Corporate Governance – Page 4

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

AAA – L3 – Q18 – Internal Audit

Comment on the appointment and reporting lines of Ms Ama Asantewaa as Internal Auditor at Asante Akyem District Assembly.

Question

The Asante Akyem District Assembly has appointed Ms Ama Asantewaa as the Internal Auditor. She was appointed by the District Chief Executive (DCE) after he attended a seminar at KIMPA for newly appointed DCEs where the importance of pre-auditing of all payments by Internal Auditors for expenditures incurred by all Government Ministries, Departments Municipal, and District Assemblies (MMDAs) was stressed.
Ms Asantewaa has just completed National Service at the Internal Audit Agency, holds an HND in Accounting and is a native of the same village as the DCE of Asante Akyem District. Ms Asantewaa will report to the District Finance Officer.
At the first meeting after the appointment of the DCE, the District Assembly had set up its standing committees and one of them was the Audit and Finance Sub-Committee. The first meeting of the sub-committee requested Ms Asantewaa to prepare briefing notes to show her vision and approach to the Internal Audit function at the District Assembly and to discuss how she will maintain her independence as well as her knowledge and understanding of Internal Audit Practices recommended by the Institute of Internal Auditors (IIA) as in the IIA’s International Professional Practices Framework (IPPF).
You are an Auditor in Public Practice and the Auditor General of Ghana has appointed you to perform the statutory audit of the Asante Akyem District Assembly. The Audit and Finance Sub-Committee of the District Assembly has requested that you attend the meeting at which the Internal Auditor will brief them and help them in assessing the Internal Auditor’s briefing.
Required:
(a) Comment on the matters that you will consider on the appointment of Ms Asantewaa and her reporting lines as discussed above. (b) State the issues that you should expect Ms Asantewaa to discuss in her briefing to Audit and Finance Sub-Committee of the District Assembly.

Answer

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Tags: Audit committee, Corporate Governance, IIA Standards, Independence, Internal Audit, Public Sector Audit
Level: Level 3

Topic: Internal Audit and Outsourcing

AAA – L3 – Q10 – Corporate governance

Explain corporate governance and roles of directors, external auditor, internal auditor, and audit committee.

Question

(a) Explain what is meant by corporate governance.

(b) Explain how the following fit into the workings of corporate governance.

(i) The directors

(ii) The external auditor

(iii) The internal auditor

(iv) The audit committee

Answer

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Tags: Audit committee, Corporate Governance, Directors, External auditor, Internal auditor
Level: Level 3

Topic: Corporate governance

AA – L2 – Q14 – Professional Ethics and Code of Conduct for Auditors

Explain ethical threats to auditor independence for Vark Co and suggest safeguards to mitigate them. Discuss the benefits of establishing an internal audit function for Vark Co.

Question

(a) You are a manager in the audit firm of XYZ & Co; and this is your first time you have worked on one of the firm’s established clients, Vark Co. The main activity of Vark Co is providing investment advice to individuals regarding saving for retirement, purchase of shares and securities and investing in tax efficient savings schemes. Vark is regulated by the relevant financial services authority.
You have been asked to start the audit planning for Vark Co, by Mr. Lee, a partner in XYZ & Co. Mr. Lee has been the engagement partner for Vark Co, for the past nine years and so has excellent knowledge of the client. Mr. Lee informs you that Mr. Tan, the audit senior, received investment advice from Vark Co during the year and intends to do the same next year.
In an initial meeting with the finance director of Vark Co, you learnt that the audit team will not be entertained on Vark Co’s yacht this year as this could appear to be an attempt to influence the opinion of the audit. Instead, he has arranged a balloon flight costing less than one-tenth of the expenses of using the yacht and hopes this will be acceptable. The director also states that the fee for taxation services this year should be based on a percentage of tax saved and trust that your firm will accept a fixed fee for representing Vark Co in court in a dispute regarding the amount of sales tax payable to the taxation authorities. Sales tax payable is material to the current year financial statements.
Required:
(i) Explain the ethical threats which may affect the auditor of Vark Co.
(ii) For each ethical threat, discuss how the effect of the threat can be mitigated.

(b) Discuss the benefits of Vark Co establishing an internal audit function.

Answer

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Tags: Auditor Independence, Benefits, Contingent Fees Internal Audit, Corporate Governance, Ethical Threats, Financial Services Regulation, IESBA Code, Non-Audit Services, Safeguards
Level: Level 2

Topic: Internal Audits

Tag (SQ): Corporate Governance

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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.

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.

AAA – L3 – Q18 – Internal Audit

Comment on the appointment and reporting lines of Ms Ama Asantewaa as Internal Auditor at Asante Akyem District Assembly.

AAA – L3 – Q10 – Corporate governance

Explain corporate governance and roles of directors, external auditor, internal auditor, and audit committee.

AA – L2 – Q14 – Professional Ethics and Code of Conduct for Auditors

Explain ethical threats to auditor independence for Vark Co and suggest safeguards to mitigate them. Discuss the benefits of establishing an internal audit function for Vark Co.

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

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

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

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

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

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

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Comment on the appointment and reporting lines of Ms Ama Asantewaa as Internal Auditor at Asante Akyem District Assembly.

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Explain corporate governance and roles of directors, external auditor, internal auditor, and audit committee.

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Explain ethical threats to auditor independence for Vark Co and suggest safeguards to mitigate them. Discuss the benefits of establishing an internal audit function for Vark Co.

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