SYLLABUS AREA A - Chap 3

Question 1

What % of board members shud be NEDs?

Answer 1

At least half the board should comprise of NEDs

will carry weight and power to exercise influence over board of directors.

Question 2

Can a chairman and CEO be the same person? Give reason. And what are their roles?

Answer 2

there should be a separate person as a chairman and CEO
Reason:
-to shift burden / or to segregate responsibility
-is a better control against one person having too much power or role because it can lead to fraudulent activities.
-CM is head of the board of director and is responsible from running the board
-CEO is the head of the middle management and is responsible for running the company

Question 3

What sort of remuneration shud a director have? Give reason

Answer 3

Directors remuneration should include performance related bonus

Director remuneration consist of fixed pay (basic salary), perks and bonuses.
If a director gets a performance related bonus versus an annual bonus which is not liked to performance
which of them is better from a shareholder perspective and why?

-Performance =better results / better profit / better sales/ better / growth of the business

-Link the bonus to the performance - so if the director is to be eligible for bonus he/ she should
demonstrate a better performance of the company
•Performance is to be judged each year before bonus is disbursed so to get bonus at the end of the
year the directors need to show a good performance.
•Bonus linked with performance is like an incentive and to materialize the incentive director need
to work in the best interest of shareholder

Question 4

What shud be the ratio of NEDs in audit committee?

Answer 4

Audit committee should only comprise of NEDs

Question 5

What are the different committees in a company?

Answer 5

There are 4 committees in corporate governance namely:
i. Audit committee (AA)- Only have NEDs ( the AC is a very a important committee and being the
custodian of the audit process whether its internal or external should exercise greater degree
of independence to ensure that the check and balance is working well)
ii. Remuneration committee - only have NEDs
iii. Risk committee - has a combination of both executive and non-executives
iv. Nomination committee - has a combination of both executive and non-executives

Question 6

How is the directors retirement process supposed to be carried out?

Answer 6

There should be a retirement by rotation of directors once every three years.

Once every three years the directors will voluntarily present themselves to shareholder at the AGM for retirement.
The shareholders will review and consider their performance over the three years, and if the
performance is good they will reappoint a director for another term of three year or if the performance of a director is not good, he/she will be removed after 3 years.
Once every three year = performance appraisal to determine which director should be retained and which should be removed.

Question 7

What recommendations shud audit committee give to SH?

Answer 7

Audit committee should recommend

-Appointment - which audit firm you should appoint?- first time
-Re-appointment - each year at the end of the audit - reconsider the re-appointment
-Removal- to remove the auditor at the end of the audit
-Remuneration - deciding the audit fees

Question 8

What do corporate governance principles say about having an internal audit function ?

Answer 8

-Listed companies should have an IA dept. It’s best practice
-or assess the need to have one annually
-If a listed company does not have an internal audit dept., the audit committee will review annually the need to have an internal audit department, and if it is concluded there is a need the listed company will create the department.

Question 9

What do corporate governance principles say about remuneration committees?

Answer 9

-Remuneration committee should decide the remuneration of executive directors.

-The remuneration structure, amount, performance bonus and the criteria of performance bonus will be decided by the remuneration committee.
-this is to make sure the remuneration process is unbiased
-There should not be any executive director in remuneration committee

Question 10

What factors should be considered by the audit committee to assess the need of the internal audit
department?

Answer 10

-Size and complexity of the business
-Number of employees
-If there are growing instances of errors and fraud
-Changes in laws and regulations
-Cost versus benefit analysis - cost is measure but the benefits are non-measureable ( benefits is
the perception of the directors)

Question 11

If the partner leaves firm and joins client as ED or NED, what to do?

Answer 11

Audit firm will resign immediately. Can work again after cooling off period of 2 yrs