Chapter 4 Flashcards
what is the process by which company objectives are established, achieved and monitored?
Corporate governance
what are the most important elements of good corporate governance?
Transparency and accountability
what ways does the corporate framework in the UK operate?
- Legislation (Companies act 2006)
- Regulation (London stock exchange)
- UK corporate governance code
what was the first full corporate governance code?
Cadbury report (1992)
what did the Cadbury report do?
formed the Cadbury committee which is the LSE & FRC along with accountancy profession.
2018 UK corporate governance code contains what 5 things?
Leadership effectiveness accountability remuneration relations with shareholders
2018 uk corporate governance code
Leadership main points?
- led by effective and entrepreneurial board
- board will establish company purpose, values and strategy
- sure necessary resources are in place
- engagement with shareholders
- workforce polices and practices are consistence with values
2018 uk corporate governance code
division of responsibilities main points?
- chair of the board is responsible for overall effectiveness
- ensure directors get accurate, timely and clear information
- board should have executive and non executive directors
2018 uk corporate governance code
composition, succession and evaluation main points?
- appointments to the board should be subject to formal, rigorous and transparent procedure
- board have combination of skills and experience
- annual evaluation
2018 uk corporate governance code
audit, risk and internal control main points?
- board should establish formal and transparent polices to insure independence and effectiveness of audit
- board should establish procedures to manage risk and oversee control framework
2018 uk corporate governance code
remuneration main points?
- designed to support strategy and promote longterm success
- directors should exercise independent judgement
in risk would should companies do?
- identify any material uncertainties in their ability to trade
- access their principle risks and explain how they are managed
- state whether they are able to continue in operation
- monitor their risk management polices
what is not part of the legal requirements but is part of the stock exchange listing rules?
compliance with the corporate governance code
what is the Turnbull guidance?
it set out the best practice on internal control for uk listed companies
what code is used when you are a mutual insurance company?
AFM annotated corporate governance code for mutual insurers
what are the main roles of the audit committee?
- monitoring integrity of companies financial statements
- reviewing companies internal financial controls
- monitoring and reviewing effectiveness of audit functions
- making recommendations to the board
- developing and implementing policy engagement
- report to the board
what approach is taken in the use?
Sarbanes-Oxley act 2002
what are uk listing rules?
produce half yearly financial reports and annual reports
what does the companies act 2006 include?
company formation
statutory reporting
company meetings
responsibilities of company directors and offices
what house keeps the public records of companies?
companies house
what accounts do you need to send to companies house?
- confirmation statement
- reports and accounts
- directors report
- directors remuneration report
- chairman’s statement
- submission of annual accounts
what is a company secretary?
guides the chairman and board on their responsibilities ensures good information flows maintains stakeholder management monitors changes administration
what is known as the first line of defence in risk management
front line managers to ensure that risks are identified and controlled
How does a corporate governance framework operate through legislation
Companies act 2006
How does Corporate governance framework work through regulation
Listed companies with a London stock exchange
How does corporate governance framework operate a general principles
Uk corporate governance code which is the responsibility of the financial reporting council
What happens of a corporate governance framework companies are not listed on the London stock exchange
They can adopt equivalent approaches to corporate governance to those that are listed as a UK corporate governance code is considered to represent best practice standards
A- What is corporate governance
How we governourselves
A- What rules are implemented for corporate governance
Internal rules to implement protocols be put in place such as audits to ensure governing themselves
What must UK companies do To quote on stock exchange
Must follow UK corporate governance however this is a code not a law
What are the main sections of a 2016 code concerned with
Leadership, effectiveness, accountability, remuneration and relations with shareholders
A- How is board leadership and company purpose explained in the UK corporate governance code
Must be headed by ineffective board must be fronted by the CEO and chairperson/executive and non-executive
How should the board leadership and company purpose be for UK Corporate governance code
-led by effective board to promote the long-term sustainability success of a company
- should establish a companies purpose values and strategy
-Should ensure that the necessary resources are in place for the company to meet its objectives and measure performance against them
-should ensure effective management and encourage participation from shareholders and stakeholders
-Ensure that workforce policies and practices are consistent with the companies values
How is division of responsibilities handled under the UK corporate governance code
1- The chair leaderboard and responsible for its overall effectiveness in directing a company. They should demonstrate objective judgement throughout the Tanya a promote a culture of openness and debate
2- The board should include an appropriate combination of executive and non-executive
3- not executive director should have sufficient time to make their board responsibilities
4- The board supported by the company secretary should ensure that it has its policies process information correct
How does composition succession and evaluation work under the UK corporate governance code
Appointments the board should be subject to a formal and transparent procedure
They should have a balance of skills
There should be an annual evaluation of the board
How does audit risk an internal control work on the UK corporate governance code
The board should establish formal and transparent policies and procedures to ensure independence and effectiveness of internal and external audits
Should percent of their balance understandable assessment of the company’s position
The board should establish procedures to manage risk and oversee the internal control framework
How does remuneration work under the UK corporate governance code
Should be designed to support strategy and promote long-term stable success
A formal and transparent procedure for development policy and executive remuneration should be established
No director should be involved in deciding around remuneration outcome
Directorships should exercise independent judgement and discretion when authorising remuneration outcomes
What’s four things should companies do for going concern risk management and internal control on the UK corporate governance
- Identify any material uncertainties in our ability to trade as it going outside
- Assess the principal risks and explain how they are being managed
- State whether they’re able to continue in operation and meet their liabilities
- Monitor the risk management and internal control systems at least annually
Is compliance with a corporate governance code a legal requirement
No but it is part of a stock exchange listing rules. Companies are required to state in the annual report that they are compliant with a code or not fully compliant to explain why and the reasons why
