COMPANY LAW

ETHICS & CORPORATE GOVERNANCEBM055-3-2The Auditors and Audit CommitteeModule Code and Module TitleTitle of SlidesLearning Outcomes1. Appreciate the relevance and practical application of business and professional ethics in the working world;2. Explain how corporate social responsibility and corporate governance relate to ethics; 3. Highlight the main ethical issues relating to the natural environment.

Module Code and Module TitleTitle of Slides4. Recognise ethical issues and propose solutions to these issues.5. Convey an enhanced awareness of the role of business and professional ethics in financial reporting;

Module Code and Module TitleTitle of SlidesFinancial reporting and corporate governanceMisleading financial statementsThe role of external auditors and audit reportAuditors independenceBursa Malaysia Listing Requirements on Audit CommitteeModule Code and Module TitleTitle of Slides

Financial reporting and corporate governance

The annual report and accounts of a company (and the interim financial statements of alisted company) are the principal way in which the directors make themselves accountable to the shareholders. The financial statements present a report on the financial performance of the company over the previous financial year and the financial position of the company as at the end of that year.

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Financial reporting and corporate governance

The directors' report and other statements that are published in the same document provide supporting information, much of it in narrative form rather than in numbers. Shareholders and other investors use the information found in the annual report and accounts to assess stewardship of the directors and the financial health of the company.Module Code and Module TitleTitle of SlidesIt should therefore be:clear and understandable to a reader with reasonable financial awareness; andreliable and the financials are 'believable'.The reliability and honesty of the annual report and accounts could be undermine by the board of directors:

Module Code and Module TitleTitle of Slidesfraud or errors in the preparation of the financial statements; 'window dressing' of financial performance or financial position through the use ofaccounting policies (methods) that hide the true financial position of the company

Module Code and Module TitleTitle of SlidesKey Issues in Financial Reporting Why should the management of a company want to prevent the financial statements from giving a true and fair view of the company's financial position and performance? What are the consequences of financial statements lacking credibility? What should be the role of a company's external auditors in ensuring that the financial statements give a true and fair view? In what ways might the independence of the external auditors be compromised?

Module Code and Module TitleTitle of Slides What measures should be taken to ensure that published financial statements are reliable? How can investors obtain some reassurance from the report and accounts of a company that the company is not going to go into liquidation suddenly and unexpectedlyModule Code and Module TitleTitle of SlidesMisleading Financial StatementThere could be a fraudulent misrepresentation of the affairs of the company, where the company's management deliberately presents a false picture of the financial position and performance.The company might use accounting policies whereby it presents its reported position and profits more favourably than would be the case if more conservative accounting policies were used.

Module Code and Module TitleTitle of Slides The financial statements could be complex and difficult for investors to understand. It is a relatively easy matter for accountants, particularly in companies whose business is itself quite complex, to present financial statements in a way that readers will find difficult to comprehend properly

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The role of the external auditors: the audit report

The audit report has two main purposes:(a) to give an expert and independent opinion about whether the financial statement give a true and fair view of and of its financial performance during the year; the financial position of the company as at the end the financial year covered by the report, (b) to give an expert and independent opinion on whether the financial statements comply with the relevant laws.(c) to make sure that the accounts are prepared in accordance with the relevant accounting standards.Module Code and Module TitleTitle of SlidesAuditors IndependanceThe external auditor should be independent of the client company, so that the audit opinion will not be influenced by the relationship between the auditor and the company.The auditors are expected to give an unbiased and honest professional opinion to the shareholders about the financial statementsAn unqualified audit report is often seen by investors as a 'clean bill of health' for the company. Module Code and Module TitleTitle of SlidesThe main recent areas of debate about how to ensure auditor independence have been:whether auditors should be prevented from carrying out non-audit work for clients, orwhether the amount of non-audit work they do should be restricted;whether there should be a regular rotation of either the audit firm or the audit partner and other senior members of the audit team.Module Code and Module TitleTitle of Slides

Bursa Malaysia Listing Requirements on Audit Committee

The chairman of the audit committee is to be an independent director. And the Audit Committee is expected to carry out the following functions:-Review with external auditors the audit plan to be taken;Review with the external auditors of the quarterly and annual reports;Evaluate the adequacy and scope of internal audit functions, its processes and to make the necessary recommendation of internal audit functions

Module Code and Module TitleTitle of SlidesEvaluate risk management and risk control mechanism that are appropriate to the business;Evaluate and related party transaction and conflict of interest situation that may arise;Evaluate and recommend, where necessary, the suitability of external auditors appointment, including examining any letter of resignation from external auditors.

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