Tutorial submission

Q1 (Ethics)

Business investors are keen to ensure that companies have effective ethical practices.
Your team’s 2015 audit plan includes an internal audit of business ethics. Describe ten
key aspects that the internal audit of business ethics should cover, and justify each
aspect chosen.

Q2

a. Discuss the difference between public and private sector organizations in the application of
corporate governance principles.
b. Discuss what extent to which the principles of corporate governance can be applied to public
sector organizations.

TUTORIAL BOARD COMMITTEES

Following corporate scandals in the US and the downturn in the world’s stock markets,
institutional investors are questioning what boards are doing to protect their clients’ assets.
One way of doing so is to promote the role of the board committees and the role and duties
of non-executive directors. You are the Head of Internal Audit of a medium-sized
manufacturing company which currently has no non-executive directors on the Board. Your
Chief Executive has asked you for advice. Draft a paper which:

a) Identify the main committees that should be established to help achieve effective
governance for the new organisation. (6 marks)
b) Critically assess why non-executive directors are important to the governance of
organisations in general. (12 marks)
c) Presented in a suitable format and style (2 marks)

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Q3 (CG structures)

You are the Company Secretary for Bilkins plc, a listed retail company. Two new non-executive
directors have recently been appointed to the Board, neither of whom has served as a director
of a listed company before. One of the non-executive directors has previously worked for a
European company that had a two-tier board. You have been asked to prepare a briefing paper,
for their induction.

Draft such a paper that explains the:

a. role of the Board as a whole in relation to corporate governance and their own role as
Non-Executive Directors. 6 marks

b. difference between the roles of the Chairman and the Chief Executive. 4 marks

c. difference between a unitary and a two tier board and discusses the relative advantages
and disadvantages of each. 10 marks

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QUESTION 4 ( Duties on non-executive directors)

Following corporate scandals in the US and the downturn in the world’s stock markets,
institutional investors are questioning what boards are doing to protect their clients’ assets.
One way of doing so is to promote the role and duties of non-executive directors. You are
the Head of Internal Audit of a medium-sized manufacturing company which currently has
no non-executive directors on the Board. Your Chief Executive has asked you for advice.
Draft a paper which is:

a. describes what the role and responsibilities of non-executive directors should be

6
marks
b. Critically assess the qualities and experience non-executive directors should have.

12 marks

c. Presented in a suitable format and style: 2 marks

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QUESTION 5, Role of Board Committees

You have recently been appointed as an Audit Manager for Shop Ltd, a medium sized retail
company. The Board currently meets every two weeks and has no formal committee structure.
Although the company is not listed, you believe that the committee structure outlined in the
Combined Code would be beneficial to it.

Draft a briefing paper for the Chairman that:

a. Outlines the key board committees as recommended in the Combined Code and
explains their roles. 10 marks

b. Evaluates the benefits of such a committee structure for Shop Ltd. 5 marks

c. Identifies how the Combined Code provisions regarding these committees may need to
be amended to suit the needs of a smaller, non-listed company. 5 marks

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QUESTION 6 (CSR)

You are an Internal Auditor for Smith plc. The company has recently appointed a new Chairman who
believes that the Board has not paid sufficient attention to corporate social responsibility (CSR). He has
asked you to prepare a Board report outlining the issues involved.

Draft a report for the Board that:

a. defines Corporate Social Responsibility (CSR). 3 marks

b. explains why CSR has become important for listed companies and the benefits for the company
of practicing CSR. 12 marks

c. identifies any limitations the company may face or difficulties it may encounter in implementing
CSR. 5 marks

Q7 (Tutorial: Internal control)

One of the stated objectives of the Turnbull Guidance on the Combined Code was that it should remain
relevant over time in the continually evolving business environment.

a Define internal control (3 marks)

b Describe the internal control requirements of the Combined Code and summarise the guidance
provided by Turnbull (10 marks)

b In the light of recent corporate scandals, critically discuss whether the Turnbull guidance is
achieving its objectives (7 marks)

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Q8 (IC, control types)

You are an internal auditor undertaking a review of your organisation’s recruitment function and
associated processes.

As part of your preparatory work you have begun to consider the types of controls that you would
expect to see operating effectively in the recruitment system. You are categorising the controls as being:
preventive, detective, corrective or directive.

a. Describe the purpose of each of these generic categories of control. (4 marks)

b. Under each of these headings, identify two practical examples of these controls that you would
expect to see within the recruitment system and describe the risks that they should help to
mitigate. (16 marks)

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Q9 (Risk Mgt)
You are employed as the Risk Manager by Cheaplug PLC, a leading high street retailer of
electrical goods. The company is constantly under threat both from high street rivals and
from on-line suppliers.

Management are concerned that staff are spread across the country in small units with little real
perception of the wider environment in which the company operates and have developed parochial
perceptions and practices.

In order to address this problem, you have been asked to formulate a short training course to be
attended by all employees over the next few months. This training is to address the risks facing the
company both in conceptual and in real terms. It will also discuss and evaluate the types of risk
which may occur and the way in which those risks may be managed.

Prepare a paper that can be used as a handout at the end of the course. This paper should:

a explain the concept of risk and identify the major risks that are faced by Cheaplug
9 marks

b explain four risk management strategies and describe the circumstances in which each strategy
should be used. 8 marks

c explain the benefits, which should arise, as a result of staff now having an increased awareness
of risk. 3 marks

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Q10 (Risk Appetite)

You are an internal audit manager working for a private sector manufacturing company. The Chief
Executive has asked the Directors to list all the risks present in their fields of responsibility and has asked
you to run a risk workshop for the Board to ensure their understanding of the concepts involved.

