue worth 6.61%
as net profit.
It states that there has
been increase in the
profit margin and the
potential audit risk
may be under
reporting of Expenses.
Overall Efficiency Ratio
Ratios Calculation Description Potential Audit Risk
and Solution
Return on Total
Assets (Net Profit /
Total Assets)
Year 2017 – 449.50 /
3462.50 = 12.98
Year 2016 - 417.60 /
3266.20 = 12.78
It denotes that how
much return each
assets will give on its
effective utilization.
The return on total
assets has been
increase by 20 cents
with the increase in
the value of the asset.
The risk is upon the
reporting of the net
carrying value of the
asset.
METHODS TO MITIGATE AND DIMINISH RISK FACTORS
Risk assessment can only be completed by implementing the methods which helps in
diminishing the risk factors in business environment and policies. The following can be some
methods by which risk situation can be minimized in business:
 Good Internal controls system and its continuous review which helps in making checks
on every transaction to safeguard from potential risk.
 Excellent corporate governance policy which is concise with the government guidelines
applicable in Australian environment.
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 Management of accounts receivable so that bad debts and loss of funds can be avoided
(Gary, 2017, Mao, 2014).
RECOMMENDATION AND CONCLUSION
Medibank Private Limited is the health insurance provider company in Australia in private sector
and it is also providing the travel, life and pet insurance services to its customers. Insurance
business is very much open for risks. To prevent the same to be done, the company along with
auditors have to assess and identified the material misstatements over particular intervals so that
necessary corrective and preventive actions can be .From the above report, it can be concluded
that the company under consideration is properly following the corporate governance principles
as laid down by Australian stock exchange.
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REFERENCES
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http://www.auasb.gov.au/admin/file/content102/c3/ASA_520_27-10-09.pdf accessed on 22-04-
2018.
Abidin, S., &Baabbad, M. A. (2015), “The use of analytical procedures by
yemeniauditors”,Corporate Ownership & Control, 12(2), 17-25.
ACCA, (2016), “Analytical Procedures”, available on
http://www.accaglobal.com/vn/en/student/exam-support-resources/professional-exams-study-
resources/p7/technical-articles/analytical-procedures.html accessed on 22-04-2018.
Anastasia, (2015), “Financial Statement Analysis : An Introduction” available on
https://www.cleverism.com/financial-statement-analysis-introduction/ accessed on 22-04-2018.
Baird, I.S, (2015). “Toward a contingency model of strategic risk taking”, Academy of
management Review, 10(2), pp.35 – 47
Capital Markets Advisory Committee Meeting, (2013), “Conceptual Framework” available on
http://www.ifrs.org/Meetings/MeetingDocs/Other%20Meeting/2013/March/AP
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Chen, S., (2017), “Refer to Materiality as a Legal Concept”. Journal of Corporate Accounting &
Finance, 28(2), 55-61.
Company Official Website, (2017), “Annual Report”, available on
https://www.medibank.com.auaccessed on 22-04-2018.
Cooper S, (2015), “A Tale of Prudence”, available on
http://www.ifrs.org/Investor-resources/Investor-perspectives-2/Documents/Prudence_Investor-
Perspective_Conceptual-FW.PDF accessed on 22-04-2018.
Gary S., (2017), “The Importance of Inherent Risk Factors: Auditor’s Perceptions”, Australian
Accounting Review, 3, Pp 38-44.
Glover, (2014),“Between a Rock and a Hard Place: A PathForward for Using Substantive
Analytical Procedures in Auditing Large P&L Accounts:Commentary and Analysis”. Auditing:
A Journal of Practice & Theory, 34(3), 161-179.
Kharisova, F. I., (2014),“Applying the category of Assertions (orpreconditions)» in audit of
financial statement”. Mediterranean Journal of Social Sciences, 5(24), 180
Leung P, (2015), “Modern Auditing and Assurance Services”, Wiley John and Sons, Ed. 6, Pp
425-463, 582-684.
Mao, M., (2014), “Experimental Methods of Materiality Judgment on Auditor’s Experience and
Performance” In 3rd International Conference on Science and Social Research
(ICSSR 2014) Atlantis Press.
Mock, T. J, (2015). “Auditors' Risk Assessments: The Effects of Elicitation Approach and
Assertion Framing” Behavioral Research in Accounting, 28(2), 75-84.
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Ullah A, (2014), “Planning and Audit of Financial Statements” available on
http://leaccountant.com/2014/12/08/asa-300-summary-planning-an-audit-of-financial -
statements/ accessed on 22-04-2018
Vasarhelyi, M. A., (2014),“Embracing the Automated Audit: How the Audit Data Standards and
Audit Tools Can Enhance Auditor Judgment and Assurance” Journal of
accountancy, 217(4), 34.
Weiss D, (2014), “Faithful Representation” available on
http://bschool.huji.ac.il/.upload/Seminars/Faithful%20Representation%20October%202014.pdf
accessed on 22-04-2018.
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