UNIVERSITI TUNKU ABDUL RAHMAN, ACADEMIC YEAR 2014/2015 APRIL, =XAMINATION ui 1L3043 BUSIN! HICS AND CORPORA’ FRIDAY, 24 APRIL 2015, TIME: 2.30 PM — 5.30 PM (3 HOURS) BACHELOR OF ACCOUNTING (HONS) Instructions to Candidates: This paper comprises of TWO (2) sections. Section A: [Total: 40 marks] This section consists of ONE (1) COMPULSORY question, You are required to answer ALL the sub-questions. The questions carry FORTY (40) marks. Total: 60 marks} ection consists of THREE (3) questions. Answer ANY TWO (2) questions. Each question carries THIRTY (30) MARKS. here the candidate answers more than the required number of questions, only the first TWO (2) answers written under Section B in the answer booklet will be marked. The rest of the answers/part-answers shall be struck out and ignored. This question paper consists of 4 questions on 6 printed pagesML3043 BUSINES! Section A: se Study Total: 40 marks| Read the case and answer ALL questions (compulsory), Poor Chemistry at Satang It's as if you need a lab coat and a science degree to follow the developments at Satang Holdings Bhd (Satang) these days, what with the dissolution and reconstitution that’s taking place there. But it’s not chemistry that we see; it’s more like alchemy. In medieval times, alchemists pursued goals that we now di converting base metals into gold, and discovering a panacea and the elixir of life. Today. alchemy usually refers to an inexplicable change or process. That's a pretty apt description of the recent events at Satang that revolved around the company’s audit committee (AC) niss as pure nonsense ‘ACS are rarely a subject of public attention, but because the company had taken the highly unorthodox step of dissolving its AC and was subsequently directed by Bursa Malaysia to reverse that decision, we can’t help but wonder about what's so special about this particular board committee. Until end-October, the Satang AC had comprised three men ~ Izham Yusolf (who chaired the committee), Syed Abdul Razak Syed Long Alsagoff and Datuk Anuar Jaafar. On Monday, Anuar stepped down as a Satang director. The same day, says the company, the board agreed to immediately dissolve the AC and form a new one within 21 days. When queried by Bursa Malaysia, Satang explains that the dissolution was mainly triggered by the resignation of Anuar, who was the only AC member with “MIA qualification”. ‘Apparently, the company is relying on the listing rule that says at least one person on the AC must be a member of the Malaysian Institute of Accountants or has certain qualifications that would have enabled him to be an MIA member. The stock exchange sees it differently. On Wednesday, it pointed out to Satang that the listing requirements also stipulate that a listed company must maintain an AC at all times and that the listed company has three months to fill a vacancy in the committee. Bursa told Satang to immediately reinstate and reconstitute the AC. According to Satang, Izham and Syed Abdul Razak are back on the AC, Both are independent directors and have been with Satang since December 2008. Presumably, the company is searching for Anuar’s replacement. Anuar had been with Satang, a PN17 company, for only five months. He joined the board and became an AC member on May 26, after the resignation of Wan Azizul Wan Yusoff, I's interesting that after Wan Azizul had left Satang on April Fool's Day this year, the AC was in the exact situation that it’s in now ~ that is, it had only Izham and Syed Abdul Razak as members. But back then, the company didn’t choose to dissolve the committee. Instead. it had waited almost two months before appointing Anuar to the board and the AC, So why the hurry to break up the committee on Monday? This question paper consists of 4 questions on 6 printed pages3 UKML3043 BUSINESS ETHICS AND CORPORATE GOVERNANCE jection A continued In annual report 2009’s statement on internal control, the company says: “In the process of investigating the revenue and profit misstatements, the board has gained valuable experience about the areas of weaknesses and the causes of the failure in the system of internal control. The board has learned and benefited from this experience and is committed in its efforts to reform and reorganise the system of internal control.” Curiously, there's nothing more in the annual report about the investigation and misstatements. However, the Satang board adds that it recognises the revamp of its internal control system as a long-term task, and that one of the steps it has taken is the reconstitution of the AC raking into account that the company has a September year-end, the reconstitution probably refers to the boardroom reshuffle in December 2008, in which Izham, Syed Abdul Razak and Wan Azizul came on board to form the all-new AC. In other words, the trio were brought in as part of efforts to improve Satang’s governance. Are Izham and Syed Abdul Razak no longer needed now? But they do have unfinished business at Satang. On Aug 11, the AC presented to the board a report on alleged irregularities, prompting the board to suspend managing director Malim Mohamed. In addition, the directors resolved to engage accounting firm Ernst & Young (EY) to investigate the alleged irregularities, On Sept 21, Malim’s suspension was lifted “in order to ensure the smooth day-to-day operation of the company Izham signed EY’s appointment letter on Sept 1. This is in keeping with the fact that the AC is authorised by the board to “investigate any activity within its terms of reference”. After all. the committee is supposed to help the