Corporate Governance Corporations Business Activities

Question: Describe about the Corporate Governance for Corporations Business Activities. Answer: 1. Governance means a mechanism employed to direct and control the business activities of a corporation in such a way that the business objectives are achieved (Baker and Anderson, 2010). The corporate governance mechanism was deemed necessary to protect the interest of the shareholders, who are unable to take part in handling the daily business affairs. In the corporate governance mechanism, the interest of all the stakeholders such as shareholders, creditors, lenders, government, and society is emphasized. The corporate governance mechanism is important to ensure sustainability of the business operations. The conduct of business is modeled and directed in such a way that needs of all the stakeholders are kept balanced adequately. This balancing is the key to achieve sustainability in the operations (Baker and Anderson, 2010). 2. The reforms in the corporate world has given rise to the new concept of governance, risk management, and compliance, which commonly known as GRC framework. As per this framework, the governance and the risk management are related to each other or it could be asserted that effectiveness of the risk management depends to a lot extent on the governance mechanism. The internal control relates to the risk management, thus, there is an indirect link between governance and the internal controls. Good governance makes the risk management process effective, which in turn forms the foundation for strong internal control environment (University of Arizona, 2008). 3. Although, board of directors possess sole powers to carry out day to day business affairs in the case of companies but the shareholders are the ultimate owners and can restrain them from acting for ulterior motives. The shareholders can pass a resolution to restrict the powers of the board of directors. Further, the shareholders also possess the right to remove the director on or before the terms are ended (Mitchell et al., 2016). 4. Auditing standard 240, The auditors responsibility relating to fraud in an audit of a financial report provides that the auditor should be alert to the events or circumstances which may give rise to fraud in the financial report. Ten possible indicators of fraud have been listed below: The auditor found discrepancies in the books of accounts as regard amount and classification of the transactions (ASA, 240). The auditor found conflicting evidences for significant items during verification. In case of accounts receivables, the auditor found unusual and unexplained differences between the confirmation received from party and the balance shown by client in the books (ASA, 240). Significant difference between physical stock quantities and the balance shown in the books. Unreasonable denial of management to access to records by the auditor. Management pressurizing the auditor to complete audit within shorter time period (ASA, 240). Unusual fluctuations in the significant accounting items. Management not willing to correct the internal control loopholes on time. Conflict in the management of the company. Violations of the code of ethics of the entity (ASA, 240). 5. Woolworth Ltd has four committees such as audit, risk management and compliance committee (ARMCC), people policy committee (PPC), sustainability committee (SC), and nomination committee (NC). The ARMCC plays crucial role in overall structure of the governance framework of the company that includes internal controls, risk management, and compliance with laws and regulations. The role of people policy committee is to assist the board in relation to human resource management and fixing remunerations for different personnel (Woolworth Ltd, 2016). The role of sustainability committee is extended to the strategic formulation and implementation of the business sustainability policies. The role of nomination committee is to provide assistance in the election on the board members (Woolworth Ltd, 2016). 6. The ASX listing rule 4.10.3 requires that an entity should give a corporate governance statement in its annual report or alternatively it may give URL of the page on its website where that statement can be found (ASX, 2016). In compliance with this rule ASX listing, Woolworth Ltd has given URL of the page in the annual report where the corporate governance statement could be extracted from (Woolworth Ltd, 2016). The corporate governance statement of the company states that as per the review conducted by the board, the corporate governance practices and principles of the company are in compliance with the recommendations made by the ASX (Woolworth Ltd, 2016). During the review, the board observed that it has complied with the ASX recommendations in respect of the formulation of the committees of the board by forming four committees such as nomination committee, audit, risk management, and compliance committee, people policy committee, and sustainability committee (Woolworth Ltd, 2016). Further, the board has also complied with regard to the independence of the board of directors by having required number of non executive directors on the board as well as in the respective committees. Apart from that the areas such as risk management, internal controls, and performance evaluation of the board have also been found to be in compliance with the recommendation made by ASX (Woolworth Ltd, 2016). 