Assessment Of Blackmores Ltd's Financial Statements And ASX Corporate Governance Principles Compliance Essay.

Executive Summary

The report will analyse the compliance of ASX corporate governance principles by Blackmored Ltd and analysis of its financial statements for analysing the risk. The report further focuses on the nature of the company, business strategies followed by the company, regulating authority of the company and the market overview of the company. It is found from the analysis that the company is complying with all the principles of ASX corporate governance principles.

Principle 1 – Oversight and solid foundation for the management

As per the company constitution the business of the company and its affairs shall be managed by the direction of the board. The board of Blackmores Ltd adopted the formal charter that among various other matters established the structure, composition and responsibilities of board of directors of the company. Further, for the matters that require the approval from the board is also included. Before engaging a director, the board undertakes the required checks and offers the shareholders with all the relevant details required to decide about electing the director (Tricker and Tricker 2015). Thereafter the directors receive the formal engagement letter that includes the expectations, conditions and key terms for the engagement. Summary for the chairman’s and CEO’s duties are analysed and agreed by board and it also includes the description of job for each role.  The orientation programme for is arranged for the new directors for ensuring that they are familiar with governance practices and business of the company. Further, Blackmores is the leader in diversity and they are committed in celebrating and championing the diversity richness (Du Plessis, Hargovan and Harris 2018).

Principle 2 – Board structure for adding value

The company has a nomination committee that includes the entire board and committee of the board. The meetings and proceedings of nomination committee are regulated by provision of the constitution. The main objective of the nomination committee is to advise and assist the boar for performing its responsibilities to the shareholders through assuring that the members of the board are best in discharging their duties as director and those are complied with highest governance standards. The board reviews the composition of the board and analyse the nominations for new engagements from time to time for assuring right balance for experience and skills (Klettner, Clarke and Boersma 2014). Further, the board is delivered with the required information for discharging their duties efficiently and it ensures that –

• All the directors have access to company secretary
• Removal and appointment of company secretary is the matter of decision by the entire board.
• Management are responsible for supplying the required information to the board, quality and timeframe that will allow the board to perform the duties efficiently.

ASX Corporate Governance Principles

Principle 3 – Act ethically and responsibly

The company re-launched its code of conduct for employees, senior executives and directors during October 2016. The main objective of the code is to assure that the employees and directors are trustworthy, honest and are committed to highest standards of business, professional and personal behaviour (Beekes, Brown and Zhang 2015). It further assures that the employees and directors act in a way that is consistent with the best practices of the commercial and public business and are committed towards transparent and open communication with regard to all the dealings. Company takes into consideration the issues like safety, health and environmental issues as important for the customers, employees, business success and communities. Further, the code of conduct includes the value based behaviour it expects from the employees in the company within the company. It also established the basic behaviour that are expected from the customers, distributors, suppliers and other who act on behalf of the company (Young and Thyil 2014). These behaviours are called as the ‘the Blackmores way’ and the behaviours are focussed towards ‘doing the right thing’ in all the locations where it works.

Principle 4 – Safeguarding the integrity in respect to financial reporting

The company is committed towards transparent auditing and reporting system of the financial performance of the company. Company’s board has formed an audit and risk committee that reports to the boards. Further the committee must have at least 3 members, all members shall be non-executive director and majority shall be independent. The board shall chaired by the independent director who shall not be the chair of board (Lama and Anderson 2015). External auditors of the company are asked to be present in the AGM and shall be prepared to answer the questions of shareholders regarding audit conduct and content and preparation of auditor’s report. Before getting the approval from the board the financial statement of the board for the particular financial period, the board receives a declaration from the CFO and CEO that as per their opinion, financial statements of the company are maintained properly and are complied with the appropriate standards of accounting and presents true and fair view of financial status of the company and opinion are established based on the sound risk management system and internal control of the company (Appuhami and Bhuyan 2015.).

Principle 5 – Making disclosures in balanced and timely manner

Principle 1 - Oversight and solid foundation for the management

The company has established policies for assuring that the disclosures of all the material aspects regarding the entity are taken place in timely, balanced and honest manner for ensuring that all the investors are able to access the material information equally that includes the position, governance, performance and ownership (Chapple, Clout and Tan 2014). Further, as the company is listed under ASX, it complies with the Listing Rule 3.1 that is the Continuous disclosures. Te executives of the company are informed regarding the requirements and separate board agenda that cover the requirements with regard to the continuous disclosures that are discussed in each meeting of the board. 

Principle 6 – Respecting the shareholder’s right

Blackmores strives to communicate the investors and shareholders regarding the pertinent information in regular, detailed, timely and factual manner. Information to the shareholders are communicated through –

• Annual financial report
• Disclosure to ASX
• Explanatory memoranda and notices of the AGM
• Quarterly and half yearly reports and newsletter of the shareholders that offer the shareholders with the details of profit performance and other interest matters (Chan, Watson and Woodliff 2014).

Principle 7 – Identify and manage risk

Blackmores board has formed the audit and risk committee that reports to the board directly. Further the committee must have at least 3 members, all members shall be non-executive director and majority shall be independent. The board shall chaired by the independent director who shall not be the chair of board (Council and Exchange 2014). The structure and composition of the committee and the attendance of the members at company’s meetings are mentioned in the director’s report that is available in the official website of the company. It is the board’s responsibility to maintain, establish, demonstrate and operate the appropriate framework for the business controls.

Principle 8 – Provide remuneration in fair and responsible manner

The board established the People and Remuneration Committee and the primary objectives of the committee are to consider the policies and strategies of remuneration and provide recommendation to board that is most beneficial to the shareholders and company (Salterio, Conrod and Schmidt 2013). The committee directly reports to the board of the company. Further the committee must have at least members; all members shall be non-executive and independent. The board shall chaired by the independent non-executive director.