board fulfil its fiduciary responsibilities, particularly when it comes to aspects such as business ethics and financial management, On Oet 1, the company told the exchange that EY was expected to commence work on Oct 18, However, on Tuesday, when asked about the effect of the AC’s dissolution on the investigation, Satang revealed that the probe had not begun. “The company and the board of directors will not hazard a guess on how the new AC will approach this issue in the future as the company and the hoard have never interfered with the functions of or imposed its will on the AC.” adds Satang in its reply to the Bursa query. “The company will await any recommendation by the reconstituted AC on this issue.” asn’t good enough for Bursa. Apart from demanding the reinstatement and nstitution of the AC, the exchange instrueted Satang to ensure that the AC"s mandate on the appointment of the investigative auditor remains unchanged and effective. Bursa added that the audit must commence by next Thursday That's not likely to happen. Satang says the delay is because it doesn’t have the funds to pa The board has in the meantime requested a written quotation from another reputable firm of accountants to undertake the investigation in order to minimise costs and is now awaiting the same,” it adds. This question paper consists of 4 questions on 6 printed pagesSatang maintains repairs and overhauls safety and survival equipment for the defence, aviation and maritime industries. Yet, its own safety and survival as a listed company are not quite assured, given that it has been in PN17 limbo for 30 months. It’s important for the company to convince the regulators and investors that most of its troubles are a thing of the past. However, any way you look at it, there’s currently a lack of good chemistry in the Satang boardroom. Fortunately, it’s not rocket science; it’s about transparency, consistency and stout stewardship. And that means doing everything possible so that the AC and the investigative auditor can get on with their work. Source: Oh, E. (2010, November 6). Poor chemistry at Satang, The Sun, QI, (a) Identify and describe the issues and problems at Satang Holdings Berhad (10 marks) (>) Explain the meaning of disclosure, openness and transparency and the consequences if companies do not emphasise enough on its importance in corporate governance. The Listing Rules also state that at least one person on the AC must be a member of the Malaysian Institute of Accountants (MIA) ot has certain qualifications that would have enabled him to be an MIA member. Explain the basis for this requirement and its relatedness to disclosure, openness and transparency. (20 marks) (©) Satang is in the process of revamping its internal control system. If you were their consultant, advise the company on some of the important areas in internal control and why. (10: marks) (Total: 40 marks] This question paper consists of 4 questions on 6 printed pages5 UKML3043 BUSINESS ETHICS AND CORPORATE GOVERNANCE Section B {Total: 60 marks} Answer any TWO (2) out of THREE (3) questions. a. Q2. Q@ (a) Explain the SIX (6) dynamic forces that powerfully shape the business and society relationship with an example for each (15 marks) (b) Explain the purpose of internal audit and justify their role as an integral part of a company’s system of internal control. Clarify whether they can be totally independent in that role. 15 marks) [Total: 30 marks} Hit by Typhoon Sendong four years ago, relocated families are rebuilding their lives with Berjaya’s aid, With the contributions and aid from Berjaya Corporation Group of ‘Companies and the local NGO, Gawad Kalinga Foundation, these families do not just have their own permanent houses to live in but also a safer and decent neighbourhood. Answer all the questions that follow based on the above scenario. (a) The activities carried out by Berjaya are in relation to which concept of corporate governance? Identify and explain. the concept. (3 marks) (b) Describe the SIX (6) benefits that could be obtained from carrying out such activities, (12 marks) (©) Identify and explain the theory that supports such activities ( marks) (Justify s applications and the THREE (3) assumptions to its approach (12. marks) [Total: 30 marks} A news article reads, quote, “However, they must have exercised “care as an ordinary man might be expected to take on his own behalf.” The report emphasizes this point “Whilst such approvals are important from a corporate governance standpoint, it would appear to us that the Board still retains the overall responsibility to run PKA in a professional and sustainable manner. This would include the responsibility not to enter into agreements which PKA cannot afford, or which may threaten long term financial viability.” Therefore herein lies the problem when it comes to appointment of board members ...” unquote. This question paper con oF 4 questions on 6 printed pages6 HICS AND CORPORATI UKML3043 BUSINES: Q3.(Continued) Answer all the questions that follow based on the above excerpt. (a) Describe the meaning of “care as an ordinary man might be expected to take on his own behalf.” in the context of corporate governance. (2 marks) (b) Discuss SIX (6) responsibilities of board of directors. (12 marks) (c) Recommend to the board for effectiveness according to the Cadbury recommendations. 8 marks) (@) In the appointment of board members, discuss some of the capabilities that need to be considered before hiring them. (8 marks) [30 marks} This question paper consists of 4 questions on 6 printed pages