Risk Assessment and Corporate Governance in Commonwealth Bank AU

This report provides a detailed analysis of corporate governance and risk assessment within the Commonwealth Bank of Australia (CBA). It begins by defining corporate governance and its importance, referencing the ASX principles of corporate governance. The report then focuses on CBA, providing an overview of the bank and its implementation of corporate governance principles, specifically addressing how CBA applies ASX guidelines. Furthermore, the report examines risk assessment, detailing CBA's business nature, market segments, risk management strategies, and the various types of risks the bank faces, including financial crimes and material misstatements. The analysis emphasizes the bank's commitment to ethical standards, transparent reporting, and stakeholder protection through the implementation of robust corporate governance practices and risk management frameworks.

Running head: AUDITING AND ASSURANCE IN AUSTRALIA
Name of the Student
Name of the University
Author note

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Executive Summary:
Business is one of the most important areas on which the economy of any country
depends. They affect the internal working of the economy as a whole and it directly impacts
the Gross Domestic product (GDP) of the economy, making it a self-reliant in its working.
Along with this, one of the most important underlying factors is the presence of various kinds
of risks associated with the functioning of the business of the different companies. Thus, the
management of risks becomes an important factor for any company. In the same way, the
way a company is managed and governed is another important factor for any company. If the
company does not work properly in a successful path, achieving its objectives, then the
company can go in ruins and be completely destroyed. As a result of which, the company
needs to be governed properly by application of proper principles. Thus, in a way, a detailed
explanation of both these kind of items have been provided in the light of Commonwealth
bank which is operating Australia.

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Table of Contents
Introduction:...............................................................................................................................3
Corporate Governance:..............................................................................................................4
ASX principles of Corporate Governance:............................................................................4
Commonwealth Bank and its Corporate Governance:...........................................................5
Commonwealth Bank: A brief Overview..........................................................................5
Implementation of Corporate governance in Commonwealth bank:.................................5
Application of ASX principles of Corporate Governance by Commonwealth:................6
Risk Assessment:.......................................................................................................................9
Commonwealth’s nature of business and its segment of market:..........................................9
How the bank manages its risk?.............................................................................................9
Different kinds of risks faced by the banking company:.....................................................10
References:...............................................................................................................................14

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Introduction:
In today’s world, every organisation, company be it a sole proprietorship, partnership
or a joint stock form of company, all of them operate in a risky and an uncertain environment.
As a result of which risk assessment and proper implementation of principles of corporate
governance is very much necessary.
In the words of one of the most prominent editor of ‘The Financial Times’, the importance of
corporate governance is very crucial in embarking upon a novel frontier of competitive
advantage and profitability. Corporate governance’s importance permeates from the very top
of any organisation, right from the board of directors to the lowest operational level of any
organisation. It refers to the ‘way a company is governed’ and is included in almost every
activity undertaken by an organisation (Claessens and Yurtoglu 2013). Right from leadership
communication to the formulation and implementation of strategic decisions, corporate
governance is needed.
All profit making business as well as non-profit making business face the risk of various
unexpected events taking place in the organisation ranging from any financial losses, scams
and other fraudulent activities. Such activities could lead to huge losses for the organisation
concerned. It thus becomes the duty of the concerned organisation to protect the interests of
the various stakeholders of the company from such kind of risks (Bell, Filatotchev and
Aguilera 2014. It is in these cases, that the usage of a risk assessment comes into existence.
In this given project assignment, the analysis and importance of the risk assessment
procedures and the implementation of the principles of corporate governance in the
Commonwealth bank of Australia has been done

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Corporate Governance:
As mentioned earlier, it refers to the set of principles, which projects the ways through
which an organisation must be governed. It includes a set of principles, rules, commandments
and regulations which govern the overall operations of the organisation. In a way, it works as
the heartbeat of any organisation(Du Plessis, Hargovan and Harris 2018). All of its
stakeholders, be it any customer, investor or any supplier is always connected through the
strings of corporate governance, which is followed by the concerned organisation. Its
importance is stated in a very concise form through the following diagram:
Fig 1: Importance of Corporate Governance (Source: Created by Author)
ASX principles of Corporate Governance:
The Australian Security Exchange is the premier body which looks after all the
security and stock related issues in the island continent of Australia. It works as a watchdog
and keeps a close watch over the happenings across the financial market of Australia. It has
also laid out principles of effective corporate governance, to ensure proper working of the
Australian Companies. The Corporate Governance Council came into inception in the month

