QUESTION: 65

C Ltd is a private, family-owned company which is hoping to become listed on a recognised Stock Exchange within the next two years. At the moment, the Board of Directors comprises five directors; four of whom are from the founding family and all of whom are involved in the day-to-day running of the business. The remaining director obtained a seat on the Board three years ago as a condition of an investment by a venture capital fund.
The Board meets in half-day sessions once a fortnight and the Board meetings are reasonably well run. All decisions are taken by the Board as a whole. There are no sub-committees.
Which of the following steps would it be appropriate for C Ltd to take in the light of the proposed listing?

Appoint enough independent non-executive directors (NEDs) that they make up at least 50% of the Board.
Appoint one of the NEDs as Chair of the Board.
Insist that the venture capital company director be removed as he is not necessarily motivated to act in the best interests of C Ltd.
Set up at least three sub-committees namely remuneration, nomination, and audit committees.
Ensure that the current executive directors are given 10 year contracts starting on the day the company is floated, to ensure consistency and continuity in the management of the company.
Set up an "agenda setting" sub-committee consisting of the current executive directors to decide the agenda for each Board meeting.

Answer(s): A,B,D

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QUESTION: 66

Which of the following statements best explains why a corporate treasury department should be established as a cost centre rather than a profit centre?

The Treasury Department should not be encouraged to speculate.
The Treasurer should not have a great deal of responsibility.
There is no way for the Treasury Department to generate revenue.
The Treasurer has the ability to manipulate the Department's reported profit.

Answer(s): A

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QUESTION: 67

The management of U is reviewing internal controls throughout the company. It has noted the following:-
1. In the trade receivables section, journal adjustments are made by the clerks, without any reference to their supervisor. Journal adjustments may relate to sales returns, discounts allowed, or transfers between accounts.
2. In the purchasing department, the purchasing manager selects and approves all suppliers, as they are the only person with sufficient experience to do so. They use a very limited number of suppliers because they can rely on these suppliers to provide goods of the quality required at a competitive price. They do not keep any documents in relation to negotiations with other potential suppliers or other quotes obtained.
In relation to the above, which of the following statements are valid?

The fact that the purchasing manager uses a very small number of suppliers is, in itself, a sign of poor internal controls.
It is acceptable for clerks in the trade receivables section to make journal adjustments without authorisation provided the amounts involved are not material to U's financial statements.
It is acceptable for clerks in the trade receivable section to make journal adjustments without authorisation, provided they have no access to cash receipts.
The fact that the purchasing manager does not keep documentation relating to negotiations with suppliers, or potential suppliers, is evidence that they are involved in fraudulent activity.
Clerks making journal adjustments without reference to their supervisor is evidence of inadequate separation of duties.
The way the role of purchasing manager is carried out in U increases the chance that the company will fall victim to fraudulent activity.

Answer(s): E,F

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QUESTION: 68

You have been assigned the role of lead internal auditor. Your task is to carry out the annual assessment of the production line maintenance department.
When planning for this audit, which of the following must be completed?

Prepare the report.
Establish whether the controls are adequate or not.
Decide how the controls will be tested.
Learn all about the systems and controls in the department.
Carefully consider any control weaknesses that are reported.
Review previous audit findings for the department.

Answer(s): C,D,F

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