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BUS165 - Foundations of Assurance > Week 3 > Flashcards

Week 3 Flashcards

1
Q

UK Corporate governance code?

A
  • Board of leadership & company purpose
  • division of responsibilities
  • composition, succession & evaluation
  • remuneration
  • audit, risk & internal controls
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2
Q

5 Principles of board leadership & company purpose?

A
  • each company should have an effective board
  • the board should ensure resources are in place to meet objectives
  • board should establish effective controls to manage risks
  • board should encourage shareholders’ input
  • Workforce should be able to raise concerns
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3
Q

Actions for board leadership & company purpose?

A
  • Board should describe how opportunities have been considered & addressed
  • board should assess & monitor culture
  • board should understand shareholders’ views
  • staff should be able to raise concerns anonymously
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4
Q

Company structure?

A

Shareholders
Board of directors/chairman
CEO
COO & CFO

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5
Q

What is the chair’s role?

A

Leads the board of directors and is responsible for overall effectiveness

Ensure effective contribution of all board members

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6
Q

Should the board be balanced?

A

Yes

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7
Q

NED?

A

Non-executive directors

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8
Q

What must the board ensure?

A

Must ensure it has policies, processes, information, time and resources to function effectively

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9
Q

Should the chair be independent?

A

Yes

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10
Q

Are the chair & CEO the same people?

A

No

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11
Q

Should the board include NED’s?

A

Yes, at least half the board should be NED’s

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12
Q

Should one of the independent NED’s be appointed as a senior independent director?

A

Yes

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13
Q

What do NED’s do?

A

NED’s should meet with the senior independent director to discuss performance of the chair

NED’s appoint, remove and scrutinise the performance of the executive directors

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14
Q

Principels for composition, succession & evaluation?

A
  • Appointments to the board should be formal, rigorous, transparent & based on merit
  • should be an effective succession plan
  • board should have skills, experience & knowledge
  • should be an annual evaluation of the board
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15
Q

Actions for composition, succession & evaluation?

A
  • a nomination committee should be established to appoint board members
  • the chair shouldn’t be a member of the committee when dealing with the appointment of their successor
  • all directors should be subject to annual re-election
  • chair should remain in post for more than 9 years
  • open advertising for NED
  • rigorous evaluation of the performance of the board annually
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16
Q

What should an annual report describe?

A
  • The work of the nomination committee in making appointments
  • how the board evaluation has been conducted
  • diversity & inclusion policy
  • gender balance in senior management
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17
Q

Principles for remuneration?

A
  • Executive remuneration should be designed to promote long term success
  • executive remuneration should be consistent with the company purpose and values
  • no Director should be involved in determining their own pay
  • remuneration policy should be formal and transparent
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18
Q

Should NED remuneration include performance related pay?

A

No

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19
Q

Should share awards be released on a phased basis?

A

Yes, and should be subject to a vesting & holding period of at least 5 years

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20
Q

What type of salary is pensionable?

A

Only basic salary should be pensionable and be aligned with the workforce

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21
Q

What is the notice period for remuneration?

A

No more than a year

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22
Q

How must directors be paid?

A

Directors pay must be transparent, easy to understand, predictable and proportionate

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23
Q

Audit, risk & internal control principles?

A
  • board establishes policies & procedures to ensure internal & external audits are independent & effective
  • board presents a fair, balanced & understandable assessment of the company’s financial position
  • board established procedures to manage risk & oversee internal control framework
  • board determines the nature & extent of the risks it’s willing to take to achieve long term objectives
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24
Q

Audit, risk & internal control actions?

A

Board should state whether is considers it appropriate to adopt going concern basis of accounting in FSs

Must identify any material uncertainties regarding going concern

Board should explain annual report

Establish audit committee of independent NED’s

Chair shouldn’t be a member of audit committee

Directors must explain responsibility for preparing annual accounts

Board should carry out annual review to assess the effectiveness of internal controls system

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25
Q

Audit committee composition?

A

Minimum of 3 NED’s

1 with financial experiences independent of operational management

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26
Q

Audit committee objectives?

A

Increase public confidence
Provide financial awareness
Strengthen independence

27
Q

Audit committee’s function?

A

Monitor financial statements

Review controls

Monitor & review internal audit

Monitor independence of external auditors

28
Q

Code of ethics?

A

Conceptual framework
Fundamental principles
Threats & safeguards
Confidentiality
Conflicts of interest

29
Q

Independence?

A

Freedom from situations & relationships where objectivity would be perceived to be impaired

30
Q

2 main approaches for conceptual framework?

A

Rules based
Principle based

31
Q

audit committee = ?

A

first line of audit
internal audit

32
Q

corporate governance code = ?

A

good practice guidelines to ensure companies are run well

33
Q

what does the UK corporate governance code consist of?

A
  • board leadership & company purpose
  • division of responsibilities
  • composition, succession and evaluation
  • remuneration
  • audit, risk & internal controls
34
Q

what are the principles of board leadership & company purpose?

A

a company should have an effective board

the board ensures that resources are in place to meet objectives

the board establishes effective controls to manage risks

encourage input from shareholders

workforce can raise concerns

35
Q

what actions represent board leadership & company purpose?

