Tute 2 Solutions

Tute 2 Solutions - Tutorial 2(Chapter 3 3.13 Corporate...

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Tutorial 2 (Chapter 3) 3.13 Corporate governance is the system by which companies are directed and managed and covers the conduct of the board of directors and the relationship between the board, management and shareholders. Justice Owen, in the HIH Royal Commission Report (2003) defined corporate governance as ‘the framework of rules, relationships, systems and processes within and by which authority is exercised and controlled by corporations’. Directors have the primary responsibility for corporate governance. ASX Listing Rule 4.10.3 requires a statement disclosing the extent to which an entity has followed the best practice recommendations of the ASX Corporate Governance Council principles and recommendations. If the entity has not followed all of the recommendations, it must identify the recommendations it has not followed and give reasons for not following them. The obligation is to explain to investors why an alternative approach is adopted. This is referred to as the ‘if not, why not?’ obligation. When gaining an understanding of a listed client, an auditor will consider the effectiveness of the client’s corporate governance structure, including compliance with the ASX Corporate Governance Council principles and recommendations. The auditor will be particularly aware of Principle 4, which is concerned with safeguarding integrity in financial reporting, including having an effective audit committee and a sound internal control system; and Principle 7, which is concerned with recognising and managing risk. 3.14 An audit committee is a sub-committee of the board of directors and usually consists solely or mainly of non-executive directors. Audit committees have been established primarily to: assist the board of directors to fulfil its legal fiduciary responsibilities add to the credibility and objectivity of financial reports
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