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4.1 Explain why a disclaimer audit report would be bad for a company's reputation - NSC Accounting - Question 4 - 2021 - Paper 1
Question 4
4.1 Explain why a disclaimer audit report would be bad for a company's reputation. Provide TWO points. 4.2 One of the most important decisions that shareholders hav... show full transcript
Worked Solution & Example Answer:4.1 Explain why a disclaimer audit report would be bad for a company's reputation - NSC Accounting - Question 4 - 2021 - Paper 1
Step 1
Explain why a disclaimer audit report would be bad for a company's reputation - TWO points
Answer
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Loss of Credibility: A disclaimer audit report suggests that there are significant uncertainties about the financial statements. This can lead to a perception that the company is hiding information or has poor financial controls, damaging trust with investors and stakeholders.
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Difficulty in Securing Funding: Potential investors and lenders may view a disclaimer audit as a red flag, making them hesitant to invest or provide loans. This can restrict the company’s access to capital and impact growth.
Step 2
Explain why the shareholders have been given this responsibility
Answer
Shareholders are considered the owners of the company. Therefore, they have the responsibility to appoint directors to ensure that their interests are represented in management decisions. This responsibility ensures that directors are held accountable to the owners.
Step 3
If you were a shareholder, what factors or characteristics would you want to find out about the directors who would get your vote? Explain TWO points and give a reason for EACH.
Answer
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Integrity and Ethics: I would want to know if the directors have a history of ethical behavior. This is crucial because ethical directors are less likely to engage in decisions that could harm the company's reputation or stakeholders.
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Experience and Competence: Understanding the professional background and track record of potential directors is essential. Experienced directors are more likely to make informed decisions that will benefit the company.
Step 4
As a shareholder, explain what you would say at the AGM - TWO points
Answer
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Request for Transparency: I would express my concern regarding the allegations against the CFO and demand a thorough investigation into the tender process to maintain the organization's integrity.
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Impact on Company Reputation: I would emphasize that the actions of the CFO could severely damage the company's reputation and shareholder value, urging the board to take corrective actions to prevent similar issues in the future.
Step 5
In your opinion, explain why this major company found it necessary to implement this policy - TWO points
Answer
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Encouraging Reporting of Misconduct: The company aims to create a safe environment for whistle-blowers to report unethical behavior, which helps prevent potential losses and legal issues that could arise from unreported misconduct.
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Enhancing Trust and Transparency: By establishing a clear reporting mechanism, the company demonstrates its commitment to ethical conduct. This fosters trust among employees and stakeholders, which is vital for long-term success.