aThe key stakeholders in the company who are relevant to this issue principally comprise of:

• Growbig plc

(a)The key stakeholders in the company who are relevant to this issue principally comprise of: •the shareholders – including minorities •the directors •the customers using the materials •the members of the public coming into contact with the materials or consequences of it being used e.g. relative to toxic chemicals, pollutants, etc.•the regulatory agencies/government bodies •the employees – particularly overseas employees..Auditing, 12e Alan Millichamp, John Taylor (Solutions Manual All Chapters, 100% Original Verified, A+ Grade) Book Exam Questions – ANSWERS Chapter 1 Introduction to Auditing – The Why of Auditing 1 / 4

(b)The company is in a particularly sensitive market and simply providing the minimum information is not enough. It should disclose the environmental impact of its products, information about its health and safety record, its policies on sales of products overseas, etc.Environmental reporting would be a key issue as shareholders and the public expect a greater sense of corporate social responsibility from companies, particularly those where the ethics of their policies might be called into question.

Consider:

•the ethical position of the company with regard to overseas sales.•the actual environmental impact of using banned products.•the impact on the company in the case of health and safety breaches and accidents to employees – both financial and reputational.•the reputational risk could damage home market sales with adverse publicity.(c)Directors have a duty to protect the company’s assets, and a wider duty to the public at large. They must review the dumping policy and consider what needs to be done to correct the situation in the hazardous factory.They must investigate all allegations. This could involve the non-executive directors and the internal audit function as the investigation should be seen to be independent and thorough.The directors cannot ignore the revelations and must take steps to respond.They should create clear policies and guidelines regarding overseas sales and the sale of banned materials and, if these constitute a hazard, they should stop production.

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Book Exam Questions – ANSWERS Chapter 2 Corporate Governance

• Megablast Ltd

1

From: A Manager, Tickitt & Run

Su

bject: Corporate Governance in the Megablast company

As requested, I write to explain where Megablast does not appear to be following appropriate corporate governance codes and to recommend changes to ensure that the principles of good corporate governance are being followed.C hief Executive Officer (CEO) and Chairman Mr Tidyman is both CEO and Chairman of Megablast. Corporate governance indicates that the person responsible for running the company (the CEO) and the person responsible for

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controlling the board (the Chairman) should be different people. This is to ensure that no one individual has unrestricted powers of decision.I recommend that Mr Tidyman is either the CEO or the Chairman and that a second individual is appointed to the other post to ensure that Mr Tidyman does not have too much power in Megablast.Composition of board The current board ratio of executive to non-executive directors is 5:2. This means that the executive directors can dominate the board proceedings. Corporate governance codes suggest that there should be a balance of executive and non-executive directors so this cannot happen.A minimum of three non-executive directors are also normally recommended, although reports such as Cadbury note this may be difficult to achieve.I recommend that the number of executive and non-executive directors is equal to help ensure no one group dominates the board. This will mean appointing more non-executive directors to Megablast.Director appointment At present, Mr Tidyman appoints directors to the board, giving him absolute authority over who is appointed. This makes the appointment procedures and the qualities of directors who are being appointed against them difficult to determine. Corporate governance suggests that appointment procedures should be transparent so that the suitability of directors for board positions can be seen clearly.I recommend that an appointments committee is established, comprising of three non- executive directors to ensure there is no bias in board appointments. Formal job descriptions should also be published making the appointment process more transparent.Review of board performance It is correct that the performance of senior managers is reviewed, but this principle should also be applied to the board. While Mr Tidyman may undertake some review, this is not transparent and it is not clear what targets the board met or did not meet.I recommend that performance targets are set for each director and actual performance assessed against these on a regular basis..

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