UK Corporate governance

Question 1

Corporate governance

Answer 1

The way in which internal systems of the companies are directed and controlled

Question 2

Structure of the UK Corporate Governance Code

Answer 2

• Board leadership and company purposes
• Division of responsibilities
• Composition, succession and evaluation
• audit, risk and internal control
• remuneration

Question 3

Who has to comply with the UK Corporate Governance code?

Answer 3

Listed companies

Question 4

How is the division of responsibilities made in a company?

Answer 4

1. Clear division of responsibilities
   - chairman - runs the BOD
   - CEO - runs the company
2. Companies are required to have both executive and non-executive directors

Question 5

What are the 3 committees that a company can have?

Answer 5

• Audit committee
• Nomination committee
• Remuneration committee

Question 6

The role of the Audit Committee

Answer 6

1. to monitor FS
2. to review IC and risk management systems
3. to monitor and review the effectiveness of IA department
4. where there is no IA function, to consider annually whether there is need for one
5. to monitor arrangements safequarding the privacy of the whistle blower
6. to recommend appointment, reappointment and removal of the external auditor
7. to approve remuneration and engagement terms of external auditor
8. to review and monitor independence and objectivity of the external auditor
9. to implement policy on supply of non-audit services by the external auditor

Question 7

The composition of the audit committee

Answer 7

• at least three members (non-executive directors)

- at least one with recent and relevant financial experience

Question 8

Advantages of audit committee

Answer 8

• increased confidence in credibility and objectivity of financial statements
• allows executive directors to devote their attention to management
• provides an impartial body for internal auditors to report, which increase their independence
• provides an independent point of reference for the external auditor

Question 9

Disadvantages of audit committees

Answer 9

• there may be difficult to select sufficient NEDs with the necessary competence in auditing matters
• may dissuade the auditors from raising matters of judgement and limit them on reporting only matters of fact.
• costs may be increased

Question 10

What is directors’ role?

Answer 10

• set company’s policies

- are responsible for for the company’s systems and controls

Question 11

What is the Board’s responsibility regarding the Going Concern?

Answer 11

The Board must:

• state whether it considers appropriate to adopt the GC basis of accounting
• identify any material uncertainties to the company’s ability to do so over a period of at least 12 months from when the FS are approved.
• how it assessed the prospect of the company
• over what period it has done so
• why it considers that period to be appropriate.

Question 12

Explain the benefits of audit planning

Answer 12

• Help - devote appropriate attention to important areas
• Help - identify & resolve potentially problems in a timely basis
• Help - properly organise and perform the audit engagement so that it is performed effective & efficient
• Help - properly assign the work to competent and capable team members
• Facilitate - direction & supervision of team and review work done
• Assist, where necessary, in coordination of work done by experts