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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.
Answer
A disclaimer audit report indicates that the auditors were unable to obtain sufficient evidence to form an opinion on the financial statements. This raises concerns about the accuracy and reliability of the financial data, leading to potential distrust among investors and stakeholders. It can create a perception that there might be serious financial issues within the company, or that management is hiding information, which can severely damage the company’s reputation.
Step 2
Explain why the shareholders have been given this responsibility.
Answer
Shareholders are entrusted with the responsibility of appointing directors because they are the owners of the company. Since they invest their money and have a vested interest in the company's success, it is essential for them to have a say in who manages the company. The directors are responsible for making strategic decisions that can significantly impact the company's performance, thus shareholders need to ensure that capable individuals are appointed.
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 Ethical Track Record: I would want to know if the directors have a history of ethical behavior and integrity. This is vital because directors must make decisions that align with shareholders' interests and uphold the company's reputation.
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Relevant Experience and Competence: Understanding the directors' past experiences and qualifications is crucial. I would look for candidates with expertise in the industry or critical business areas, as their knowledge can greatly influence the company’s strategic direction and performance.
Step 4
As a shareholder, explain what you would say at the AGM.
Answer
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Demanding Transparency and Accountability: I would voice my concerns about the CFO's alleged unethical behavior and request an investigation into the matter. It's essential for shareholders to hold management accountable for actions that could harm the company's reputation and financial standing.
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Ensuring Proper Governance: I would advocate for stronger governance measures to prevent such incidents in the future, emphasizing the need for compliance with ethical standards and a review of procurement processes to ensure transparency.
Step 5
In your opinion, explain why this major company found it necessary to implement this policy.
Answer
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Encourage Reporting of Ethical Issues: This policy encourages employees and stakeholders to report unethical behavior without fear of retaliation, fostering a culture of integrity and ethical conduct. By having a safe reporting mechanism, the company can address issues proactively.
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Protect the Company's Reputation: Implementing such a policy helps to safeguard the company's reputation. By being transparent about ethical guidelines and demonstrating a commitment to addressing ethical concerns, the company can build trust with its stakeholders, which is crucial for long-term success.