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Question 1 Define corporate governance and give two examples of corporate governance policies

Corporate governance is the rules, systems, and processes within companies used to guide and control. Governance
structures are used to monitor the actions of staff and assess the level of risk faced. Controls are designed to reduce
identified risks and ensure the future viability of the company. The CSA published national policy guidelines on corporate
governance to help improve performance and enhance accountability to shareholders.
Board Composition

The board should have a majority of independent directors.

The chair of the board should be an independent director.

Meetings of Independent Directors

The independent directors should hold regularly scheduled meetings at which non-independent directors and
members of management are not in attendance.

Board Mandate

The board should adopt a written mandate in which it acknowledges responsibility for the stewardship of the issuer,
including responsibility for:
(a) satisfying itself as to the integrity of senior management;
(b) adopting a strategic planning process that takes into account the opportunities and risks of the business;
(c) identifying the key risks to the business, and ensure there are appropriate systems in place to manage these
(d) ensuring succession planning;
(e) adopting a communication policy;
(f) overseeing the internal control and management information systems; and
(g) developing the issuers approach to corporate governance, including outlining a set of corporate governance
principles and guidelines to be followed.

The written mandate of the board should also set out:

(i) establishing methods for receiving feedback from stakeholders (whistleblowers);
(ai) setting expectations and responsibilities of directors.
Position Descriptions

The board should develop job descriptions for the chair of the board and the chair of each board committee.

Orientation and Continuing Education

The board should ensure all new directors receive a comprehensive orientation so they fully understand their role
and the nature and operation of the business.
The board should provide continuing education opportunities for all directors.

Code of Business Conduct and Ethics

The board should adopt a written code of business conduct and ethics to address conflicts of interest, protection and
proper use of corporate assets, confidentiality of corporate information, fair dealing with investors, customers,
suppliers, competitors and employees; compliance with laws, rules and regulations; and reporting of any illegal or
unethical behaviour.
The board should monitor compliance with this code.

Question 2 Give two examples where understanding the client at industry and entity level that may help the auditors
assess the risks to some accounts. Describe the implication of that risk assessment to the audit of such accounts?
The clients sources of financing are reviewed. An assessment is made of a clients debt sources, the reliability of future
sources of financing, the structure of debt, and the reliance on debt versus equity financing. An auditor assesses whether the
client is meeting interest payments on funds borrowed and repaying funds raised when they are due. If a client has a covenant
with a debt provider, the auditor will need to understand the terms of that covenant and the nature of the restrictions it places on
the client. Debt covenants vary. A company may, for example, agree to limit further borrowings. It may agree to maintain a
certain debt-to-equity ratio. If the client does not meet the conditions of a debt covenant, the borrower may recall the debt,

placing the clients liquidity position at risk, and increasing the risk that the client may not be able to continue as a going
An assessment is made of the impact of government regulation on the client and the industry in which it operates .
Regulations include tariffs on goods, trade restrictions, and foreign exchange policies. Regulations can affect a clients viability
and continued profitability. An auditor will consider the level of taxation imposed on companies operating in their clients
industry. The auditor assesses the different taxes and charges imposed on their client and the impact these have on profits.