2-49

In: Business and Management

Submitted By darkenfire
Words 326
Pages 2
2-49

a. I don’t think that having a lot of loans is an example of poor corporate governance. It may be a symptom of a struggling company, though. Struggling companies have more incentive to commit fraud because they may want to hide their weak position or they may need to show a better position on their statements to secure more loans.
b. Simply having incentive based compensation for the CEO and CFO is not poor corporate governance. An auditor will have to realize that the CEO and CFO have incentive to manipulate things to overstate growth in assets and profits and keep the stock price growing, though.
c. This violates the corporate governance guideline that the audit committee should have at least three independent members. I wouldn’t call the retired CFO independent. The risk factor here is opportunity, because there are not enough independent members on the audit committee.
d. This is not a violation of good corporate governance. It is important that the company has some sort of whistleblower policy in place, though, so that the internal auditor can go around the CFO if needed.
e. This is not a violation of good corporate governance by itself. It is important that the CEO maintains transparency, though.
f. This is not a violation of good corporate governance as long as the committee remains independent and objective. Corporate governance is all about accountability. Even though this committee is deciding on an ex-post basis, at least when management takes out these loans they know that they will have to answer for them in the future. This will cause them to be more careful when taking out the loans.
g. This is not necessarily a violation of good corporate governance because the previous auditor could have been wrong. I would be very wary of accepting this client, though. If I did, I would pay special attention to the area that the previous…...

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