A

board shoulddescribe in annual report how opportunities & risks have been addressed

board should assess & monitor culture

staff can raise concerns anonymously

board should understand shareholders’ views

36
Q

what are the principles of division of responsibilities?

A

the chair leads the board and is responsible for overall effectiveness

the chair should ensure effective contribution of all board members

the board should be balanced

NED should have enough time to meet their board responsibilities

37
Q

NED’s purpose/role?

A

advisor role to the company

usually very experienced

independent to make uninfluenced decisions on shareholders

38
Q

what actions represent division of responsibilities?

A

chair should be independent

chair & CEO aren’t the same

NED’s appoint, remove and scrutinise the performance of the executive directors

one of the independent NED’s should be appointed as a senior independent director

NED’s and senior independent director meet annually

39
Q

what are the principles of composition, succession & evaluation?

A

appointments to the board should be formal, rigorous, transparent and based on merit

there should be an effective succession plan

appointments to the board should promote diversity

board should have skills, experience & knowledge

annual evaluation of the board

40
Q

what actions represent composition, succession & evaluation?

A

a nomination committee established to appoint board members

the chair shouldn’t be a member of the committee when dealing with the appointment of their successor

directors should be subject to annual re-election

chair shouldn’t remain in post for more than 9 years

open advertising for NED (can’t be someone you know)

41
Q

what are the principles of remuneration?

A

executive remuneration should be designed to promote long term success

executive remuneration should be consistent with the company purpose & values

no director should be involved in determining their own pay

the remuneration policy should be formal and transparent

42
Q

what actions represent remuneration element of corporate governance?

A

NED remuneration shouldn’t include performance related pay (bonuses/shares)

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

only basic salary should be pensionable and be aligned with the workforce

notice period should be no more than a year

ensure directors pay is transparent, easy to understand, predictable & proportionate

43
Q

what are the principles of the audit, risk & internal control element of corporate governance?

A

the board should establish policies and procedures to ensure audits are independent & effective

board should present a fair, balanced & understandable assessment of the companies financial position

board should establish procedures to manage risk & oversee the internal control framework

board should determine the nature/extent of risks they’re willing to take to achieve long term objectives

44
Q

what actions represent audit, risk and internal control for corporate governance?

A

board should state whether it considers it appropriate to adopt going concern based on its FS’s

must identify any material uncertainties to the company’s ability to continue for at least 12 months after the approval of the FS’s

board should explain in annual report how it assessed the prospects of the company

board should establish an audit committee of independent NED’s with at least 3 members for large companies

chair shouldn’t be a member of the audit committee

committee must have sector competence

directors should explain responsibility for preparing annual accounts

annual review should be carried out

45
Q

what are the key elements of the code of ethics?

A

conceptual framework
fundamental principles
threats & safeguards
confidentiality
conflicts of interest

46
Q

independence?

A

freedom from situations and relationships where objectivity may be brought into question

for an auditor to be trusted, independence must be ensured

47
Q

what are the two main approaches form conceptual framework?

A

rules based
principles based

48
Q

rules based conceptual framework?

A

good - easier to follow
bad - rules need frequent updating and encourages narrow interpretation

49
Q

principles based conceptual framework?

A

good -
- flexible, can be used in rapidly changing circumstances,
- can be used across boarders,
- accountant uses professional judgement
- requires compliance

conceptual framework uses a principle based approach

50
Q

which approach does conceptual framework use?

A

principle based

51
Q

fundamental ethical principles?

A

integrity
objectivity
professional competence & due care
confidentiality
professional behaviour

52
Q

threats to independence & objectivity?

A

self-interest (financial interest that may influence judgement/behaviour)

self interest can include
- owning shares in a client
- fee dependence
- gifts/hospitality
- employment w/ client
- overdue fees

53
Q

fee dependency’s safeguard?

A

listed clients fees shouldn’t exceed 15% for 2 consecutive years

engagement quality control review

54
Q

gifts/hospitality safeguard?

A

don’t accept gifts/hospitality unless minor

55
Q

owning shares’ safeguard?

A

to audit, one mustn’t have shares in the relevant party

56
Q

overdue fees’ safeguard?

A

don’t perform work until payment has been made

57
Q

business relationships safeguard?

A

no safeguard can reduce the threat

58
Q

potential employment with audit client safeguard?

A

firm must be notified, and individual will be removed from the audit

59
Q

contingent fees safeguard?

A

fees based on level of profits of the company aren’t allowed

(performance based fees aren’t allowed)

60
Q

compensation/evaluation safeguard?

A

audit partner can’t be evaluated/compensated based on success in selling audit services

61
Q

litigation safeguard?

A

discuss w/ audit committee

obtain external review
withdraw from assignment

62
Q

familiarity?

A

the auditor becomes sympathetic to or trusting of a client, and no longer applies professional scepticism

can be caused by long association and personal relationship

63
Q

long association safeguard?

A

independent review

if not a PLC, rotate audit partner to prevent a relationship being built over time

64
Q

family relationships safeguard?

A

remove individual from audit team

BUS165 - Foundations of Assurance (14 decks)

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