Corporate Governance Evolution And Risk Assessment Of Aristocrat Leisure Ltd

Lay Solid Foundation for Management and Oversight

Discuss About The Evolution Corporate Governance During Recent.

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The main purpose of this assignment to review the financial statements as prepared by Aristocrat Leisure ltd. The assignment will be dealing with how the company follows and implements ASX Corporate Governance Principles for day to day management of the business. In addition to this, a risk assessment will be conducted on the financial statements of the company to ascertain if the business faces any risks or not. The assignment will also be including horizontal analysis which consists of a Common Sized Income statement and Balance sheet and significant ratio computation will also be included in the assignment. The report will be concluding with recommendations which are applicable to the business and which can reduce the risks which are related to the business.

Lay Solid Foundation for management and Oversight: The board has clearly set out the functions which are to be handled by the board and delegated those functions which are to be handled by the management (Beekes, Brown and Zhang 2015). The board has delegated authority to the CEO of Aristocrat Leisure ltd to look after the day to day business of the company and regulate the same within the purview of the authority provided. The board is responsible for reviewing the management and various roles and responsibilities of the company. The company secretary is directly accountable to the board for facilitating the corporate governance policies of the business and also overall management of the business (Picken 2017). The company follows strict code so as to ensure that the corporate governance policy of the company is being followed.

Structure the board to add value: The board of directors of the company is made up of Executive and Non-Executive directors. Out of the Non-Executive directors 50% of the composition is taken by women (Kumar and Singh 2013). For effective delegation of power and responsibility the board has set up audit committee, nomination committee and other regulatory committee as well.

Act Ethically and Responsibly: The board of Aristocrat Leisure ltd has put in all efforts to establish a working environment which is ethically developed for business dealings and other business-related activities (Weiss 2014).  The company has developed a code of conduct which is applicable to all directors, managers and all personnel of the business. The main purpose of the establishing the code of conduct in the business is to ensure that the financial statements are effectively prepared and integrity is maintained.

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Structure the Board to Add Value

Safeguard Integrity in Corporate Reporting: The board is responsible for the effective representation of the financial statements of the company. The board has set up audit committee which is responsible to recommend to the board about the accounting policies risk management practice of the business (Gao and Jia 2016). There is also an audit committee charter which defines the role and responsibility of the committee more effectively (Ezzine and Olivero 2013). In addition to this, the management of the company has given the power to conduct independent examinations for the ensuing effective risk management standard and reporting framework is followed.

Make timely and Balanced Disclosures: Aristocrat Leisure ltd has successfully developed and implemented the policy which relates to continuous disclosure of significant items. The management of the company understands that timely disclosure of price sensitive information is necessary and effective communicaat6ion of the same is necessary (Fung 2014). The company secretary in conjunction with the CEO of the business has the responsibility to look into such requirements.

Respect the rights of the Shareholders: The company is committed towards effective investor programs. For such a program, the company conducts regulars briefing interim financial results, half yearly results and other similar documents. The company also facilitates investors open days where the investor can have conversation with the management of the company (Cremers and Ferrell 2014). The objective of the company is to follow best disclosure practices which will benefit the employee of the company.

Recognize and Manage Risks: The company has an already risk management policies in place which is working effectively. The board is of the view that the sound framework and policies which are in place ensures that the risks are kept at a minimum (Richardson, Taylor and Lanis 2013). The company has established a strategic risk committee which

Remunerate Fairly and Responsibly: The management has established a remuneration committee which reports to the board of directors (Cybinski and Windsor 2013). The purpose of this committee is to ensure that the top-level employee are compensated in affair manner and thus in this way can be retained by the business.

The company is engaged in the manufacturing process of products which can be used for games and other related stuffs. The company is regarded as one of the leading brands which is engaged in the production of the games and stuff. The company has diverse products which ranges from electronic gaming devices which are used by children but also systems which are used in casinos are also developed by the company. The company operates for both online gaming market and real markets where such games are sold.

The market overview of the company shows that the company is one of the leading brands in Australia in manufacture of gaming and entertainment related products. The company has been able to achieve sales growth during the year 2017 which signifies that the  company has good sales strategy and it is further estimated that the sales of the company will further increase in future. The company has acquired the business of Plarium global ltd which shows that the business is planning for increasing the global presence in the market.

The business of Aristocrat Leisure limited is regulated by Australian Stock Exchange (ASX) where the business is listed and also by the relevant accounting standards which are in force in the country.

