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Financial Report: Individual Assessment- Corporate Governance Principles

November 13, 2018
Author : Alex

Solution Code: 1DJB

Question: Financial Report Assessment

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Financial Report Assessment

Case Scenario/ Task

This assignment requires a consideration of accounting theory concepts with critical analysis with application to General Purpose Financial Reporting by corporations. Students are required to prepare a comprehensive report directed to an Australian ASX Top 100 listed corporation detailing a critical analysis of the effectiveness of the corporation to meet the obligations of the conceptual framework of accounting. The summary report should include data extracted from the General Purpose Financial Report relevant to the material analysed.

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Solution:

Introduction

Aditya Birla Mineralsis an Australian mining company that focuses on copper

production and exploration. It has a strong position in the copper mining market. Major issues on the agenda for consideration have surrounded the future of accounting standards. A major issue is that most of the accounting standards such as ASX and CGC make most companies to meet the complex reporting standards requirement in their Governance and financial reporting.

Therefore, Birla Minerals board of directors is liable for the corporate governance of the company. They control the company’s activities on the behalf of the shareholders whom they are accountable. Therefore, they must ensure the corporate governance statement adheres to the ASX and CGC and must unveil the magnitude to which the company has complied with the guidelines. Based on the company’s annual reports, the company’s corporate governance was met and was compliant in the fiscal year.

Timely and balanced disclosure The company is dedicated to maintain investor assurance and ensure that shareholders have relevant information. The company ensures there is timely and reasonable disclosure of all information about the company. It should maintain constant disclosure to comply with the corporation act and ASX listing rules, so the board as implemented a continuous disclosure and shareholder communication policy. It allocates responsibilities to the board and management in order to identify material information and co-coordination disclosure when needed by the ASX.

It entails the process that the company has implemented to communicate successfully with its shareholders and relevant information is posted on its website. Failure to adhere can lead to civil and lawsuits against the company and any individual involved in the contravention.

In order to avoid false market, the company has given ASX information regarding its shares and other securities. This information is relevant to avoid and prevent the false market and trading halt. The company is expected to notify ASX in case of any information that is expected to cause material consequence on the price or the value of the shares and securities. For instance, the trading securities were comprised in the company’s consolidated balance sheet. In additional, diluted securities included held to maturity securities that include bank and corporation debt of the company. Diluted securities allowed the company to obtain common stock upon usage of an alternative. Ethical and responsible decision making Birla Minerals has established a framework for managing its affairs such as internal controls, risk management procedure and successful ethical standards. This has helped in ensuring confident in the company’s integrity such as improving equality, trust and honesty in members and directors behavior (Calder, 2008, pp. 56). This has made the company to prevent conflicts of interest and inappropriate use of resources. Therefore, code of conduct has been employed for company’s members and directors of the company. It entails the company’s standards and values and set the behavior expected from all members. The board of directors believes that the code of conduct is a significant strategy of ensuring the success of the business and maintains effective relationship with its partners. The code of conduct gives guidelines for employees and directors on how its people should behave to achieve sustained success. It affirms each employee across all level of management is committed to the corporate principles that direct in the conduct of its business and people relationship. The company believes that people offer the cutting edge. They assist in delivering value for shareholders, customers and the communities at the large. Birla Minerals respects individual rights and dignity of a people. It believes in the capability of employees and entirely committed to people development process in a fair equitable and transparent manner.

The company is committed to its customers by achieving their needs. It is committed to improve the quality, usefulness and value of its products and services that improves customer’s performance. According to the code of conduct the company is expected to respect the government, aw and other institutions where it operate by remaining apolitical when involved in any democratic process. The company has environmental responsibility by manufacturing products that have insignificant impact on the environment. It maximizes the methods of protecting the environment via state of the art technology and persona committed to reducing the waste materials. Therefore, the members are held accountable for any breach of the code of conduct that put the business operations at risks. Structure the board to add value Birla Minerals board is accountable for establishing the strategic control and successful governance over the company’s dealings in order to maximize the shareholders value. The board is supposed to monitor the adherence to regulatory requirements, external commitments and ethical standards of the company. It has established a charter that highlights detailed duties of the board. The corporate governance policies delegate roles between the executive and management to help those influenced by decision to comprehend accountabilities and contribution to management of the company. Based on the company’s constitution, the board delegate responsibility for the daily management to the CEO and entire management is supposed to report to the board on the company’s performance (Fernando, 2009).

