 |
GRE811S-CORPORATE GOVERNANCE RISK AND ETHICS-1ST OPP-JUNE 2022 |
|
|
1 Page 1 |
▲back to top |
n Am I B I A u n IVE Rs I TY
OF SCIEnCE Ano TECHnOLOGY
FACULTY OF COMMERCE, HUMAN SCIENCESAND EDUCATION
DEPARTMENT OF ACCOUNTING, ECONOMICS & FINANCE
QUALIFICATION: BACHELOR OF ACCOUNTING {HONOURS)
QUALIFICATION CODE: 08BOAH
COURSE CODE: GRE811S
LEVEL: 8
COURSE NAME: CORPORATE GOVERNANCE,
RISK AND ETHICS
SESSION: JUNE 2022
DURATION: 21/z HOURS
PAPER: THEORY
MARKS: 88
EXAMINER:
FIRST OPPORTUNITY QUESTION PAPER
Dr Kofi Boamah
MODERATOR: Mr Marko Tondota
INSTRUCTIONS
• This question paper is made up of THREE(3) questions.
• Answer All the questions in blue or black ink.
• You are advised to pay due attention to expression and presentation. Failure to do so will
cost you marks.
• Read over your answers before you hand in you your scripts.
• Start each question on a new page in your answer booklet and show all your workings.
• Questions relating to this paper may be raised in the initial 30 minutes after the start of
the paper. Thereafter, candidates must use their initiative to deal with any perceived error
or ambiguities and any assumption made by the candidate should be clearly stated.
PERMISSIBLE MATERIALS: NONE
THIS QUESTION PAPER CONSISTS OF S PAGES {Including this front page)
1
|
|
2 Page 2 |
▲back to top |
QUESTION ONE
[25 marks]
Bob Green was fortunate to inherit some money and decided he wanted to invest for the long
term in one or more investments so he would have a higher income in retirement. He was not a
specialist in accounting and had little understanding of how investments worked.
Bob studied an investment website which suggested that he needed to be aware of the level of
risk in an investment and also that he needed to know what his basic attitude to risk would be.
This meant he needed to decide what his risk appetite was and then select investments based on
that.
When Bob studied share listings in newspapers, he noticed that they were subdivided into sectors
(e.g., banks, pharmaceuticals, mining, retail). He noticed that some sectors seemed to make
higher returns than others and he wanted to know why this was. One website suggested that
risks also varied by sector, and this was partly explained by the different business and financial
risks which different sectors are exposed to.
One website said that if a potential investor wanted to know about any given company as a
potential investment, the company's most recent annual report was a good place to start. This
was because, it said, the annual report contained a lot of voluntary information, in addition to
the financial statements. Bob could use this information to gain an understanding of the
company's strategy and governance. The website suggested that the contents of the corporate
governance section of the annual report would be particularly helpful in helping him decide
whether or not to buy shares in a company.
Required
(a) Explain 'risk appetite' and 'risk awareness', and discuss how Bob's risk appetite might
affect his choice of investments.
(8 marks)
(b) Explain 'business risk' and 'financial risk' and discuss why risks might vary by sector as
the website indicated.
(8 marks)
(c) Distinguish, with examples, between mandatory and voluntary disclosure in annual reports,
and assessthe usefulness of corporate governance disclosure to Bob in selecting his investments.
(9 marks)
(Total = 25 marks)
2
|
|
3 Page 3 |
▲back to top |
QUESTION TWO
[30 Marks]
'Help the Needy (HTN) is a charitable organisation established ten years ago. Its stated
purpose is, 'to help individuals and families with social problems and related issues.' Its
work, in a large city with people from many countries and backgrounds, involves advising,
counselling, giving practical support to service users (the people who come for help). Over
the years it has been operating, HTN has realised that the best outcomes are achieved
when the staff member understands and sympathises with the service users' social
norms, ethical and cultural beliefs.
40% of HTN's funding comes from local government. This means that HTN has to account
for its use of that portion of its funding and comply with several rules imposed by local
government. One of these rules concerns demonstrating appropriate diversity amongst
the managers of services such as those delivered by HTN. It requires the charity
management team to involve the widest feasible range of people and to reflect the
demographic make-up of the community.