Statement Showing ratios

Particulars

2017

2016

Profit and Loss A/c ratios

Gross Profit Ratio

60.57%

59.00%

Net Profit ratio

20.18%

16.47%

Return on Shareholder’s Equity

36.79%

32.59%

Balance Sheet Ratio

Current ratio

1.829735

1.593409

Debt equity ratio

0.891275

1.197397

Total Asset Turnover ratio

0.745179

0.712488

 

Statement Showing Income and Expenses

Particulars

2017

2016

Amount

Percentage

$- million

$- million

Revenue

 $ 2,453.80

 $ 2,128.70

325.1000

0.1527

Cost of revenue

 $     967.60

 $     872.70

94.9

0.1087

Gross Profit

 $ 1,486.20

 $ 1,256.00

230.2

0.1833

Other income

 $       10.00

 $       11.60

-1.600

-0.138

Design and development costs

 $     268.40

 $     239.20

29.200

0.122

Sales and marketing costs

 $     116.80

 $     119.50

-2.700

-0.023

General and administration costs

 $     320.20

 $     301.50

18.700

0.062

Finance costs

 $       62.70

 $     100.20

-37.500

-0.374

Profit before income tax

 $     728.10

 $     507.20

220.900

0.436

Income tax (expense)/benefit

 $     233.00

 $     156.70

76.300

0.487

Profit for the year

 $     495.10

 $     350.50

144.600

0.413

2017

2016

Amount

Percentage

Assets

$- million

$- million

Current assets

Cash and cash equivalents

547.1

283.2

263.900

93%

Trade and other receivables

512.3

432.9

79.400

18%

Inventories

116.4

124.3

-7.900

-6%

Financial assets

6.4

7

-0.600

-9%

Current tax assets

12.8

27.7

-14.900

-54%

Total current assets

1195

875.1

319.900

37%

Non-current assets

Trade and other receivables

107

96.9

10.1

0.1042

Financial assets

7.8

6.6

1.2

0.1818

Property, plant and equipment

241.3

217.5

23.800

11%

Intangible assets

1687.7

1736.5

-48.800

-3%

Deferred tax assets

54.1

55.1

-1.000

-2%

Total non-current assets

2097.9

2112.6

-14.700

-1%

Total assets

3292.9

2987.7

305.200

10%

LIABILITIES

Current liabilities

Trade and other payables

404.7

371.1

33.600

9%

Provisions

44.3

32.5

11.800

36%

Borrowings

0.1

0

Current tax liabilities

148.7

81.8

66.900

82%

Financial liabilities

0.5

0

Deferred revenue

54.8

63.8

-9.000

-14%

Total current liabilities

653.1

549.2

103.900

19%

Non-current liabilities

Trade and other payables

44.2

37.5

6.700

18%

Provisions

13.8

13.4

0.400

3%

Borrowings

1199.3

1287.8

-88.500

-7%

Financial liabilities

0.9

10.8

-9.900

-92%

Deferred tax liabilities

12.7

0

Deferred revenue

19.6

10.3

9.300

90%

Other liabilities

3.7

3.2

0.500

16%

Total non-current liabilities

1294.2

1363

-68.800

-5%

Total liabilities

1947.3

1912.2

35.100

2%

EQUITY

Contributed equity

715.1

693.8

21.3

3%

Reserves

-116.8

-55.7

-61.1

110%

Retained profits

747.3

437.4

309.9

71%

Total equity

1345.6

1075.5

270.1

25%

Total Equity and Liabilities

3292.9

2987.7

305.2

10%

The audit risk which can be identified are given below in point form:

  1. The debt equity ratio of the company as show in the table above shows that there is a decrease in the debt equity ratio even though there has been no major changes in debt capital of the business which suggests that there night be certain audit risks present in this situation
  2. The provisions which are shown in the financial statements of the company can created in such a way to misrepresented information or affect the profit of the business.

The measures which can be suggested to improve the audit risks are given below:

  • The company needs to check the amount of debts which is shown in the financial statement. In addition to this, the auditor needs to ensure that the debts amount is correctly stated in the financial statements considering all payback of debts. The auditor while conducting the process of audit needs to verify the same and also ensure that the debts are accurately recorded and no misstatements are present.
  • Th auditor needs to verify the genuineness of a provision and establish whether the provision is really required or not for effective presentation of financial information.

Reference

Beekes, W., Brown, P. and Zhang, Q., 2015. Corporate governance and the informativeness of disclosures in Australia: A re?examination. Accounting & Finance, 55(4), pp.931-963.

Cremers, M. and Ferrell, A., 2014. Thirty years of shareholder rights and firm value. The Journal of Finance, 69(3), pp.1167-1196.

Cybinski, P. and Windsor, C., 2013. Remuneration committee independence and CEO remuneration for firm financial performance. Accounting Research Journal, 26(3), pp.197-221.

Ezzine, H. and Olivero, B., 2013. Evolution of corporate governance during the recent financial crises.

Fung, B., 2014. The demand and need for transparency and disclosure in corporate governance. Universal Journal of Management, 2(2), pp.72-80.

Gao, X. and Jia, Y., 2016. Internal control over financial reporting and the safeguarding of corporate resources: Evidence from the value of cash holdings. Contemporary Accounting Research, 33(2), pp.783-814.

Kumar, N. and Singh, J.P., 2013. Effect of board size and promoter ownership on firm value: some empirical findings from India. Corporate Governance: The international journal of business in society, 13(1), pp.88-98.

Picken, J.C., 2017. From startup to scalable enterprise: Laying the foundation. Business Horizons, 60(5), pp.587-595.

Richardson, G., Taylor, G. and Lanis, R., 2013. The impact of board of director oversight characteristics on corporate tax aggressiveness: An empirical analysis. Journal of Accounting and Public Policy, 32(3), pp.68-88.

Weiss, J.W., 2014. Business ethics: A stakeholder and issues management approach. Berrett-Koehler Publishers.