Corporate Governance Flashcards
Explain how an audit committee could be beneficial to the external audit
s94(7) Companies Act
Integrity of key management and TCWG
- If they vote on their own remuneration s75
- The engagement letter has not been signed. Question integrity and intention
- They could place pressure to obtain an unqualified audit opinion
- Explain, don’t just list aspects
Corporate governance general points
🔷Include King IV
> Recommends board acts in good faith and in the best interests of the company
>Consider FARTIC
>Consider all principles that could be applicable
>Consider NOCLAR
🔷Include Companies Act
> It also seems as if the board does not adequately monitor and ensure compliance with applicable laws and regulations based on the following: (remember that Companies Act is legislation)
- The board lacks corporate governance understanding and compliance given various instances of not complying with King IV
- s76 and s77, s22 (give brief explanation linking to scenario)
- state result of not meeting s76/77 eg lawsuits, reputational damage, penalties and fines , delisted - Non compliance with companies act sections would constitute a RI
- if something is not mentioned, just state that this does not appear to be the case (no indication)
- Limiting scope of external audit contravenes s93 of Companies Act - Check for overall applicable principles of KING IV
- Non-compliance will jeopardise the application of 16 principles in King IV
- A company whose PIS is more than 500 should have social and ethics committee
🔷Business Ethics
🔷SAICA CPC
- Adequacy of AFS
- Absence of Audit committee
- Net liability
- Sale of property
- Loan to director
- Proposed dividend
- Misstatement of provision
- s29; IAS 1.10, s30
- s88 company secretary
- s94
- ISA 200
- s90, ISA 570
- s22,s77; ISA570
- s75; affect audit opinion
- s45
- s46
- s29
Matters directors need to consider before accepting engagement to enhance credibility
- Enhancing credibility is an assurance engagement ISAE 3000
- Consider independence
- Sufficient resources
- Roles and responsibility
- Appropriate subject matter
- Criteria used is suitable and available to intended users
KING IV and Companies ACT
Contraventions: X is a listed company and should comply with Companies Act and King IV practices
KING IV
- include s76,s77
- Wants majority majority INED to protect SH/H interests
- Integrated report complied annually
- composition of the Committee
- concerning that the Committee is unclear as to what its role should be.
- effective performance evaluations of the board committees are taking place – otherwise, the board of directors would surely have taken some remedial action – e.g. by reconstituting this Committee and advising members of the Committee’s terms of reference.
- members are clearly unfamiliar with the duties (WHY)
- concerns arise from the conduct of the CEO:
- Board lacks integrity and is not setting an ethical tone required in terms of King IV since they will be hiring 33 illegal workers, thus in breach of South African law.
- the company is not acting in the best interests of all stakeholders as this will cause significant reputational damage, potential lawsuits.
CO. Act
- Appointment with directors consent s66(4)
-Directors cannot appoint directors s70
> If they are, disqualified s66 (7)
- Payment of salary in advance is a loan s45
-AFS approved by board
- Voting on own remuneration s75
- Share approval s40,41
- Granting loan s45
-Selling entire shareholding or financial interest s75 ( consider related parties)
- Declarations made s73 minutes in meeting
- Issuing rights s41, SH/H approve price
* New class of shares have to be authorized
- Auditor doing other tasks s90
- Removal of previous auditor s61, s90
- Shares issued for a consideration in the form of future services s40(5)(7)
* If requirements not met, not legally binding
- Financial assistance to acquire shares s44, s38
- Dividends s4, s46
- Issue shares s38, share capital not authorized?
- Director removal s71
- Solvency and liquidity definitions
- s36 only issue shares if you have sufficient authorized share capital available
- s36 can authorize increase (BoD) unless MOI states otherwise
-s39 offer shares to current SH/H first
- s40 shares for future services, share issue price is below average issue price
- s46 distribution, repayment is a distribution
- s50 security register updated after share issue
- s57 apportionment of directors
If PIS > 500 should have a social and ethics committee
Loan to financial director
Regulatory implications
- s45, s75, s76
- IAS 24 related parties
- RI s45 APA
Impact on audit report
- FS qualitatively misstated
-Auditors will quality audit opinion
- Audit report modified to be included in par “other legal and regulatory responsibilities”
Impact on the rest of the audit
- Reassess mngt integrity and representation by them
- Auditors assessment of the RoMM at FS level will increase
- Apply more professional scepticism during audit
