Corporate Governance

SCS – L3 – Q32 – Strategy implementation

Explain five common weaknesses of Boards of Directors at Zamu Enterprises.

Question

(a) Boards of Directors are expected to manage companies effectively. However, corporate boards sometimes fail to do so. Recent corporate scandals have highlighted key weaknesses of Board of Directors.

Required:

Explain FIVE common weaknesses of Board of Directors.

(b) Zamu Enterprises began as a small company which operated in the financial services sector of Zamora’s economy. Within the last ten years, the Board, which is chaired by the founder, Ms. Amina Zuri, has incrementally expanded into three more sectors of the economy, namely: telecommunications, logistics and real estate. Currently a conglomerate, Zamu Enterprises has four different companies in its portfolio and has its corporate head office located within the capital city, Zambara.
Required:
Explain the different levels of corporate strategy as it relates to Zamu Enterprises.

(c) Technology is one of the most powerful forces within the external business environment that has changed significantly how business is conducted especially within the 21st Century. For instance, information technology (IT), well exploited, can have significant impact on all the five forces of competition.

Required:

Identify FOUR effects of technological change on organization.

Answer

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Tags: Board Weaknesses, Corporate Governance, Oversight, Risk Management, Strategic management, Zamora
Level: Level 3

Topic: Strategy implementation

FR – L2 – Q55 – Financial Instruments

Calculate capital, reserves, and liabilities for Jordana PLC after share issues and preference share transactions in Year 1.

Question

On 1 January Year 1 Jordana PLC has the following capital and reserves.

Equity	GH₵
Share capital (1 million ordinary shares)	1,200,000
Retained earnings	5,670,300
	6,870,300

During Year 1 the following transactions took place.

1 January: An issue of GH₵100,000 8% GH₵1 redeemable preference shares at a premium of 60%. Issue costs are GH₵2,237. Redemption is at 100% premium on 31 December Year 5. The effective rate of interest is 9.5%.
31 March: An issue of 300,000 ordinary shares at a price of GH₵1.30 per share. Issue costs, net of tax benefit, were GH₵20,000.
30 June: A 1 for 4 bonus issue of ordinary shares.
Profit for the year, before accounting for the above, was GH₵508,500. The dividends on the redeemable preference shares have been charged to retained earnings.

Required
Set out capital and reserves and liabilities resulting from the above on 31 December Year 1.

Answer

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Tags: Accounting Standards, Convertible Loan Notes, Corporate Governance, Deferred Tax, Equity, Financial instruments, Financial Statements, Liabilities, Preference Shares, Share Capital
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

SCS – L3 – Q23 – Conflicts of interest and ethical conflict resolution

Discuss three justifications for separating the roles of board chairman and CEO at Kabwe Pharmaceuticals Ltd.

Question

Susan Kabwe completed a first degree in pharmacy programme abroad and returned to her native country Gambia with the hope of starting a pharmaceutical company. Gambia has been experiencing high graduate unemployment and Susan was very determined not to join the teaming unemployed youth in the country. Susan put together an excellent business plan and approached four other childhood friends who have also completed university to start Kabwe Pharmaceuticals Ltd for manufacturing of basic and essential drugs locally. After many months of hard work, the company finally commenced operations two years ago.

Susan Kabwe plays a dual role of the chief executive officer (CEO) and chairman of the Board of Directors, and the four other friends are all executive directors of the company. The board of the company is currently composed of five executive directors and two non-executive directors. The two non-executive directors are close friends of the executive directors without relevant work experience since they remained unemployed 3 years after completing university. There have been several board meetings held without the non-executive directors. This situation is largely due to a belief by the executive directors that non-executive directors are really not needed since they do not play any important role on the board. Susan and other executive directors participated in a seminar on corporate governance where the facilitator made the following statements on best practices of corporate governance:

“The roles of board chairman and chief executive officer should be held by two different individuals”

“The board chairman performs critical functions to ensure that the board functions effectively”

“The board should be composed of at least one-third of non-executive directors”

After the seminar the executive directors disagreed with some of the facilitator’s assertions. They claimed the statements are idealistic and not pragmatic. Susan Kabwe has approached you as a corporate governance expert to help provide clarity to the statements by the facilitator.

Required:

Discuss THREE justifications why the roles of the board chairman and chief executive officer should not be held by Susan Kabwe.

Answer

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Tags: Board roles, Chairman responsibilities, Corporate Governance, Ethics, Non-executive directors
Level: Level 3

Topic: Professional practice and codes of ethics

SCS – L3 – Q19 – Strategy, stakeholders and mission

Identify stakeholders of a research organization and explain their interests; explain corporate governance to the majority shareholder.

Question

(a) BrightFuture Institute is a research organization with branches in five African countries. The majority shareholder, Mr. James, though not officially part of the management structure, is actively involved in management decisions. He gives directives and makes decisions that sometimes influence the management policies. Customers, employees, and management are often affected by these decisions of Mr. James.

Preparations are underway to get the company listed on the Accra Capital Market and a consultant is needed to advise on the improvement of its weak corporate governance structure.

