week three

Question 1

what are the advantages of good corporate governance?

Answer 1

transparency
accountability.
efficient operations
better control of risks
less likely to be mismanaged

Question 2

what is the uk corporate governance code?

Answer 2

board leadership and company purpose

division of responsibilities

composition, succession and evaluation

renumeration

audit, risks and internal controls

Question 3

what are the principles of the board?

Answer 3

the board should ensure effective controls are put in order to measure risks

the board should use its resources.

the board should involve the opinion of shareholders

the workforce should be able to raise matters

Question 4

explain the relationships between board leadership and company purpose:

Answer 4

board should monitor culture

board should describe in the annual report how risks and opportunities have been considered and addressed

the directors should have no concerns about the board

NED resignation should be provided in a written statement to the chairman if there are any concerns raised

Question 5

explain the division of responsibility principles:

Answer 5

the chairman heads the board

the chairman has to make sure every member of the board has an effective contribution

the board must be diverse.

the NED’s must be given time to perform action

the board must ensure it has effective information, time, resources , policies and process to function effectively.

Question 6

explain the structure of the division of responsibilities:

Answer 6

the chair should be independent

the chair and ceo can not be the same people

at least half the board including the chair should be made up of NED’s

the board should identify at least one independent NED’s who is also. senior independent director

annually, the NED;s and senior independent director should meet and discuss the performance of the chair

NED’s appoint and scrutinise the work of the executive directors

Question 7

evaluate the composition, succession and evaluation of the board:

Answer 7

there should be a nomination committee for the appointments of directors

the chair should not be part of this committee

all directors should be subject to an annual re-election

the chair can not be in post for more than 9 years

should be a formal and rigorous annual examination on the performance of the board

Question 8

what are the policies of remuneration?

Answer 8

remuneration should be consistent with the companies purpose

remuneration should be designed to promote long term objectives

directors can not decide their own pay

remunerations policies should be formal and transparent.

Question 9

what are some of the actions of remuneration?

Answer 9

NED remuneration should not include performance related pay

share awards should be released on a phased basis and be subject to a vesting and holding period of at least 5 years

directors pay should be transparent and easy to understand

notice period should not be less than one year and only the basic workforce should be entitled to pension.

Question 10

explain the principles of audit risk and controls.

Answer 10

the board should ensure internal and external audits are independent and effective

the board should make sure the financial statements present a true and fair value

procedures for risk management should be established and effective calculated risks should be taken to reach long term objective

Question 11

actions for audit controls and risks:

Answer 11

the board should state whether to adopt the going concern concept for accounting

identify any material uncertainty for the could affect the company’s performance for the next 12 months

the board should establish an audit committee of NED’s made up of at least 3 ned from large companies

the committee must have a sector of competence

the directors should explain in the annual report their responsibility for preparing the annual accounts

the board should review the effectiveness of internal controls and risk managements and include findings in the annual report

Question 12

what are the key elements for the code of ethics?

Answer 12

conceptual framework
threat and safeguards
fundamental principles
confidentiality
conflicts of interests

Question 13

what are the two main approaches for conceptual framework?

Answer 13

rule based
principles based

Question 14

what is the fundamental ethical principles of integrity and explain it:

Answer 14

integrity: act honest and straightforward in a business relationship

Question 15

what is the fundamental ethical principles of objectivity and explain it:

Answer 15

objectivity: bias, influence from others should not affect professional judgement

Question 16

what is the fundamental ethical principles of professional competence & due care and explain it:

Answer 16

professional competence and due care: maintain knowledge and skill and act diligently with professional standards

Question 17

what is the fundamental ethical principles of confidentiality and explain it:

Answer 17

confidentiality: information gained on an audit must remain confidential and not be used for personal gain

Question 18

what is the fundamental ethical principles of professional behaviour and explain it:

Answer 18

professional behaviour: comply with relevant laws and avoid actions that would discredit the profession.

Question 19

explain how and why self interest could be threat to independence & objectivity:

Answer 19

self interest could be a threat to independence as professional judgement may be influenced due to self gain. for examples:

-owning shares in a company
-fee dependency
-gifts and hospitality
-employment by client
-overdue fees

Question 20

how is safeguard of fee dependency a threat of independence?

Answer 20

-fee should not exceed by 15% for two consecutive years

Question 22

what is the rule for gifts and hospitality?

Answer 22

-dont accept unless inconsequential and trivial or in normal course of business
-document on audit file

Question 23

what is the rule for auditors that own shares in a clients company?

Answer 23

they must sell the shares immediately or be removed from the assignment.

Question 24

what is the rule if there are overdue fees?

Answer 24

do not perform the audit until or unless or the fees have been cleared.

Question 25

what are the rules for loans/guarantees clients in team?

Answer 25

not permitted unless in normal course of business and on commercial terms.

Question 27

how is the safeguard threat of business relations and joint venture a threat to independence?

Answer 27

unless immaterial no safeguard can reduce the threat so can’t be done

Question 28

potential employment with an audit client.

Answer 28

the firm must be notified and the individual must be removed form the audit, any significant judgement made by the individual should be under review