7. The member of the audit, risk management, and compliance committee of Woolworth Ltd are Michael Ullmer (chairmen), Jillian Broadbent, Gordon Cairns, Siobhan Mckenna, and Scott Perkins. All the members of the committee are independent and non-executive directors as is required by the ASX listing rules. There were total six meetings held during the financial year 2016 of the audit, risk management, and compliance committee (Woolworth Ltd, 2016). All the six meeting were attended by Michael Ullmer (chairmen), Jillian Broadbent, and Scott Perkins. Siobhan Mckenna was eligible to attend only two meetings that he attended appropriately. 8. Yes, the board of Woolworth Ltd has received the certificate from CEO as well as from CFO jointly certifying that the system of risk management and internal control is sound and the declarations made in accordance with the section 295A of the corporations act 2001 are based on this evaluation (Woolworth Ltd, 2016). The corporate governance statement of the company contains the assurance given by the board in respect of the risk management and internal controls. Further, the board makes assertions about the preparation and presentation of the financial statements, which are required as per the provisions of the corporations act. All the assertions made by the board in this regard are positive, which implies that company has complied in all material respects with the preparation and presentation of the financial statements (Woolworth Ltd, 2016). 9. The directors declaration can be found in the annual report of Woolworth Ltd immediately after the notes to the financial statement section (Woolworth Ltd, 2016). The declaration given by the directors is mainly focused on the aspects of preparation and presentation of the financial statements and debt repayment capacity of the company. In respect of the debt repayment, the directors declare that the company has enough funds to repay the debt owed by the company as and when it falls due for payment. Further, in respect of the preparation and presentation of the financial statements, the directors declare that the financial statements of the company comply with the international financial reporting standards (Woolworth Ltd, 2016). Further, the directors also declare that the company complies with the relevant provisions of the corporations act in relation to the preparation of the financial statements. In the opinion of the directors, the accounting standards have been appropriately followed in preparation of the financial statements (Woolworth Ltd, 2016). Finally, the directors opine that the financial statements of the company portray true and fair view of the state of affairs. Apart for this, the directors also declare that the company is sufficiently able to meet any obligation arising from the deed of cross guarantee (Woolworth Ltd, 2016). 10. In the annual report of Woolworth Ltd, the auditors independent declaration is given at page 54 just above the financial report section (Woolworth Ltd, 2016). This declaration is received by the company from the auditor before appointment as auditor of the company. The auditors independent declaration specifies that the auditor meets the requirements of the corporations act in relation to the independence of the auditor. Further, it also specifies that the auditor also complies with the guidelines of the code ethics of the governing body. The governing body such as institute of chartered accountant Australia issues code of ethics for its members (Woolworth Ltd, 2016). Auditors independence has always been essential in relation to the audit of the financial statements of an entity. In essence, the auditors independence means keeping the auditor away from being influenced by the management or by any sort of relationship with the entity (Adelopo, 2016). The integrity of the auditor is safeguarded by taking from him the declaration of independence, which is crucial for good governance. The auditor certifies the financial reports of the entity, which are relied upon by various stakeholders such as shareholders, regulators, and lenders. Thus, maintaining auditors independence and integrity is important to promote good corporate governance (Adelopo, 2016). References Adelopo, I. 2016. Auditor Independence: Auditing, Corporate Governance and Market Confidence. Routledge. ASA 240. The Auditor's Responsibilities Relating to Fraud in an Audit of a Financial Report. [Online]. Available at: https://www.auasb.gov.au/admin/file/content102/c3/Nov13_Compiled_Auditing_Standard_ASA_240.pdf [Accessed on: 12 October 2016]. ASX. 2016. Chapter 4: Periodic Disclosures. [Online]. Available at: https://www.asx.com.au/documents/rules/Chapter04.pdf [Accessed on: 13 October 2016]. Baker, H.K. and Anderson, R. 2010. Corporate Governance: A Synthesis of Theory, Research, and Practice. John Wiley Sons. Mitchell, R., O'Donnell, A., Marshall, S., and Ramsay, I. 2016. Law, Corporate Governance and Partnerships at Work: A Study of Australian Regulatory Style and Business Practice. Routledge. University of Arizona. 2008. Corporate Governance Quality and Internal Control Reporting Under SOX. ProQuest. Woolworth Ltd. 2016. Annual report of Woolworth Ltd. [Online]. Available at: https://www.woolworthslimited.com.au/icms_docs/185841_Annual_Report_2016.pdf [Accessed on: 12 October 2016]. Woolworth Ltd. 2016. Charter of people policy committee. [Online]. Available at: https://www.woolworthslimited.com.au/icms_docs/138189_People_Policy_Committee_Charter.pdf [Accessed on: 13 October 2016]. Woolworth Ltd. 2016. Corporate governance statement. [Online]. Available at: https://www.woolworthslimited.com.au/icms_docs/182380_Corporate_Governance_Statement.pdf [Accessed on: 13 October 2016].