What is a Turnbull guidance
Set out best practice on internal control for UK listed companies and assisted them in applying the section of the UK Governance code that deals with internal control
Who has published version of the UK corporate governance code for mutual insurance companies
The association of financial mutuals
What does the AFM annotated corporate governance code for mutual insurance include
Gordon’s on matters such as a role of shareholders any appointments are directors
What are the four key areas addressed by the FRC Guidance on audit committees
- Every board should consider in detail what audit committee arrangements are best suited
- The audit Committee must act independently from the executive to ensure the interest of shareholders are properly protected
- The guidance contains recommendations about the conduct of the audit committed relationship with the board with the executive management and with internal and external auditors
- The management application to ensure the audit committee is kept properly informed
What are the main role and responsibilities of the audit committee under the FRC guidance on audit committees
They should monitor the integrity of the companies financial statements review the companies internal controls
Monitor and review the effectiveness of the company‘s internal audit function
What topics does the guidance of the board effectiveness were published in the FRC 
Board leadership and companies purchase Division of responsibilities Composition succession and evaluation Audit risk and internal control Remuneration
What act should companies in the US who want to list on a stock exchange adhere to
 Sarbanes- oxley act 2002
What are the UK listing rules
For publicly listed companies the rules dictate such matters as a contents of prospectus for a company seeking listing for the first time and ongoing obligations such as a disclosure of price sensitive information and communications
What does the listing rules require Quoted companies to do
To produce half yearly financial report as well as annual report
X What are the three statutory functions of companies house
- Incorporate anddissolve limited companies
- Examine and store company information delivered under the company is act
- Make this information available to the public
How do limited companies become a registered company are companies house
Subscribe to the memorandum of association and comply with a registration requirement of the act
What happens if a company is the issue shares to the public
It must register as a public company and comply with certain additional roles such as having allocated share capital of at least £50,000
To register for companies house what registration documents need to be set out
The company‘s name
Whether the company is a private or public company
What is the liability of the members of a company is to be limited
The situation of a company is registered office i.e. whether it is in England or Scotland
The address of the registered office
The statement of the proposed offices
The propsed articles of association
If limited by shares the document but also include a statement of capital and initial shareholdings
A- What two documents definitely need to be completed for a limited company to be registered at companies house
- Memorandum of association
2. Articles of association which will often include a quorum
What statutory reporting requirements are legally required to submit to companies house
Confirmation statement (annual return) includes address, business activity etc
Reports and accounts- must explain companys transactions and BE TRUE AND FAIR
Directors report- business review
Directors remuneration report
Chairmans statement
Submission of annual accounts
What do companies listed on yhe london stock exchange have to follow for consolidated accounts
international financial reporting standards
For most companies what will annual accounts include and what can they be known as
- An income statment
- A balance sheet
- A directors report signed
Annual report and finanical statements
If a company is quoted what should the business review include 
- trends likely to affect future development
- environmental matters
- company employees
- social and community issues
What must a directors of a quoted company prepare
 Directors remuneration report which must be approved by the board of directors
As per the companies act 2006 do public companies have to have a company secretary
Yes although a private company doesn’t
What does the role of a company secretary include
Guiding the chairman and board on the responsibilities
Supporting the chairman and ensuring the board functions efficiently and effectively
Ensuring good information flows within the board and its committees
Maintaining good shareholder relations are keeping the board informed on shareholder reviews
Developing overseen systems
Monitoring changes in relevant legislation
Overseeing a day-to-day admin of a company
Have a responsibility to facilities HR insurance investment relations
What does fhe FRC guidance on risk management, internel control and related finanial and business reorting state
That the board of a company has ultimate responsibility for risk management and internal control
Does the FRC guidance set out in detail the procedure for which a company decides an implement its risk management and internal control systems
No
What is the first line of defence
Front line managers to ensure that risks are identified and controlled in keeping with a strategy and control environment
Who formed the second line of defence with the risk strategy
The risk management department
What is the third line of defence for risk strategy
When audit teams audit both the front line operational management and risk management department
What are the four categories of the scope of risk of insurance
Strategic, insurance and Reserve in, investment/market and credit
What is the approach to risk tolerance
 To take the risk categories such as insurance and detailed risk select a level of lost the firm with alright it’s a risk event occurred
What is the most commonly used risk management framework
UK risk management standard
Good corporate governance requires that an organisation has an audit committee made up of what
Non-executive directors
What are the companies act 2006, do companies have to have an external audit undertaken by the approved Entity and report shareholders
Yes
What two out of Free things are required to have a full statutory ordered by registered auditor
A turnover exceeding 10.2 million
Net assets exceeding 5.1 million
More than 50 employees
What companies are always subject to a statutory audit in order to To ensure transparency and efficiency
Banks, investment firms, insurance companies and public companies
Does an external auditor need to be selected by the board
Yes
What things in your auditors opinion does have to be on the annual accounts
Looks at money in and money out and the state of affairs at the end of financial year and whether it has been prepared in accordance with the relevant framework
What things can internal audit assister directors with the implementation of good corporate governance
Maintaining a sound system of internal control
Reviewing board reports
Ensuring the directors are up-to-date with the new accounting and auditing issues
Communicating with external auditors
Insuring aboard receive the correct communications
A- Who is the head of the audit committee
Non-executive directors
A- What is an external auditor
if you’re turnover exceed 10 million usually external accounting firm have to review and state if true and fIr
A- what does an external auditor do
Look at the money in the money out and has been selected by the board
A- What things do internal auditors look at
Money in the money out, whether underwriting authorities met, whether things are completed
a- Who do internal auditors report to
Reports to executive director and head of audit committee