HTN has recently had to replace a number of executive and non-executive members of its
board. The external auditor suggested that setting up a nominations committee would
help in these board appointments. The CEO, Marian Ngogo, has always stressed that all
directors should share the ethical values of HTN and agree to take reduced rewards
because, 'every dollar we pay a director is a dollar less we are spending on service
delivery.' She stressed that the culture in a charity was very different from a commercial
('for profit') business and that staff and directors must share the ethical stance of HTN
and had to accept a different approach to social responsibility if they joined.
You are Required to:
(a) Explain any 4 of the roles of a nominations committee and describe how the Help-
with-life (HTN) nominations committee might approach the task of nominating and
appointing new directors.
(10 marks)
(b) Explain the advantages of diversity on the board of HTN.
(11 marks)
(c) Explain 'corporate social responsibility' (CSR)and discuss the ways in which CSR
and the ethical stance might differ between HTN and a commercial 'for profit'
business.
(10 marks)
Total = 31 marks)
3
|
|
4 Page 4 |
▲back to top |
QUESTION THREE
[32 mks]
Namene (PtY) Ltd. is a large chemical manufacturer. Due mainly to the size of the workforce and
its turnover, the company has a high public interest score. Evans Elago, the chief executive
officer of the company has called you as an expert in corporate governance, to a meeting to
clarify certain issues relating to corporate governance.
At the meeting Evans informed you that the company was coming under increasing pressure from
a number of sources, including one of the company's shareholders, a listed company, to adhere
to principles of corporate governance contained in King IV/NamCode on Corporate Governance.
He concluded by saying "I personally think this corporate governance codes are a load of rubbish;
we didn't have them 30 years ago and we don't need them now. But if there are superficial
changes, I can make to make to keep everyone happy, I'll think about it. Our responsibility is to
maximize profit for shareholders and not to spend them and do good causes".
Namene (PtY) Ltd. has always been a tightly run company. Evans Elago and his sons Elias and
Oscar together have held 45% of the shares in the company since its inception in 1985. In addition
to being shareholders, Evans Elago is the chairperson of the board and Elias and Adongo fill the
roles of financial director and production director respectively.
The Evans' influence has always ensured the appointment of executive directors of their choice
to fill the remaining two positions on the company's board, which are held by Jack Jones and
Charles Smith. Even Evans insist on the board of directors being totally committed to and involve
in the company. He demands that the directors work as a team to get the job done themselves
without "engaging outsiders and forming committees".
The company's basic operational and reporting philosophy is one of secrecy and minimum
disclosure. Evans Elago's reasons for adopting this philosophy are that in the highly competitive
chemical industry, Namene (Pty) Ltd has a record of being more successful and profitable than
any of its competitors. In his opinion, "the less information available to competitors and other
parties, the better the company is able to protect this competitive advantage and limit exposure
to groundless lawsuits and strikes by workers. As far as financial reporting goes, our policy has
been to follow the requirements of IFRSto the extent necessary to satisfy the auditors. We are
not interested in integrated reporting because our shareholders are simply not interested in
masses of other useless information".
You are required to:
a) Briefly discuss the points you would raise to explain to Evans Elago why codes of corporate
governance should not be regarded as a "load of rubbish". (10)
4
|
|
5 Page 5 |
▲back to top |
b) Comment on Evans Eligo's statement that "if there are superficial changes, I can make to keep
everybody happy, I'll think about it".
(3)
c) List the instances of non-compliance with the recommended practices in King IV/NamCode
pertaining to the existing of board of directors at Namene (Pty) Ltd.
(7)
d) Identify the board committees other than a remuneration committee, which Namene (Pty) Ltd
should appoint to satisfy the recommendations of King IV/NamCode. Provide reasons as to why
the appointment of each committee would be beneficial to Namene (Pty) Ltd.
(12)
............................................................. End of paper ................................................................................. ..
5
|
|
6 Page 6 |
▲back to top |
nAmlBIA
UOIVERSITY
OF SCIEnCEAno
TECHO0L0GY
P/Bq13388
WindlloeJc
rwt1B!A
~;95- 1J!_
HOOA: CCOUNl'iNG,
ECONOMIACNS DFINANCE