FNS60217: Advanced Diploma of Accounting - Finance Assessment Answer

 Finance Assessment Task

Case Study 1

OK Construction Pty Ltd is a construction company operating in Australia with operations in several states. It provides a wide range of building and construction services mainly to the Department of Human Services and private sector. OK Construction Pty Ltd has undergone significant growth in the past three financial years with the turnover increasing from $500m to $800m from 30th June 2014 to 30th June 2017. At the end of 30th June 2017 70% of company revenue was generated from the Department of Human Resources and 30% of revenue was generated from the private sector. The Department of Human Resources needs houses constructed as part of its new community welfare program and serves as the biggest customer for OK Construction Pty Ltd.

The board of directors of OK Construction Pty Ltd consists of 8 directors, of which 5 directors are involved in the full-time management of the business. Stuart Warwick is the chairman of the board of directors. Stuart has over ten years’ experience in the building and construction industry. Stuart is also involved in the management of the business and overseeing day to day construction projects. Robert Penn is the chief executive officer of OK Construction Pty Ltd and is also one of the board of directors. Robert is responsible for the ongoing operations of the company including constructing the strategies and significant policies of the company. Robert with his management team undertakes the implementation of the corporate strategies approved by the board of directors.

OK Construction Pty Ltd is looking into establishing its operations in European countries. The business will require a significant amount of funding to expand its operations in the European market. The company is also heavily reliant on overseas markets for the supply of its construction materials. In regard to the shareholders’ composition, a majority of the shareholders are made up of small Self-Managed Superannuation Funds.

During the financial year ending 30th June 2017, OK Construction Pty Ltd invested a significant amount of funds in the latest information management system for their industry. The new system allows the company to track progress of the work undertaken on each site. The system then links to the trade debtors’ management. Invoices are raised based on the completion percentage of work on each site. Stuart enters information in the system regarding the stage of completion for each job. This information is reviewed by Robert, who then raises the invoices. At the end of each month a report is printed from the system showing the amount owed on each job. This report is presented to the board of directors along with the monthly financial reports.

1. What are the key drivers of Corporate Governance in OK Construction Pty Ltd?

Your answer should make reference to the key drivers such as Globalisation, Capital Markets and Shareholders Activism.

2. Comment on the board composition of the OK Construction with reference to the ASX corporate governance principals and recommendation for the board of directors.
3. The board chairman Stuart Warwick has asked you to provide a brief review of the audit committee of OK Construction Pty Ltd.

You are to evaluate the effectiveness of the audit committee in relation to the ASX principles and recommendations on Corporate Governance. Your review should provide a summary of the ASX recommendation outlined in Principle 4, and advise how OK Construction Pty Ltd addresses this.

4. Access the ‘Principles of Corporate Governance ‘document from the Organisation for Economic Cooperation & Development website.

Provide a summary report to Stuart Warwick on how OK Construction Pty Ltd can shape its Corporate Governance Framework to address these principles.

Assess how the risk management committee can enhance the management of Internal Control systems in OK Construction Pty Ltd? Your answer should make reference to the relationship between Internal Control systems and Risk Management.

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