Corporate Governance and Principles

Telstra is one of the biggest telecommunication companies in the world and it deals in electronic consumer goods like mobile phones, software, DTh connection, telecommunication lines etc. the business works on two model’s business to consumer and business to business. The overall revenue of the business runs into millions, and the company has been in operation since several decades. Th company is listed on the Australian Stock Exchange and the shares of the company are traded over there (Alexander, 2016). In this assignment the Corporate Governance principles of the company are discussed and if the management has been successful in applying them in practices. Corporate Governance refers to the ways the board of directors manages the demands of all related parties who are working for company in some way or the other. The various related parties include the shareholders, the financers, the employees, the suppliers and the community etc. All the parties depend on the company in some way or the other. Thus, the aim of the management is to satisfy the needs of all these related parties in some way or the other. The role of the shareholders is to appoint the board of directors and carry out timely audit to check whether they are applying the principles of corporate governance to the best of their abilities of not. In case there are any loopholes, then the board should try to rectify that as that may affect the functioning of the company (Antle & Smith, 1985). For the given company the annual report of the company has been downloaded for the latest year to analyses whether the management has been able to comply with the various principles of corporate governance and risk assessment. A brief analysis with that respect is given below

1. Laying strong foundation of Management – In the given case we can see that the company has stated in their annual report that the long-term aim of the company is to excel in corporate governance, transparency and visibility and they are working continuously for that. The company has laid a solid foundation of the board that has been selected by the shareholders. The board consists of Audit and Risk Committee, Remuneration Committee and Nomination Committee. These Committees reports to the Chief executive officer, who in return addresses the issues of all the stakeholders, thus we see that property structure is there and proper segregation of duty and responsibility is there among the members of the board(Arnott, et al., 2017). Thus, they are complying with the first principle of good corporate governance practice. There are clear accountability frameworks that works for the company as a whole and thus people are ready to take responsibility in case they fail anywhere.

1. Structure of the Board – In case of Telstra the company is having a define structure of the board. The board consist of the CEO Andrew R Penn, who has been in the role from past three years, it consists of many non-executives and executive director that have defined roles and they work accordingly(Belton, 2017). The board works constantly for the application of the corporate governance principles and frames rules and regulations accordingly. The board is skilled, diverse and have been formed keeping in the mind the needs of the company.
2. Act Ethically – It is the role of the board to make sure that they are ethical in their approach. The management should not be involved in any self-interest in taking any decisions with respect to the company. There should be an unbiased approach. There should be proper internal controls in place to make sure that the company is complying with the principles of corporate governance. The board should also opt for timely audit so that in case there is any misstatement that can be found and proper actions can be taken. It is their responsibility to act ethically. There is a robust system of risk assessment and assurance and accordingly based on that important decisions are taken(Coate & Mitschow, 2017).
3. Safeguard integrity in corporate reporting – It is the role of the management to carry out proper risk assessment to make sure that in case there are any issues in the financial statements than that should be taken care of. For this proper audit of the books must be done, proper internal controls must be placed. In case of Telstra the management is very strict with respect to this and they are making sure that books of the company are properly audited and they are providing the auditor with the necessary support that he might need from the board to directors. It is the duty of the board to safeguard the integrity of the company and the board. There is an open channel of communication between the shareholders and the board and that also helps in managing the integrity of the company as a whole.
4. . Make timely and balanced disclosure – It is the role of the management of the company to make timely disclosures in the annual report of the company. Any such item that might have material impact on the company and affects the position of the shareholders in the company should be properly stated and relevant disclosures should be made. Any change in accounting policies, accounting standards, change in organisational structure etc, all should be reported in the notes to account of the annual report(Gullet, et al., 2018). The shareholders can look at this section and can get important updates about the company and can judge whether they should invest in the company or not.
5. . Respect the rights of security holders: The shareholders are the people who are investing in the company and it is therefore important that they must be provided with all the necessary information that might affect their position in the company. In case of Telstra the company follows an open channel of communication with the shareholders that is very transparent and robust. This is part of the corporate governance principles of the company and Telstra complies with it(Kim, et al., 2017).
6. Recognise and manage risk – It is important that the management of the company to function in such a manner that there are able to see and access any kind of risk that might be prevalent to the financial statements. For this in case of Telstra, the company has put in a strong and robust communication network and transparency is maintained. Timely audit is done and proper internal controls are also there. All these help in risk assessment and reduces the chances of the company to face any kind of loss because of that. Proper awareness regarding this is also spread among the management.
7. Remunerate fairly and responsibly: It is important that employees and other executives should get proper remuneration and the overall remuneration policy of the management of the company should be fair and there should not be any biasness. The management needs to disclose their remuneration policy in their annual report and give proper justification on how the employees are being paid(Kim, et al., 2017). In case of Telstra also, the remuneration policy is fair and the management has stated the same in their annual report. There are both cash and kind in remuneration and employees are entitled to both long-term and short-term benefits from the governing party of the company. An extract of the remuneration report is given below:

Thus we see that Telstra as a company has been able to comply with the various principles of corporate Governance and has included the same in their functioning through better approach in all aspects for the company and the shareholders.

It is an important step in audit as it helps the auditor in understanding if there are any material misstatement in the books of the company (Kusolpalalert, 2018). There are various steps for risk assessment that can be helpful for the auditor while conducting the audit. Few of these steps includes points like-

• Understanding the overall working environment of the company. The industry in which it operates. The way the market is affecting the company and its operations all these are very important points.
• The auditor needs to check whether the management is functioning properly , as they are the one who are responsible for reduction of the risks.
• Asking thee employees for the necessary information and analyzing their overall stand is an important part of risk assessment.
• All those elements that might be materially misstated and that management might be affected by the same should be taken care of.

In case of Telstra, the company is operating in a Telecommunication industry and there are many competitors. The business operates under two model business to consumer and business to business and both are very profitable. The business is carried on by the management of the company and they are the rule forming bodies. The auditors can adopt relevant substantive and analytical audit procedures for risk assessment (Sithole, et al., 2017). It is the responsibility of the auditor to check all these factors and based on that comment whether the books of the company are free from material misstatement. In case of Telstra also proper risk assessment is done and relevant disclosures are given by the management of the company. Analytical tools have been adopted to comment whether the company is risk free or not. Ratio analysis of the various elements of the balance sheet and profit and loss account has been done and given below for better understanding (Sithole, et al., 2017).

Role of Shareholders

S. no. Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	Ratios	Company	Industry	Favorable/Unfavorable
1	Quick Ratio	0.71	0.9	Unfavorable
2	Current Ratio	0.8	0.99	Unfavorable
3	Long term Debt to Equity Ratio	101.92	103.39	Favorable
4	Total Debt to Equity Ratio	112.8	116.26	Favorable

Quick Ratio: This ratio is basically a measure of the liquid assets the company possess in comparison to the liabilities of the company that are maturing within a year, i.e., the current liabilities.  Its comparison is more rigorous in terms of the liquidity when compared to the current ratio. This ratio is a measure about the pace at which a company will be able to pay off its current dues. Since quick period is a determinant for this type of ratio, cash and cash equivalents or any asset that has a high degree of liquidity is only considered. A liquid asset can be said to be an asset an asset that can be easily converted to cash within a quick succession without any loss in its value. The securities held as investments for a short term and are widely traded in the market could also be liquid assets (Trieu, 2017). The quick ratio of the company is 0.71 and the industry average is pegged at 0.9. This goes to show that company has less liquid assets at its disposal as compared to its peers and competitors in its industry This is not a very sign as a healthy quick ratio would boost the confidence of the creditors who trade with the company regularly. They would know that the company would be able to meet their liquidity requirements in a short span of time if the need arises.

Current Ratio: Current ratio is the measure of the current assets the company possesses about the current obligation (liabilities) that it must meet. The current ratio of the industry is 0.99 whereas it is 0.8 for the company. This was pretty much expected since we previously saw that the quick ratio is also on the lower side compared to the industry (Werner, 2017). A healthy current ratio signifies that the company has sufficient short terms assets in the form of cash, trade receivables and inventory to meet its current obligation (Webster, 2017). A healthy ratio would mean that the comp any would enjoy easy credit terms and decent price negotiations from its suppliers as the traders would like to deal with a company that has a financial health capable of providing them the funds when required.

