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Corporate Governance & Audit Insights

1. Review engagements provide reasonable assurance and state that nothing has come to our attention which would indicate material misstatements. External audits aim to provide reasonable assurance of the truth and fairness of accounts, but inherent limitations mean complete assurance is not possible due to factors like human error and management bias. 2. FoxConn's corporate governance is weak as the roles of Chairman and CEO are combined, there is no audit committee, and only two of seven directors are independent. Stronger governance would separate leadership roles and establish an independent audit committee. 3. Due to LIBOR rate manipulation, banks face fines, criminal charges and reforms aim to increase oversight and prevent future manipulation of benchmark interest rates.

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256 views2 pages

Corporate Governance & Audit Insights

1. Review engagements provide reasonable assurance and state that nothing has come to our attention which would indicate material misstatements. External audits aim to provide reasonable assurance of the truth and fairness of accounts, but inherent limitations mean complete assurance is not possible due to factors like human error and management bias. 2. FoxConn's corporate governance is weak as the roles of Chairman and CEO are combined, there is no audit committee, and only two of seven directors are independent. Stronger governance would separate leadership roles and establish an independent audit committee. 3. Due to LIBOR rate manipulation, banks face fines, criminal charges and reforms aim to increase oversight and prevent future manipulation of benchmark interest rates.

Uploaded by

Vedvati Petkar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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AA assignment 1

1. Which of the following statements relate to review engagements?

1 Subject matter is plausible


2 Reasonable assurance
3 Nothing has come to our attention which would indicate that the subject matter contains
material misstatements
4 Positive assurance

A 1 and 3
B 2 and 4
C 2 and 3
D 1 and 4

2. You are the newly appointed auditor of Jones Co, a company which has previously not had to have
an external audit because of its size. The owner of the company does not fully understand why an
external audit cannot provide complete assurance over the truth and fairness of the accounts.

Explain the inherent limitations of the external audit to the owner of Jones Co.

3. Describe the level of assurance provided by external audits and review engagements.
4. FoxConn is a Taiwanese Fortune 500 company.

The board of directors of FoxConn is made up of seven directors, two of whom are independent. The
Chairman of the board of directors is the same as the CEO.
There is no audit committee at FoxConn at present.

What do you think of corporate governance in FoxConn? Does it comply with the broad principles we
have been discussing?

5. Barclays bank was fined in 2012 for attempting to manipulate the London Interbank Offered Rate
(LIBOR) and the Euro Interbank Offered Rate (Euribor).
Rates were manipulated to benefit traders' financial positions and also to make the bank seem
healthy during the global financial crisis (around 2008/9). The banks appeared to have made very high
profits from artificially rigging the LIBOR.

Which changes have resulted due to this fraud?

6. Saxophone Enterprises Co (Saxophone) has been trading for 15 years selling insurance and has
recently become a listed company. In accordance with corporate governance principles Saxophone
maintains a small internal audit department. The directors feel that the team needs to increase in size
and specialist skills are required, but they are unsure whether to recruit more internal auditors, or to
outsource the whole function to their external auditors, Cello & Co.

Saxophone is required to comply with corporate governance principles in order to maintain its listed
status; hence the finance director has undertaken a review of whether or not the company complies.

Bill Bassoon is the chairman of Saxophone, until last year he was the chief executive. Bill is unsure if
Saxophone needs more non-executive directors as there are currently three non-executive directors
out of the eight board members. He is considering appointing one of his close friends, who is a retired
chief executive of a manufacturing company, as a non-executive director.
The finance director, Jessie Oboe, decides on the amount of remuneration each director is paid.
Currently all remuneration is in the form of an annual bonus based on profits. Jessie is considering
setting up an audit committee, but has not undertaken this task yet as she is very busy. A new sales
director was appointed nine months ago. He has yet to undertake his board training as this is
normally provided by the chief executive and this role is currently vacant
There are a large number of shareholders and therefore the directors believe that it is impractical and
too costly to hold an annual general meeting of shareholders. Instead, the board has suggested
sending out the financial statements and any voting resolutions by email; shareholders can then vote
on the resolutions via email.

Required:

In respect of the corporate governance of Saxophone Enterprises Co:


(i) Identify and explain FIVE corporate governance weaknesses; and
(ii) Provide a recommendation to address each weakness.
Note. The total marks will be split equally between each part.
(10 marks)

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