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Auditing 101 > Week 3 - Auditing And The Corporate Governance > Flashcards

Week 3 - Auditing And The Corporate Governance Flashcards

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1
Q

Corporate governance

A

Making sure the companh is run properly in the interest of shareholders& other stakeholders
- NOT managing managers properly = management

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2
Q

Unitary board

A

A board of directors that make strategic decisions of a company - making decisions about long-term strategic direction if the business
Like US AND UK
NEDS and executive are members

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3
Q

NEDs

A

Non-executive directors
Not employees of company
Roles = independent oversight and serving on audit committees

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4
Q

Insider systems

A

Insiders are seniour managers who also sit on their firms board

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5
Q

Outsider systems

A

Have no connection with the company eg shareholder

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6
Q

Why are guidelines needed - to monitor

A

Directors are maximising shareholder returns
Business is at a reasonable level
One/more directors are not dominating the company
Auditors are independent of management

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7
Q

The cadury report - main recommendations

A

There be a clear division of repsonsibilities at the top e.g. chairman, CEO
The majority of the board be comprised of outsider directors
Audit committee must have 3 NEDs = the majority

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8
Q

Further UK initiatives - the greenbury report

A

1995

Directors remuneration - changed to salaries for directors

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9
Q

Further UK initiatives - hampel report

A

1998

Reviewed, combined and clarifies cadbury and greenbury report recommendations

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10
Q

Further UK initiatives - the turnbull report

A

1999

On directors obligation esp. reinternal control, audits and the quality of financial reporting

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11
Q

Further UK initiatives - myners report

A

2001

On institutial investors

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12
Q

Further UK initiatives - higgs report

A

2003

On role and effectiveness of NEDs

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13
Q

Further UK initiatives - the smith report

A

2003

On the independence of auditors

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14
Q

ENRON

A 
Fraudulent accounting 
Aggressive creative accounting 
Audit firm not independence
Unethical/agressive business culture 
Chair & CEO found guilty of fraud & conspiracy
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15
Q

Carillion

A

Carillion explioted its supply chain finance scheme in which it used nearly £500 million. Used aggressive accounting strategies efficiently to window dressing financail statements fo flatter the cash-flow conversion ratio, heighten net cash, decrease debt, increase cash generated from operations

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16
Q

Carillion failures

A

The board failed go manage risk
Questionable accounting assumptions
NEDs appear not to have provided effective observation
Auditor KPMG independence and competition in the audit market
The internal audit was ineffective
Directors failed go act to prevent failure

17
Q

Corporate governance in the UK

A

Is a traditionally owned by external shareholders, but controlled by managers which gives rise fo info asymmetry and agency problems

18
Q

5 sections present principles

A 
Board leadership and company purpose 
Division of respsonbsilities 
Composition, succession and evaluation 
Audit, risk, internal control 
Remuneration
19
Q

NEDs

A
20
Q

The audit committee should - FRC guidance

A 
Review: 
external audit planning 
audit findings 
management representation letters and judge if accurate 
audit process st end of cycle
21
Q

Corporate governance

A

The system by which companies are directed and controlled

22
Q

Executive remuneration

A

Pay packages specifically designed for business leaders/ senior management

23
Q

The annual report

A 
Financial statements - audited 
Remuneration report - partly 
Financial highlights - NOT 
Audit committee,enviro, social ans governance reports - NOT 
Chairmans report,strategice report - NOT
24
Q

What is internal audit

A

To provide independent assurance thst an organisationa risk management, governance and internal control processes are operating effectively

25
Q

Countries with large and developed capital markets traditionally have

A

Shareholder oriented governance systems

26
Q

How many independent NEDs should a listed company have?

A

At least half of thr board - excl the chair

27
Q

With regard to the provisions of the current corporate governance code, the london stock exchbage requires listed companies to

A

Comply or explain

28
Q

“Tone at the top” refers too

A

The need for ethicsl leadership

Whistleblowing and the protection of whistleblowers

Auditing 101 (8 decks)

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