Long term liability to Equity ratio: The ratio is measured by dividing the long-term liabilities of the company with that of the book value of the equity. This ratio is true test of financial leverage a company has. The Industry average in this case is 103.39 whereas the ratio for the company is 101.92%. A higher ratio would indicate that the risk perception for the company is significantly higher. People would not prefer dealing with a company that bears significantly higher interest cost as the risk of failure to meet those payments are more. Also, if there is a spike in interest rate, it will increase the burden of interest which is not good thing to have (mejia, et al., 2017).

Risk Assessment and Principles

Total Debt to Equity Ratio: It is calculated by dividing the total debt of the company with that of the shareholders equity. From the table of comparison, we can see that the prevalent ratio for the entity is 116.26 percent against that of 101.92 percent for the company. This shows that company is at an advantage when compared to its peers in the industry. A high ratio for the company would not have been a good financial indicator. It is basically a measure of the extent to which a company uses debt funds to finance its asset, since the funds provided by the owners/shareholders (Alexander, 2016). A lower ratio means that the interest cost of the company is lower and that it will have surplus to further invest for its operations and will have greater avenues to grow without bearing additional interest costs. It also means that in the event of the company performing poorly, they will still be might be able to meet its interest requirements as it would be lower. Since, this significantly lowers te risk perception of the company, the company would get cheaper loans on more reasonable repayment terms with relaxed security coverage.

Based on the overall analysis it can be said that the company has complied with all the ASX principles and has been very ethical in their approach. They have been managing the company ethically and proper risk assessment has also been done. Corpoarte Governnace is very important for any company to function ethically.

References

Alexander, F., 2016. The Changing Face of Accountability. The Journal of Higher Education, 71(4), pp. 411-431.

Antle, R. & Smith, A., 1985. Measuring Executive Compensation: Methods and an Application. Journal of Accounting Research , 23(1), pp. 296-325.

Arnott, D., Lizama, F. & Song, Y., 2017. Patterns of business intelligence systems use in organizations. Decision Support Systems, Volume 97, pp. 58-68.

Belton, P., 2017. Competitive Strategy: Creating and Sustaining Superior Performance. London: Macat International ltd.

Coate, C. & Mitschow, M., 2017. Luca Pacioli and the Role of Accounting and Business: Early Lessons in Social Responsibility. s.l.:s.n.

Gullet, N., Kilgore, R. & Geddie, M., 2018. USE OF FINANCIAL RATIOS TO MEASURE THE QUALITY OF EARNINGS. Academy of Accounting and Financial Studies Journal, 22(2).

Kim, M., Schmidgall, R. & Damitio, J., 2017. Key Managerial Accounting Skills for Lodging Industry Managers: The Third Phase of a Repeated Cross-Sectional Study. International Journal of Hospitality & Tourism Administration, , 18(1), pp. 23-40.

Kusolpalalert, A., 2018. The relationships of financial assets in financial markets during recovery period and financial crisis. AU Journal of Management, 11(1).

mejia, L., Tosi, H. & Hinkin, T., 2017. Managerial Control, Performance, and Executive Compensation. Academy of Management Journa, 30(1).

Sithole, S., Chandler, P., Abeysekera, I. & Paas, F., 2017. Benefits of guided self-management of attention on learning accounting. Journal of Educational Psychology, 109(2), p. 220.

Trieu, V., 2017. Getting value from Business Intelligence systems: A review and research agenda. Decision Support Systems, Volume 93, pp. 111-124.

Webster, T., 2017. Successful Ethical Decision-Making Practices from the Professional Accountants’ Perspective. ProQuest Dissertations Publishing.

Werner, M., 2017. Financial process mining – Accounting data structure dependent control flow inference. International Journal of Accounting Information Systems, Volume 25, pp. 57-80.