Final report ASX corportate PDF

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FINAL REPORT

Hai Yen (Jenny) Diep – 2930990

1. Table of Contents Executive summary.......................................................................... 2 1.

Introduction............................................................................ 3

2.

Definition of corporate governance....................................................3

3.

The importance of corporate governance.............................................3

4. The linkages between the corporate governance and good internal control practices...................................................................................... 3 5. 6.

How internal control links to a company’s management.............................4 Evaluation, two principles related to internal control................................4 6.1 Principle one...............................................................................................................................4 6.2 Principle seven...........................................................................................................................4

7. Analyze how well Caltex’s corporate governance statement communicates information about its corporate governance and internal control practices in relation to principle one and seven.....................................................................4 7.1 Principle one...............................................................................................................................5 7.2 Principle seven............................................................................................................................5

8.

Conclusion.............................................................................. 5

9.

References..............................................................................6

Executive summary This report aimed to examine corporate governance, its significance, principles and recommendations as well as internal control practices. This report also aims to show the relationship between internal control and corporate governance and how this relasonship was evaluated in Caltex corporate governance statement. The report focused on academic journals, ASX Corporate Governance Principles and Recomendations and accounting textbook as well as the information from Caltex annual report 2015. Fingdings represented that corporate governance was created to deal with issues or scandals. Internal control in regard to corporate governance’s principles and recommendations helped the company to manage, monitor, and control their performance in order to be successful. Furthmore, the report showed how well Caltex implemented corporate governance’s principles in their annual report as well as internal control practices. In conclusion, corporate governance and internal control were utilized to help companies with many advantages regarding to managment and getting business’goals.

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1. Introduction Corporate governance is emerged whenever there is an issue or a scandal. It is a means of helping the company’s management as well as internal control. Internal control in relation to corporate governance’s principles and recommendations to maintain, monitor and keep track on the company’s performance to meet its objectives. The report will show how significant corporate governance and its linkages with good internal control practices. Furthermore, the report explains how two principles from the ASX Corporate Governance Council’s Principles and Recommendations link to internal control and examines them in the Caltex corporate governance statement based on Caltex annual report.

2. Definition of corporate governance Corporate governance plays an important role in the company and it heads the company to its success. Corporate governance is a system of guidelines, relationships, practices and processes by which a company is controlled and administered with corporations (ASX 2014). Furthermore, O’Shea (2005) cited that corporate governance refers to how a company manages all of its components – these include its board, shareholders, customers, management and other stakeholders.

3. The importance of corporate governance Corporate governance keeps enhancing its significance over time. It is a method preventing a company from failures, creating the company’s structure and as well as help the company to meet its goals. ASX Corporate Governance (2014) stated that corporate governance is mean of promoting stakeholders’ confidence. In addition, it provides company with structures which set out objectives and enhance internal control with system that allow to monitor and determine operational performance (O’Shea, 2005)

4. The linkages between the corporate governance and good internal control practices. The corporate governance guideline suggests all recommendations and principles for company to improve its internal control. These processes help to meet an entities goals regarding to operating the company effectively and efficiently. Corporate governance includes management cultures as well as it covers the overall principles for good internal control practices (Holm and Birkholm Laursen 2007). ASX (2014) citied that good corporate governance promotes investor confidence. Efficient and effective internal control examines various factors - these include the control environment, risk management, control activities, information and communication, monitoring and adding value which are components of internal control as well (Wilkin and Haun, 2014)

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5. How internal control links to a company’s management Internal control plays an integral role in a company. Lack of adequate internal control make management have less assurance that the company will meet its goals and objectives. It is the method used to help the company meet its operational and financial goals and it provides reasonable assurances that allow company to keep track on operational performance to make sure they are following the plan and prevent risk of not reaching targets (Tyler, Godwin, Alderman, 2016). In addition, Sarens and Christopher (2010) cited that internal control is influenced by corporate governance which has a significant impact on the company’s management.

6. Evaluation, two principles related to internal control The ASX Corporate Governance Council ‘s principles and recommendations have become the standard for achieving good corporate governance and it enables to evaluate the company’s internal control practices.