Nature of the Company

Blackmores is a leading brand of Australia which is engaged in manufacture of medical supplements and vitamin, mineral and nutrition supplements. The company is one of the leading brands of this sector. The main purpose of the company is to provide best natural health solutions to the people (Blackmores.com.au 2018). The company utilizes its knowledge on medical supplements and mixes such with innovative practices so that it can produce the best medical supplements for its customers. The head office of the company is situated in Sydney, Australia. The company is engaged in sustainable practices and also proper waste management so that the business can respond to the needs of the society.

Principle 2 – Board structure for adding value

Blackmores ltd is a leading brand in medical and health supplements which has a market capitalization of about $ 1.5 billion. The company has employed of around 1000 people across Asia- Pacific and includes BioCeuticals, natural health products for pets. The teams of Blackmores ltd in Asia comprises of marketing and sales personnel and also healthcare personnel (Blackmores.com.au.2018). The company reaches out to 17 markets which is situated across the world. The company has been claimed to be the number 1 brand in health food store brand and number 9 in Australia’s most trusted brand in vitamins and supplements. The company has generated a net profit after tax of $ 58 million as per the financial statements of 2017.

The business of Blackmores ltd is regulated by relevant accounting standards which have been issued by Australian Accounting Standard Board (AASB) and in addition to this; it is also regulated by Australian Stock Exchange (ASX).

The company aims to better the performance of the company by ensuring that the company takes advantage all the opportunities which are there in order to improve the business strategies and competitive advantage. The company wants to focus on the strengths of the company in order to increase the revenues of the company.

Ratio calculation

Common-size statement

Horizontal analysis

Income statement

Balance sheet

The audit risks of Blackmores ltd which the company might face are given below in details:

• The debt equity ratio of the company which is shown at 1.30 which signifies that the amount of debt which is used by the business is more than the equity capital(Heikalet al.2014). This can create a risk over the company for the interest the company needs to pay.
• As per the financial statements there has been a significant fall in the value of inventory from the analysis of 2017 and 2016 results. The fall in the value of inventory suggests that there might be some manipulations or material misstatements in the inventory records which can affect the profitability and affect the financial statements of the company(Sadgrove 2016).
• The employee benefits expenses of the company which is shown in profit and loss account for both the years 2016 and 2017. The amount which is shown in the profit and loss account is of significant value which might be overstated or understated which leads to a risk of material misstatements which can affect the net profit of the company directly(Masoom 2013).

In order to overcome the audit risks which are mentioned above the auditor needs to apply the following measures:

• The company needs to reduce the debt of the business and keep it at a balance with the equity capital of the business. The company needs to attain an appropriate capital structure mix for such a purpose(Graham, Leary and Roberts 2015). The auditor need to ensure that the debt amount which is stated in the financial statements are accurately stated and no misstatements are present.
• The auditor needs to verify the stocks of the business by reviewing the stock ledgers accounts maintained by the company. If there is a need for further evidence, he can physically verify the stock to avoid risks.
• The employee benefit expenses which is shown by the business needs to be checked by the auditor to ensure that such expenses are actually incurred by the company. The auditor needs to check various records and also identify what are the benefits which the business provides to the employees.

Reference

Appuhami, R. and Bhuyan, M., 2015. Examining the influence of corporate governance on intellectual capital efficiency: Evidence from top service firms in Australia. Managerial Auditing Journal, 30(4/5), pp.347-372.

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.

Blackmores.com.au., 2018. BLACKMORES Vitamins & Supplements - Australia's #1. [online] Available at: https://www.blackmores.com.au [Accessed 26 Apr. 2018].

Chan, M.C., Watson, J. and Woodliff, D., 2014. Corporate governance quality and CSR disclosures. Journal of Business Ethics, 125(1), pp.59-73.

Chapple, L., Clout, V.J. and Tan, D., 2014. Corporate governance and securities class actions. Australian Journal of Management, 39(4), pp.525-547.

Council, A.C.G. and Exchange, A.S., 2014. Corporate governance principles and recommendations . ASX Corporate Governance Council.

Du Plessis, J.J., Hargovan, A. and Harris, J., 2018. Principles of contemporary corporate governance. Cambridge University Press.

Graham, J.R., Leary, M.T. and Roberts, M.R., 2015. A century of capital structure: The leveraging of corporate America. Journal of Financial Economics, 118(3), pp.658-683.

Heikal, M., Khaddafi, M. and Ummah, A., 2014. Influence analysis of return on assets (ROA), return on equity (ROE), net profit margin (NPM), debt to equity ratio (DER), and current ratio (CR), against corporate profit growth in automotive in Indonesia Stock Exchange. International Journal of Academic Research in Business and Social Sciences, 4(12), p.101.

Klettner, A., Clarke, T. and Boersma, M., 2014. The governance of corporate sustainability: Empirical insights into the development, leadership and implementation of responsible business strategy. Journal of Business Ethics, 122(1), pp.145-165.

Lama, T. and Anderson, W.W., 2015. Company characteristics and compliance with ASX corporate governance principles. Pacific Accounting Review, 27(3), pp.373-392.

Masoom, K., 2013. The Entrepreneur's Dictionary of Business and Financial Terms. PartridgeIndia.

Sadgrove, K., 2016. The complete guide to business risk management. Routledge.

Salterio, S.E., Conrod, J.E. and Schmidt, R.N., 2013. Canadian evidence of adherence to “comply or explain” corporate governance codes: An international comparison. Accounting Perspectives, 12(1), pp.23-51.

Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices. Oxford University Press, USA.

Young, S. and Thyil, V., 2014. Corporate social responsibility and corporate governance: Role of context in international settings. Journal of Business Ethics, 122(1), pp.1-24.