Required:

(i) Identify FOUR stakeholders of the company and explain the nature of their interests in the company.

(ii) Explain to Mr. James what is meant by good corporate governance, including the problems it is intended to address.

(b) Mr. Kweku Amoako is the founder and managing director of StarBloom Foods Ltd. StarBloom is a private limited liability company, which was established six years ago. Its line of business include growing different kinds of fruits, processing, and distributing them to supermarkets across the country. Mr. Amoako, together with the company’s board, has intimated on the need for the company to expand beyond its current operations in Ghana. You have been consulted by a consultant by the company’s management to advise on its quest to participate in the global market.

Required:
Discuss FOUR factors that must be considered by the board of Star Bloom Foods and Processing Ltd. before choosing a suitable mode of entry into international markets.

Answer

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Tags: Agency Problem, Corporate Governance, Shareholder Influence, Stakeholders
Level: Level 3

Topic: stakeholders and mission, Strategy

SCS – L3 – Q17 – Professional practice and codes of ethics

Identify three situations at NTM conflicting with IFAC's Code of Ethics.

Question

At its recent Annual General Meeting, management of NTM was highly criticized for two major scandals that occurred in the organization during the year. In one case, newspapers reported that the management of the company connived with officials at the port to undervalue imports in order to pay lower taxes. In the other case, it was reported that the accountant leaked information to his friend who was bidding for a contract in the company. The Board Chairman, who is also the Chief Executive Officer of the company apologized for these incidents but did not disclose that the company had been sued in respect of the first case. He went on to promise the shareholders that the fortunes of the company would change dramatically by the end of the new year as the company was going to start exporting its products to Europe within the next few weeks.

Required:
(a) Identify and explain THREE situations that are in conflict with the International Federation of Accountants (IFAC)’s Code of Ethics.

(b) Explain FOUR disadvantages of the CEO acting also as the Chairman of the Board.

Answer

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Tags: Confidentiality, Conflicts of Interest, Corporate Governance, Disclosure, Ethics, IFAC Code, Integrity, Stakeholder Management
Level: Level 3

Topic: Professional practice and codes of ethics

SCS – L3 – Q3- Corporate Governance

Explain the composition and functions of an Audit Committee in corporate governance.

Question

a) The role of Audit Committee in corporate governance cannot be overemphasized.

(i) What should be the composition of an Audit Committee, and who might be invited by the committee to attend their meetings?

(ii) Explain FOUR (4) functions of an Audit Committee.

(b) Corporate governance is now a very popular and important area in strategic management. However, corporate governance is poor in a number of organizations.

Answer

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Tags: Audit committee, Auditor Independence, Corporate Governance, Internal controls, Non-executive directors
Level: Level 3

Topic: Corporate governance

FM – L2 – Q7 – Dividend policy

Discuss if share option schemes for directors/employees benefit shareholders of Sunlit Enterprises.

Question

Discuss whether share option schemes for either directors or employees generally, can benefit the interests of the shareholders in Sunlit Enterprises.

Answer

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Tags: Corporate Governance, Employee motivation, Managerial objectives, Share options, Shareholder wealth
Level: Level 2

Topic: Dividend policy

AAA – L3 – Q68 – Non-audit Services

Discuss how non-audit services by audit firms may compromise audit integrity and its impact on management, considering client size and listed status.

Question

The current practice of many audit firms offering substantial non-audit services to their audit clients compromises the integrity of the auditing profession and is not in the interests of management.

Required

Discuss the above, indicating whether factors such as client size and listed status would make any difference to your opinion.

Answer

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Tags: Audit Independence, Client Relationships, Corporate Governance, Non-Audit Services, Professional Ethics
Level: Level 3

Topic: Current Issues

AAA – L3 – Q65 – Reporting

Prepare a management report on payroll internal control deficiencies at Bibini Co. Ltd., including implications and recommendations.

Question

Kofi & Co. have audited the annual financial statements of Akoma Co. Ltd., a public limited liability company, for the year ended 31st December 2014. The accounting system of the company is partially computerised.
During the audit, it was detected that just two members of staff, out of one hundred and fifty workers, were entirely and equally responsible for the maintenance of personnel records and preparation of the payroll. The chief accountant only confirms that the amount of the wages and salaries cheque agrees with the total of the net wages column in the payroll, then he signs without any reasonableness check of the amount of the total wages cheque. This situation is a serious deficiency in the system of internal control which can have serious implications. As audit senior, you are considering communicating this situation to the management, showing the deficiency, implications, and recommendations.

Required:
Prepare an appropriate report to management on the deficiency noted in the system of internal control for payroll.

Answer

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Tags: Audit Deficiency, Audit Procedures, Corporate Governance, Financial Statements, Fraud Risk, Internal Control, Management Report, Payroll, Recommendations, Risk Assessment
Level: Level 3

Topic: Reporting

AAA – L3 – Q32 – Planning

Discuss considerations for developing the audit strategy for an initial audit engagement of a newly listed e-commerce company.

