Preaction reviews comes in many forms, are often considered tight (as they tend to involve large, seldom reversible, resource allocations) and are types of action control which can address all major control problems: lack of direction 22 , motivational problems and personal limitations 23 . 13. How can pooled interdependencies be a problem for controllability? Pooled interdependencies refer to the uncontrollable influences occurring in situations where entities are shared, or dependent on each others, for the benefit of all participators. Entities consists of shared staff (for example administrative or sales), or shared facilities (for example manufacturing or research) and are not completely self-contained 24 . As was visualized by the case of Beifang Chuang Ye Vehicle Group , a type of controllability problem is imminent in circumstances where someone has misused the shared entities. The issue (described in the case) stemmed from a bad decision which not all of the managers had been able to influence/control. Decisions and entities are far from the same thing, but they do serve well to illustrate a problem they’ve got in common when it comes to controllability, namely, whether lower level managers should be part of taking responsibility for shared risks or whether the entire loss should be placed on the shoulders of linked superiors. 14. What roles should an audit committee fulfil? 21 K. A. Merchant & W. A. Van der Stede. Management Control Systems , Pearson Education Limited, 2003: p 440. 22 K. A. Merchant & W. A. Van der Stede. Management Control Systems , Pearson Education Limited, 2003: p 128. 23 K. A. Merchant & W. A. Van der Stede. Management Control Systems , Pearson Education Limited, 2003: p 69, 71. 24 K. A. Merchant & W. A. Van der Stede. Management Control Systems , Pearson Education Limited, 2003: p 463. 7
Below is a compilation of what audit committees should do (and hence what roles they should fulfil). Note: this information is based on, or directly fetched, from chapter 14 in Management Control Systems 25 . Exist - Have at least three members, but not too many more so that all members can be active participants. - Define the members’ responsibilities and expect members who no longer contribute appropriately to step down. - Send a clear instruction to the independent auditor that the board of directors, as the shareholders’ representative, is the auditor’s client. Meet - Schedule meetings in advance. - Meet at least four times per year. - Keep and distribute minutes of meetings. Work - Gain support and direction from the entire board of directors. - Adopt a written charter, use agendas, and follow formal work programs. - Review interim, as well as annual, financial reports, in addition to all financial information. - Discuss with the independent auditor their qualitative judgments about the appropriateness, not just the acceptability, of the organization’s accounting principles and financial disclosures practices.
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