Business Review And Audit Risk Essay

Question:

Discuss about the Business Review and Audit Risk.

Answer:

Introduction

The title of the report is Business Review and Audit Risk. While planning for any audit the nature and type of the business of the client shall be understood by the audit firm to have the better and comprehensive audit plan. Without understanding the business of the client, the audit firm can never be able to achieve the purpose of the audit. Along with review of the business of the client, the auditor shall identify the audit risk in relation to the nature and size of the business and considers the same while planning for an audit (Anastasia, 2015). The main aim of the report is to make the audit firm aware of the company’s state of affairs and the related risk. For the purpose of this report, Insurance Australia Group Limited has been selected. Insurance Australia Group Limited is the company registered in Australia. At first, the introduction will be given detailing the main aim of the report. Then analysis of the annual report of the company has been made detailing the positive and negative indications that the annual report has given about the corporate governance practices adopted by the company. Thereafter the state of the company’s affairs and the related risks has been mentioned detailing the audit risk areas along with their impact on the financial statements. Then the audit objectives are mentioned along with the adopted analytical procedures to identify the significant changes in the financial position. At the end, the report has been ended with concluding paragraph.

Analysis of Corporate Governance Of The Company

Corporate Governance of the company is defined as the code of conduct coupled with the policies, procedures and rules and practices which is required to be followed so as to ensure that the interest of the stakeholders and the shareholders of the company have been considered in full and with transparency (Dandino, 2014).

Earlier there were an association namely National Roads and Motorists Association which has started its operations in the year 1925 by providing insurance facilities to their members. After that it has been growing and expanded their business in several areas and in the year 2002 the group has been converted into the company namely Insurance Australia Group Limited. Thereafter the company has expanded its operations in Asia and increased current business in Thailand and has moved Malaysia. It is a company registered and listed in Australia Exchange. As of now the company is being operating throughout Australia, Asia and New Zealand and has focus to provide the better insurance facilities to the customers and delivering the high returns to the shareholders and meeting the expectation of the stakeholders. In current scenario, Insurance Australia Group Limited is the leading company in Australia in the insurance sector. (Insurance Australia Official Website).


In accordance with the corporate governance statement separately hosted on the website of the company, it has been mentioned that the company has complied with third edition of Principles and Recommendation of Australia Securities Exchange Corporate Governance Council. Also, as per the provisions of the Corporations Act, the board of director has the full responsibility to assure the compliance with the corporate governance framework. After analyzing the annual report of the company for the year ending 30th of June 2015, following positive and negative signals have been observed indicating good and bad corporate governance.

Positive Signals:

Role of the Board and Chief Executive Officer of the company- In accordance with the first principle of the laying foundations for management and oversight, the board of director has been held fully responsible for protecting the various interests of the shareholders as well as the stakeholders and for the smooth functioning of the operations of the company. An inclusive list has been detailed giving the areas where the oversight of the board of directors is required such as:

Directing and controlling the strategies of the group towards the organizational objectives.

Maintaining the integrity and faithfulness of the financial information and reporting system of the company-:Apart from the responsibilities laid down for the board, the company has laid down the responsibilities for Chief Executive Officer also. As per the provisions of Corporations Act 2001 and first principle of corporate governance, the company has delegated the responsibility of management of day to day affairs of the company which includes conducting the operation of the company in an effective and an efficient manner and bringing out all the issues which are material enough to the notice of the board of directors for timely and corrective action (Cameron, 2014).


Board Structure – The second principle of Australian Securities Exchange Corporate Governance Council, the company shall have structured the board in such a way that it has created value to the organization in both financial as well as non financial terms. The company has restructured its board in that manner only as mentioned in the report of corporate governance. It has been mentioned that the nomination committee has been formed which helps in the filling the positions which such personnel who have requisite skills and experience. Secondly the company has mentioned the skills required from the board members in accordance with the defined parameters like insurance, business development, international experience, strategic human resource and leadership skills, etc. These parameters are in alignment with the goals of the company. It shows that second principle is also adhered (Cameron, 2014).

Ethical and Responsible decision making -: As per the third principle of promoting ethical and responsible decision making, the company shall list down all the ethical requirements that they require to be followed by the company and every employee and officers engaged in the company. The company has done the same and listed all the ethical policies in the charter and in order to further promote and regulate the ethics across the organization the company has appointed Dr Simon Longstaff who is renowned ethicist across the World.

Negative Signals

No Induction and Training to Board of Directors

As per the annual report of the company the directors have not been oriented to the nature and type of business of the company and also provided the adequate training. Thus, the principle of having solid foundation has been hampered to some extent (Cameron, 2014).

Attendance at Continuing Educational Programs – The board, as per the annual report of the company, has not attended and educational and developmental programs due to which again the principle of having the solid foundation have been hurted to the extent that the directors are not updated with the current knowledge.

No reference to Board Meetings -

No reference has been made in the Corporate Governance Statement of the company detailing the number of meeting of directors held during the year. Thus, the fifth principle of making timely and balanced disclosure has not been fulfilled.

References

Anastasia, (2015), “Financial Statement Analysis : An Introduction” available on accessed on 29/04/2017

Cameron A, (2014), “Corporate Governance Principles and Recommendations” available on accessed on 29/04/2017.

Dandino P. (2014), “Corporate Governance : Something for everyone”, Franchising World, pages 40-41.

Insurance Australia Official Website, “Annual Report 2015” available on accessed on 29/04/2017

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