Question

You are a manager in the audit department of Yao Asaglo & Co, a firm of Chartered Certified Accountants, and you have just been assigned to the audit of TechNova Limited, a new audit client of your firm, with a financial year ended 31 May 2015. TechNova Limited has just been listed on the Accra Stock Exchange (ASE). It is an e-commerce facility and has grown rapidly in the last few years.
TechNova Limited was formed ten years ago by Ms. Esi Mensah, a graduate in e-commerce from Kofi University. The company designs, develops software for e-commerce with high security features which have won industry awards. In the last two years, the company invested AC₵400m in creating new software to appeal to a large number of multi-national companies, and sales are now made in over 10 countries. The software is developed in this country, but the manufacture of the security features, for obvious reasons, takes place overseas.
The software is largely sold through retail outlets, but approximately 30% of TechNova Limited’s revenue is generated through sales made on the company’s website.
In some countries, TechNova Limited’s products are distributed under a franchise agreement which gives the franchise holder the exclusive right to sell the products in that country. The cost of each franchise to the distributor depends on the estimated sales in the country to which it relates, and the franchise lasts for an average of five years. The revenue which TechNova Limited receives from the sale of a franchise is deferred over the period of the franchise. At 31 May 2015, the total amount of deferred revenue recognised in TechNova Limited’s statement of financial position is AC₵72 million.
As part of a five-year strategic plan, TechNova Limited obtained an ASE listing in December 2014. The listing and related share issue raised a significant amount of finance, and many shares are held by institutional investors. Esi Mensah retains a 20% equity shareholding, and a further 10% of the company’s shares are held by her family members.
Despite being listed, the company does not have an internal audit function, and there is only one non-executive director on the board.

(a) Comment on the matters that you should consider specific to initial audit engagement when developing the audit strategy for TechNova Limited. (b) Evaluate the audit risks to be considered in planning the audit of TechNova Limited.

Answer

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Tags: Audit risks, Corporate Governance, E-commerce, Foreign Exchange, Franchise Revenue, Listed Company, Revenue Recognition
Level: Level 3

Topic: Planning

Tag (SQ): Corporate Governance

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SCS – L3 – Q32 – Strategy implementation

Explain five common weaknesses of Boards of Directors at Zamu Enterprises.

FR – L2 – Q55 – Financial Instruments

Calculate capital, reserves, and liabilities for Jordana PLC after share issues and preference share transactions in Year 1.

SCS – L3 – Q23 – Conflicts of interest and ethical conflict resolution

Discuss three justifications for separating the roles of board chairman and CEO at Kabwe Pharmaceuticals Ltd.

SCS – L3 – Q19 – Strategy, stakeholders and mission

Identify stakeholders of a research organization and explain their interests; explain corporate governance to the majority shareholder.

SCS – L3 – Q17 – Professional practice and codes of ethics

Identify three situations at NTM conflicting with IFAC's Code of Ethics.

SCS – L3 – Q3- Corporate Governance

Explain the composition and functions of an Audit Committee in corporate governance.

FM – L2 – Q7 – Dividend policy

Discuss if share option schemes for directors/employees benefit shareholders of Sunlit Enterprises.

AAA – L3 – Q68 – Non-audit Services

Discuss how non-audit services by audit firms may compromise audit integrity and its impact on management, considering client size and listed status.

AAA – L3 – Q65 – Reporting

Prepare a management report on payroll internal control deficiencies at Bibini Co. Ltd., including implications and recommendations.

AAA – L3 – Q32 – Planning

Discuss considerations for developing the audit strategy for an initial audit engagement of a newly listed e-commerce company.

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SCS – L3 – Q32 – Strategy implementation

Explain five common weaknesses of Boards of Directors at Zamu Enterprises.

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FR – L2 – Q55 – Financial Instruments

Calculate capital, reserves, and liabilities for Jordana PLC after share issues and preference share transactions in Year 1.

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SCS – L3 – Q23 – Conflicts of interest and ethical conflict resolution

Discuss three justifications for separating the roles of board chairman and CEO at Kabwe Pharmaceuticals Ltd.

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SCS – L3 – Q19 – Strategy, stakeholders and mission

Identify stakeholders of a research organization and explain their interests; explain corporate governance to the majority shareholder.

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SCS – L3 – Q17 – Professional practice and codes of ethics

Identify three situations at NTM conflicting with IFAC's Code of Ethics.

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SCS – L3 – Q3- Corporate Governance

Explain the composition and functions of an Audit Committee in corporate governance.

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FM – L2 – Q7 – Dividend policy

Discuss if share option schemes for directors/employees benefit shareholders of Sunlit Enterprises.

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AAA – L3 – Q68 – Non-audit Services

Discuss how non-audit services by audit firms may compromise audit integrity and its impact on management, considering client size and listed status.

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AAA – L3 – Q65 – Reporting

Prepare a management report on payroll internal control deficiencies at Bibini Co. Ltd., including implications and recommendations.

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AAA – L3 – Q32 – Planning

Discuss considerations for developing the audit strategy for an initial audit engagement of a newly listed e-commerce company.

You're reporting an error for "AAA – L3 – Q32 – Planning"

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