Prepare a briefing paper for the workshop, giving examples where possible, in which you:

a. define both risk and risk management. 4 marks

b. define and explain the concept of risk appetite. 4 marks

c. explain why an element of risk taking is inherent in any business activity.

4 marks

b. explain the four Ts approach to risk management. 8 marks

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QUESTION 11 (ERM)
NalaNala Resorts and Spas (NalaNala) is an international hotel chain, originally founded in
Male’, The Maldives. In recent years the chain has rapidly expanded its operations further
across the Maldives, Sri Lanka and in Seychelles. This rate of growth has been quicker than the
board could ever have imagined. This has been achieved partly because of the increase in
tourist arrivals from the Chinese market. With significant cash reserves, NalaNala has been able
to purchase a popular travel agent named HydeAway. Much of the agent’s customers are based
in Western Europe. This strategic move by the board of directors is regarded as a milestone for
the company which is expected to further boost its business.

Despite this, the board has become concerned following a succession of recent surprises that
has left them reacting to events on a number of fronts.

In 2014, a tourist named Mike visited to one of the NalaNala resorts near Male’. Mr Mike was a
journalist by profession. Whilst he was lying down in the white sandy beach of the resort,
enjoying the sunny side of life, he saw from distance boatmen loading rubbish and was curious
to know how the resort was dealing with its garbage. He approached to the boatmen and then
the resort management if he can accompany with the boatmen to travel to Thilafushi, an island
used almost entirely as a garbage dump. It is nicknamed as Rubbish Island. He was allowed to
join with the boatmen to travel to the island.

As he arrived in Thilafushi he noticed that the accumulation of garbage there has become so
acute that it has begun spilling the garbage into its lagoon. He also recognized the efforts made
by the emergency clearing team to remove the hills of rubbish mostly collected from the luxury
hotels. Rubbish Island is a far cry from the Maldives’ famous turquoise waters and white sands.
Those who have been there describe vast piles of rubbish and perpetual smog and smoke. The
routine is for mainly Bangladeshi workers to sift through the trash to look for materials their
employers can potentially sell. Waste from the Male’ and resorts in Male’ Atoll region is taken
Thilafushi to be buried, burnt or - for some plastic and metal - recycled. Much of the rubbish
comes from the luxury resorts which, reportedly, do not follow the rules on crushing their
waste. The boats that bring rubbish to Thilafushi have recently started dumping it into the
lagoon, many boatmen impatient at having to wait up to seven to eight hours to unload it.

Criticising the waste management on Thilafushi, a local environmental campaigner has said that
there is a serious threat to the environment due to toxins from poisonous waste seeping into
the sea.

A week later, bad press arose as pressure groups criticised Nalanala resort chain for dumping
hundreds of tonnes of garbage to Thilafushi. Most recently, in early 2014, it was also unearthed
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that the Resort chain had outsourced its maintenance team to a local company which was
found to be employing significant numbers of illegal immigrants and were kept in unsafe
working conditions. There has also been recent press speculation that NalaNala might be
vulnerable to heavy fine for non-compliance of regulatory requirements of the government.

NalaNala’ chief executive is frustrated at constantly having to offer apologies and excuses, and
wants to introduce some sort of structured method of horizon scanning to anticipate strategic
risks to the company. The chief executive remains ambitious for further development and
growth for the company, not only through geographical expansion but also through moving into
the real estate market. However, the recent economic down turn has resulted in some of the
board being reluctant to take additional risks. The chief executive is keen to see the
development of a risk management methodology that will enable managers to risk assess
development and expansion options in order to take better advantage of the opportunities
available.

The chief executive also feels that the board and senior management are operating with
insufficient management information. There has been a constant succession of localised
problems, with individual managers taking decisions which are not aligned to overall corporate
control objectives. Local managers have also implemented their own policies and processes.
The chief executive realises that in order to safely develop the company further, there is a need
to establish clear management structures, policies and company processes in order to provide
the stability and consistency required to support growth to NalaNala. The chief executive also
wishes to refocus efforts on highlighting the corporate social responsibility successes of the
company.

Required:

The Chief Executive of NalaNala has asked you to draft a memorandum in which you are
required to:

a. Describe the stages necessary for the implementation of an effective risk management
framework across NalaNala. (12 marks)
b. Explain how risk management could be used at NalaNala to support strategic planning
and mitigate strategic risks. (8 marks)
[20 marks]

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Q12 (Enterprise Risk Management)

You are an audit manager for Gofast; a distribution company. Your Chief Executive has come across the
term “Enterprise-Wide Risk Management” (ERM) in a business journal.

As this is a term with which he is unfamiliar he has asked you to draft a Briefing Paper in which you:

a. Define and explain the concept of ERM. (4 marks)

b. Explain an ERM framework that could be applied to Gofast. (8 marks)

c. Explain the benefits and potential disadvantages of ERM which should be considered by the
Board when deciding whether to adopt the proposed framework. (8 marks)

[20
marks]

Q13 (Embedded Risk Management)

You are an audit manager for I and M plc, a large company that operates in the financial services sector.
The chief executive of your company recently stated that the risk of the company harming its reputation
needs to be managed even more carefully than all other areas of risk. He is also concerned that, whilst
the company has developed processes for risk identification, assessment, monitoring and reporting,
there are still problems in ensuring that risk management is embedded into the culture of the company.

The chief executive has asked you to prepare a report in which you:

a. explain the nature of ‘reputational risk’, giving relevant examples of possible risks to I and M
plc’s reputation. 5 marks
b. describe how I and M plc’s risk management programme can ensure that sufficient attention is
paid to reputational risk. 5 marks
c. discuss how the company can successfully embed risk management into its culture. Your
answer should include a consideration of how internal audit can assist the process.
10 marks

[20 marks]

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