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of August, 2002. It was the responsibility of this council to bring together a group of
stakeholders, consisting of business leaders, shareholders and various industry groups, with
each one of them offering their own expert vision, insights and corporate experience in the
formulation of corporate governance principles. Since then, this council performs the duty of
developing a wide range of principles and providing timely recommendation regarding the
implementation of the various principles of corporate governance, in the Australian
companies, which are registered in the list of 300 companies registered under ASX.
Commonwealth Bank and its Corporate Governance:
Commonwealth Bank: A brief Overview
Commonwealth Bank or CBA as it is widely known as, is the largest operational
banking company in the island country of Australia. It operates in a multinational way and
has its branches spread all over the globe, with a staggering 1100 plus branches. The bank
mainly provides a wide range of financial services, including management of funds,
superannuation, investment banking, broking services as well as various other kinds of
business banking. Moreover, it is the largest company in the entire Australian Sub-continent
(C BA, 2018). As a result of which, the company takes its reputation, which has been earned
throughout the years of dedicated service, very seriously. Therefore, the bank takes a special
interest in ensuring an all-round and holistic implementation of each and every principle of
corporate governance as has been advocated by ASX.
Implementation of Corporate governance in Commonwealth bank:
The Commonwealth Bank of Australia along with its subsidiaries and bodies are very
much committed in ensuring that a high level of corporate governance is followed. The board
strongly believes that creation of a good corporate governance is the key to the long term
success of the company. The creation and proper implementation of these standards of
corporate governance has been the primary reason for the long term sustainability of the

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company. The core management aims to promote and protect the interests of each and every
stakeholder of the bank, through proper application of these principles, standards, and rules of
corporate governance set out by ASX. Keeping these things in kind, the bank periodically, all
its corporate governance practices and policies in order to ensure the fulfilment of the various
expectations of the different components of the bank (CBA, 2018). The company ensures that
all the recommendations of ASX are being met and it periodically publishes a ‘Corporate
Governance Statement’ in its Annual Report for each year, where the progress on the
implementation of these principles can be seen and tracked. Being a company of such
enormous repute, the company makes it a point to ensure the application of all the principles
of corporate governance. In the subsequent paragraphs, a detailed explanation of the relevant
principles and their application by Commonwealth bank has been mentioned.
Application of ASX principles of Corporate Governance by Commonwealth:
1. Laying of strong foundations for management and oversight:The role of the board
of directors of the bank is to take the strategic decisions of the bank, overseeing the
bank’s activities, performance and other operations of the bank. The board and the
company’s management stresses for a strong base on the basis of which proper
implementation of the principles of corporate governance can take place. The holistic
roles and responsibilities of the board of directors of the company are being defined
below:
Director Role in the board
Catherine Livingstone AO Independent Non-Executive (Chairman)
Matt Comyn Executive Director
Shirish Apte Independent Non-Executive Director
Sir David Higgins Independent Non-Executive Director
Brian Long Independent Non-Executive Director

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Andrew Mohl Independent Non-Executive Director
Mary Padbury Independent Non-Executive Director
Wendy Stops Independent Non-Executive Director
Anne Templeman-Jones Independent Non-Executive Director
Rob Whitfield Independent Non-Executive Director
2. Proper structuring of the board in order to add value: Commonwealth has ensured
that it has a high performing board for ensuring proper and robust governance of the
bank. The company has an adequate number of non-executive and independent
director, who can challenge the decisions of the boards at any point of time, if they
feel, they are against the proper governance of the bank (CBA, 2018). The board also
has four committees which are the audit, risk, remuneration and nomination
committee, to look after the various intricacies of the bank from the top level.
3. Maintenance of ethics and responsibility: The bank has an exclusive code of
conduct, which governs the activities of the concern. The bank’s commitments
document contains all the relevant provisions of the code of conduct regarding the
performance of duties keeping in mind the ethical discourse towards the welfare of
the various stakeholders of the company (Jizi, 2014). Moreover, the company has a
zero tolerance towards activities like bribery and corruption, which helps in ensuring
the overall ethical standards of the company.
4. Protection of corporate reporting’s uprightness: The Company has four
operational committees which are the Audit, nominations, remuneration and the risk
committee. They look after each and every aspect of corporate working and reporting.
The audit committee looks after each of the tasks related to auditing and checks them

