Question

You are an audit manager of PY and have been assigned to the audit of TT Co (TT), a company which is planning to list on a stock exchange within six months. The listing rules of the stock exchange require compliance with corporate governance principles, and the directors are unsure whether they are following best practices in relation to this. They have asked the audit engagement partner for their view on this matter.

TT’s board is comprised of six executive directors, a non-executive chairman and three other non-executive directors (NEDs). The chairman and one of the NEDs are former executive directors of TT and on reaching retirement age were asked to take on non-executive roles. The company has established an audit committee, and all NEDs are members including the chairman who chairs the committee. All four members of the audit committee were previously involved in sales or production related roles.

All of the directors have been members of the board for at least four years. As the chairman does not have an executive role, he has sole responsibility for liaising with the shareholders and answering any of their questions. The company has not established an internal audit function to monitor internal controls.

Q:

Describe FIVE corporate governance weaknesses faced by TT Co and provide a recommendation to address each weakness to ensure compliance with corporate governance principles.

Answer 1

Corporate governnace is the system buy which companies are directed and controlled.

Weakness	Recommendation
The chairman and one of the NEDs are former executive directors of TT and on reaching retirement age were asked to take on non-executive roles.   The chaiman and non executives should be independent and should not be the former executive of the company	the chairman and executive should be changed as soon as possible and appoint somebody qualify corporate govenance principle.
The company has established an audit committee, and all NEDs are members including the chairman who chairs the committee the chairman should not chair audit committe but he can be a member	the chairman should be replaced by any other member of the committee to chair it.
All four members of the audit committee were previously involved in sales or production related roles. There is lack of a member who have recent and relevent financial experience or expertise.	A NED with recent and relevent financial experiance should be appointed as soon as possible to be the member of audit committee
All of the directors have been members of the board for at least four years the directors sholud not be allowed to be in the board for more than 3 consecutive years, must be subjected to re election.	All directors should be re elected
The company has not established an internal audit function to monitor internal controls. the company must have a internal audit department	An internal audit department should formed in the company as soon as possible and which report to audit committee.