ACCA Audit & Assurance (AA)
Case Question Practice B (5 questions)
2 marks for each question;
All questions should be attempted;
Once an answer is selected, you cannot go back or correct it;
Correct answer and explanation will be shown after an answer is chosen.
You are an audit manager in HTQ & Co. One of your clients, SGCC, has recently become a listed company and has asked for your advice regarding the changes they should make to achieve appropriate compliance with corporate governance codes.
Mr Sheppard is the Chief Executive Officer and Chairman of the Board of SGCC. He appoints and maintains a board of five executive and two non-executive directors. While the board sets performance targets for the senior managers in the company, no formal targets are set for each director and no review of board policies is carried out.
Board salaries are therefore set and paid by Mr Sheppard based on his assessment of all the board members, including himself, and not their actual performance. SGCC does not currently have an audit committee.
Internal controls in SGCC are monitored by the senior accountant, although the company assumes that, as external auditors, your firm will carry out a detailed review of internal controls. SGCC does not have an internal audit department or an audit committee.
Annual financial statements are produced, providing detailed information on past performance.
A. From a review of the information above, your audit assistant has highlighted some weaknesses in SGCC’s corporate governance especially concerning the composition of the Board.
B. If SGCC’s Board decides to establish an internal audit department they will also need to decide whether they will employ members of staff or outsource the department to an external firm. You have drawn up a list of considerations relating to this:
(1) Specialist industry skills
(2) Resistance from current staff
(3) More cost effective service
(4) Good understanding of SGCC’s systems and operations
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