Currently, Birla Minerals board has seven members where four of them are independent and non executive directors. It continues to examine the skill set on its constituents and do further appointment in case of need. The details on background, expertise and skills of each director are outlined in the annual financial report. The independence based on the ASX ensures that non-executive director to have freedom from any business affairs that could materially obstruct the capability of director to behave in the best interest of the company. The non-executive directors are not supposed to hold office for a subsequent period of more than three years without applying for re-election. Directors are appointed by shareholders in the authorized meeting. The company’s directors can present themselves for re-appointed. Therefore, company’s constitution needs a simple majority of the board because the chairman is not supposed to cast vote. However, in case where board needed

enable the chairman to cast a vote, the process is supposed to be approved by a majority of shareholders and directors.

Management and Oversight Based on the annual report, Birla Minerals’ board should assess the performance of the board, the individual directors and efficiency of the board. The duties for the entire management of the company, its governance and internal operations are left on the hands of the CEO and management generally. The board has adopted the evaluation procedure based on the board, and executives, which occurs during the year. The questionnaire is used for evaluation and each board member is supposed to compete it and the summarized results are discussed with the chairman of the board at the board meeting. This procedure is utilized to audit, and assesses the activities of the remuneration and nomination committee. To maintain company effectiveness, the shareholders via the remuneration and nomination committee has direct duties to evaluate the performance of the CEO. The CEO, Neela Patnai was elected to the position in 2015 and a formal evaluation of him will be used in subsequent year in office. The process will entail the evaluation of the CEO against the company’s financial performance at the start of the year. Safeguard integrity in financial reporting The board has responsibility for the company’s financial reports. Therefore, the company has established system used to maintain efficient operations such as financial reporting and conformity to the ASX rules and regulation in order to manage the exposures to attain business objectives. Athough the internal control systems can generate practical guarantee against exposure to material loss, they do not have absolute guarantee. Therefore, it is the responsibility of the company to assess the success of the control systems and exposure management on steady auditing process. In order to monitor risk there is a need to have constant auditing process authorized by compliance and risk committee. The board frequently gets information on financial health of the company, and the fiscal accounts are released to the public by the director and CEO. They guarantee the accuracy of the accounts and that they reflect the fair value of the company. The financial situation of Birla and operational risk has been prepared based on the applicable accounting standards (Aditya birla, 2015). The representations are in accordance with management risk, compliance and control in the regards to financial reporting that adopts the policies implemented by the board. For instance, the system uses the indirect accounting methods because the various figures used are based on accounting and changes in the balance sheet. According to Porter and Norton (2010), the direct financial report presentation method construct a statement of risks during a given reporting period and uses actual report data from the company’s activities. However, indirect reports presentation forms a statement of risks that a company may use during any given reporting period, and uses accounting data in its presentation. The report agrees to the other financial statement because like other financial statement it is drawn annually and shows the financial performance of the company.

Recognize and manage risk Similarly, financial reports have reported the success of the company’s management of its material business risks. Therefore, Aditya Birla helps the board and the compliance, auditing committee by offering detailed internal auditing services when required by the company. For instance, the company is capable of managing its liquidity risk by reserve borrowing secured loans. The company has employed capital management plan that aims at monitoring the return on invested capital and the gearing ratio. Thus, the company had secured bank loans, which were classified as borrowings. The company wanted to have optimum capital structure, which will decrease the cost of secured loans and ensure the company has access to sufficient capital to maintain the future growth of the business. However, in order to sustain capital structure, the company seeks to adjust the level of secured loan banks by reducing the amount of obligations.

The important of the auditing and risk committee is to offer help to the board to assess the company’s financial reports, internal and risk management structure. It ensures the company complies with the legal and regulatory requirements of the ASX. It has responsibility on the assessment of the financial reports and internal systems, which locate the scope of external auditing. Therefore, it should comprise of three non-executive directors that have different backgrounds and with two independent directors (Fernando, 2009).

Remuneration fairy and responsibly The important of the remuneration process is to release the board’s roles in the regards to the nomination and selection and compensation of the directors and executives. The remuneration ensures the accomplishment and maintenance of a formal and transparent process for the selection and employment of the board and executives. It ensures there is transparent and consistent policies, which will allow the company to draw, retain and motive directors and executive who will achieve value for the shareholders and reward executive fairy. The committee

too comprises of three non-executive directors and two independent non executive directors who evaluate the entire process

Conclusion

The assessment of the accounting standards and policies of the Birla MineralsCompany assists the investors to ascertain the financial performance of the company in various fields. It demonstrates various types of financial reports presentation that shows the actual and accrual accounting ideas used by the company on the annual reports. The analysis demonstrates different corporate governance principles used by the Company to motivate and control the business operations into achieving the goals of the company. Finally, the corporate Governance principle analysis shows the evaluation of performance of different periods that gives the management to

measure the progress of the company.

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