6.1 Principle one Wilkin and Haun (2014) examined the notion of management through the control environment component. Moreover, Tyler, Godwin, Alderman (2016) defined that control environment is the environment in which responsibilities and activities are performed by the company. Principle one relates to these ideas due to the fact that it determines and unveils the corresponding functions and responsibilities of its board and management and how to examine and analyze their performance (ASX 2014)

6.2 Principle seven Sarens and Christopher (2010) mentioned that the reliability of the company’s financial report depends on the existence of a sound system of risk oversight and management and internal control. Furthermore, principle seven determines an inclusive risk management structure and continually reexamine the value of that structure (ASX 2014). Principle seven links to the internal control’s risk management as they both utilized to identify, assess, monitor, and manage risk, and also inform stakeholders of changes to the company’s risk profile.

7. Analyze how well Caltex’s corporate governance statement communicates information about its corporate governance and internal control practices in relation to principle one and seven Caltex effectively interconnects corporate governance and internal control in relation to principle one and principle seven by fully following the recommendations from Corporate Governance’s Council, Caltex enables to meet its objectives.

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7.1 Principle one The Caltex annual report (2015) represented the information is well-structured and easy to assess within the report. Furthermore, the report provides information of the Board in relation to principle one. This is evident when Caltex assesses independent Directors based on management and freedom from any other relationship that could interfere with the Director’s judgement. A Director and the Board Chairman enables to seek professional advice with prior approval from the Board Chairman or the Audit Committee Chairman. Furthermore, Caltex appoints a new Non-Executive Director based on sets of selection criteria and background checks and decides whether to support a Director standing for election or re-election before each Annual General Meeting. Also, Caltex hires an independent specialist to interview each Director and Senior executives to obtain further information. By giving the huge amount of information in good order, Caltex annual report (2015) helps audience easily to get the information, and it focuses on the issue area.

7.2 Principle seven According to Caltex’s corporate governance statement (2015), a risk management framework has implemented at least annually to recognize and evaluate what could impact Caltex’s objectives and integrate risks regarding to effective delivery of company strategy and control methods. Internal audit function is utilized to provide an independent and objective assessment regarding the adequacy, effectiveness and efficiency of our risk management, control and governance processes. Caltex holds general meetings annually for external auditors to answer all the questions from security related to the audit and assesses economic, environmental and social sustainability risks including the safety of personnel, the manufacture, storage, transportation of liquid fuels, and climate change. The Caltex annual report (2015) is easy to assess and identify the information that they provide by setting them in a well-structured and it focus on the risk management accordance with principle seven from the Corporate Governance’s Council

8. Conclusion Corporate governance is the system which enables the company to control, monitor its performance in relation to internal control practices. Internal control and corporate governance play crucial roles in company’s management. Furthermore, the significance of corporate governance, its principles and recommendations are enhanced over time which leads the company towards success and meet its goals and objectives.

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9. References 

ASX Corporate Governance Council, 2014, Corporate Governance Principles and Recommendations, ASX Corporate Governance Council 3rd Edition, Canberra.



Caltex

Limited

Australia,

Annual

Report

2015,

Caltex

Limited

Australia,

http://www.caltex.com.au/ 

Holm, C & Birkholm Laursen, P.2007,’ Risk and control developments in corporate governance: changing the role of external auditor?’, Oxford & Malden, vol.15, no.2, 2007, pp 322-333.

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O’Shea, N. 2005,’Governance how we’ve got where we are and what’s next’, Accountancy Ireland, vol.37, no.6, pp 33-37.

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Saren, G & Christopher, J.2010,’The association between corporate governance guidelines and risk management and internal control practices’, Managerial Auditing Journal, vol.25, no.4, pp 288-308.

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Tyler, Godman & Alderman. 2016, ACCT Financial Chapter c5 ‘Cash and Internal Controls’, 2nd edition, Asia – Pacific.

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Wilkins, A.M & Haun, A.L. 2014,’Reframing the discussion on internal control’, the CPA Journal, pp 48-51.

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