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regularly, similarly the remuneration committee looks after the remuneration
complaints and policies, the risk committee looks after the risk management activities
and the nominations committee takes a note of the activities of the board.
5. Proper disclosure: Disclosure of vital material information is one of the most
important task of any company’s management. Such concealment of important
financial or any kind of material information is a major crime, and engaging in such
kind of tasks, signifies that the company subverts the interests of the stakeholders.
Key shareholder information mediums such as annual reports, yearly financial results,
and corporate governance reports are periodically provided by to the stakeholders.
6. Honouring shareholder’s rights: The Company honours the rights of its
shareholders and provides them a transparent and comprehensive report on a regular
basis. This is done in the form of publication of annual reports, financial results in a
quarterly or yearly basis. The company believes in providing adequate information to
its shareholders, in order to help them to exercise their rights.
7. Recognise and manage risks: Commonwealth, being a prominent company in the
Australian financial market is prone to subjected to various kinds of risks. The risk
management framework of the company caters to the management of risks ranging
from the risk of material misstatement and other financial risks.
8. Just and fair remuneration: The Company ensures that a fair and just amount of
remuneration is provided to each and every employee of the company. For this
purpose, the company has created a remuneration committee to look after this part of
the job. They periodically review the various important provisions of the new wage
laws of the government and ensure that the employees of the company are being fairly
paid.

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Risk Assessment:
Risk assessment is one of the most important tasks which are performed by any
organisation’s management in order to assess the various kinds of risk faced by the
organisation. In today’s world, financial crimes have been on an all-time high. Today
innocent investors are being duped by stating of material misstatements, which is leading to a
significant loss of revenue for the investors. In order to ensure that no financial and
fraudulent crimes tackle place, the company’s audit committee performs the job conducting a
regular audit of the company’s financial statements. The various subsequent activities of the
tasks related to risk assessment have been discussed below.
Commonwealth’s nature of business and its segment of market:
The company mainly performs its tasks in the financial market and is actually a bank
in nature. It provides various kinds of financial services around the world. In this case,
meeting the innovative and dynamic needs of the consumers and meeting their incessant
expectations of the consumers. Commonwealth faces increasing risk from its competitors in
the finance industry itself. As a result of which, the bank keeps working in developing new
ways of delivering quality services to its customers. Being a banking company, the company
caters to a wide variety of customers on a daily basis. The bank occupies a very significant
portion of the market share in the financial sector of Australia.
How the bank manages its risk?
The bank has recognised, since its inception that risk is the part and parcel of
business. They have identified the various risks arising from financial and other crimes and as
a result of which they have set up a separate group in order to address these concerns. This
body is responsible for creating a risk nullifying framework, whose primary intention is to
arrest the various risks arising from the day to day activities of the bank business. This body

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governs all the various parts of the company, where even an iota of risk can invade. Thus, it
supervises all the strategies, plans, procedures and various other components.
Different kinds of risks faced by the banking company:
The banking company mainly suffers from the following kinds of risks:
 Risk of credit:
 Risks regarding the market
 Different kinds of risks of Liquidity
 Risk regarding Funding
Each of them have been explained below in detail:
1. Risk of credit: Failure of any customer, or any other parties to honour the
obligations and payment towards the company. The company has launched a large
and expansive credit policy in order to arrest these kinds of risks.
2. Risks regarding the market: This is one of the most dangerous risks, faced by the
company. This is because, the rates operated in the market currently, have an adverse
impact on the performance of the banking company. The company has started
conducting tests stressing upon stress and other adjustments in the financial
statements, to take note of these accounts.
3. Different kinds of risks of liquidity: These kind of risks affects the daily operations
of the company as it directly deals with the liquidity of the company. The failure to
meet the financial obligations towards the bank, is one of the main concern of the
company. This takes place in the form of debt securities and there runs the risk of

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affecting the day to day functioning of the company because of the scarcity of liquid
funds.
4. Risks regarding funding: If the company fails to receive or raise adequate funds in
a timely manner, then the company may suffer from the risk of funding. This is
known as the risk of funding. The company has prepared a comprehensive
contingency fund plan if in case, there arises any kind of unprecedented liquidity
event.
Common size income statement of CBA for the year ended 31st March 2017 is as
follows:
By careful observation in the given common size income statement, it is pretty
evident, that the interest income has decreased by 295 million, which is an alarming signal
for the bank to oversee its banking operations. This needs to be addressed as soon as possible.
Interest income is one of the most significant sources of income for any bank and if this drops
even by a small percentage, then it requires serious attention from the management of the
company. Despite a significant decrease in the interest income for the company, the effect on