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4.1 Audit Report: Explain why a qualified audit report is not a good reflection of a company - NSC Accounting - Question 4 - 2020 - Paper 1
Question 4
4.1 Audit Report: Explain why a qualified audit report is not a good reflection of a company. Provide TWO points. 4.2 The Board of Directors: Explain why it is impo... show full transcript
Worked Solution & Example Answer:4.1 Audit Report: Explain why a qualified audit report is not a good reflection of a company - NSC Accounting - Question 4 - 2020 - Paper 1
Step 1
Audit Report: Explain why a qualified audit report is not a good reflection of a company. Provide TWO points.
Answer
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Lack of Clarity or Missing Information: A qualified audit report indicates that certain information in the financial statements is either unclear or missing. This raises concerns regarding the reliability of the reported figures and may suggest that the company is hiding unfavorable conditions.
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Potential Impact on Shareholder Confidence: A qualified report could lead existing shareholders to question the company’s governance, resulting in a possible decline in share prices as they may choose to sell their shares out of concern.
Step 2
The Board of Directors: Explain why it is important for a company to include non-executive as well as executive directors on the Board of Directors.
Answer
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Diverse Perspectives: Including non-executive directors brings independent judgement and a fresh perspective on strategic decisions. They are not involved in day-to-day operations, allowing them to provide objective insights.
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Balance of Power: Non-executive directors act as a check on the executive directors, ensuring that decisions are made in the best interest of the shareholders and that there is accountability.
Step 3
The Remunerations Committee: Explain the role/responsibility of this committee and give a reason why this committee is necessary.
Answer
The role of the Remunerations Committee is to review and approve the salaries, bonuses, and other earnings of the directors and to ensure fairness in the payment of fees and salaries. It is necessary to prevent fraud or corruption by maintaining transparency in compensation packages and aligning them with industry standards.
Step 4
Directors engage with clients on a regular basis in an effort to negotiate contracts and increase sales and services. Explain why there should be a company policy for all gifts, donations or resources received by the directors from clients. Provide TWO points.
Answer
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Transparency and Ethical Standards: A policy ensures transparency in how gifts and donations are handled, promoting ethical behavior and preventing any conflicts of interest that may arise from accepting gifts from clients.
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Compliance and Accountability: Establishing a clear policy prevents any potential misuse of resources or favoritism towards clients and ensures that directors are held accountable for their actions.