PRE – SEEN ANALYSIS DECEMBER 2017 KC4 Samira Anthony

Affected Areas of the Syllabus As a Member of the Board or as a Consultant of the business Risk Management Internal Control Internal Audit Corporate Governance & Governance Issues Ethics for Accountants - NOCLAR

Affected Areas of the Syllabus As a Member of the Audit Team- (External) Audit Risk Assessment - SLASuS 315 Special Audit Procedures Audit of FI / Intangible Assets Use of Expert’s Work Communicating with TCWG – SLASuS 265 Related Services Audit on Forecasted Financial Information

Each Area will be discussed during the Seminar series PRE - SEEN Analysis….... Continues participation is must…..

Governance Issues Special Questions………………………. Distinguish between the governance of a family-owned company like QPL and a publicly listed company, Briefly explain why some risks vary by industry sector and discuss why legal risk might be more relevant to company like QPL than in some other industry sectors. Discuss the potential benefits which an effective non-executive chairman could have brought to QPL

Being a public listed or public limited company carries a number of requirements, imposed either by statute or the stock exchange, which do not apply to private companies. These requirements include compliance with a number of corporate governance provisions which include the adoption of certain governance structures, adherence with internal control and internal audit standards, and the external reporting of some types of information. A private limited company, in contrast, must comply with company law and tax regulations, but is not subject to listing rules. The ‘tight-knit’ family culture which enabled the decision to be made and then go unchallenged among the senior management Being a family or ‘insider’ dominated business meant that the company did not have any external shareholders. This means that there was no need to account to public shareholders for either the performance of the company or its postures on such issues as ethics Because it was not a listed company, there was no regulatory necessity for QPL to employ governance structures and systems capable of detecting and challenging Owners irregular behaviour. A criticism common to many family-controlled companies is the lack of external expertise in the form of an effective non-executive presence. Although some companies employ non-executive directors (NEDs) on a voluntary and ‘best practice’ basis, the private company status of QPL usually means that there is no regulatory requirement to do so. The purposes of NEDs in a listed company are to represent the strategic interests of shareholders and to populate the main board committees. These committees, in turn, provide a level of assurance to shareholders of probity, transparency and robustness

Legal risk in QPL Companies such as QPL, which are involved with the imports and distribution of medicine are exposed to certain risks because of their strategic positioning and main activities. QPL is engages with the foreign medicine suppliers as sole distributers. They are bound to follow special terms and conditions as sole distributers of the foreign producers . This may result to arise legal actions from producers claiming breach of conditions. QPL distributing medicines of foreign producers. Some medicine may harmful to the customers and may suffered from different health issues. Those customers may seek legal actions against the QPL but not against the foreign producers. Company requires to provide information of medicines ethically and legally when they distributing drugs. As a art of marketing strategy they are bound to do so. There is a risk that the doctors, pharmacies or customers taking legal actions claiming distribution of incorrect information. Legal actions by government against the non-compliance with PRICE CONTROL of medicine items.

Non Executive Chairman It seems that MD may able to commit the offences because there is nobody in the company able to confront him and keep his irresponsible behaviour in check. A non-executive chairman would be able to challenge MD in a way that no other people in the company were seemingly able to do. The whole purpose of splitting these senior roles is to prevent the investment of unfettered power in a single individual. when there is a strong personality like MD in this private company, it is this person who imprints his character on the business culture. An effective non-executive chairman, able to determine the agendas for board meetings and by exercising effective leadership, would be able to influence the culture and ‘tone from the top’, making a higher standard of ethical behaviour feel more normal in the company. If staff see their bosses acting unethically and in a dishonest or deceitful way, then it should come as no surprise that this can infect the whole of the company over time.

The presence of a strong figure able to exercise the roles of a chairman would, of course, improve the governance in any company. In the case of QPL, someone whose job it was to promote openness and debate about strategic ideas and ensure that accurate and clear information was freely circulated in the company could expose misconduct. Once ideas are openly discussed, the weaker ones are often criticised and exposed as inadequate. The immunity to criticism which MD felt, allowed him to believe he could get away with using non-compliant materials, but would soon have been rejected had such an effective chairman been in place The presence of a non-executive chairman would have given her, and other concerned directors, someone to communicate with about their concerns and give them someone to confide in.

Other Issues (Study text)………….. Instrumental & Normative views of Stakeholders – page 20 Stakeholder interest – Power and Interest matrix - page 21,22 Principles of corporate governance, Rule & Principle Base Approach on Corporate Governance - from page 35 Advantages and disadvantages of UNITARY & TWO – TIER structure – page 79 Reasons to keep the positions of chairman and CEO/MD in between two individuals. – page 97 & Requirements in the CODE Role, Advantages and Disadvantages of NEDs – page 102,…. & Independent Requirements in the CODE