International Institute of Technology ADACC Chapter 7 Assessment

This document presents a student's completed assessment booklet for Chapter 7 of the Advanced Diploma of Accounting (ADACC) course, focusing on corporate governance. The assessment covers key concepts such as the factors determining non-executive director independence, ethical dilemmas faced by accountants regarding inventory valuation, the role of accounting in corporate governance, the difference between corporate governance and management, and the evaluation of corporate governance in a hypothetical company seeking a stock market listing. The assignment also explores examples of conflicts of interest for directors, situations involving a director's failure to act with reasonable care, and the role of the audit committee in protecting the independence of external auditors. The student's answers demonstrate an understanding of these concepts and their practical application within a business context, providing insights into the complexities of corporate governance and accounting practices.

Advanced Diploma
of Accounting
Student
Assessment Booklet
Name:
Date:
Manual Version Number:
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ADACC – Chapter 7
Please note: It is a requirement for students to make their submissions using
this electronic assessment booklet.At the facilitator’s discretion any
submissions made in another format may not be accepted.If you are
completing the course via various computers, please save the one booklet on a
USB so you can send the submission in using the one file
Getting Started
Please insert your NAME,DATE and the Manual Version Number on the first
page of your Assessment Booklet.
Answering Assessment Questions
Each Assessment Booklet contains blank spaces for following assessment items:
 Short Answer Questions
When submitting Assessment Booklets for marking, please ensure that the entire
booklet is completed.
Short Answer Questions
Using the space/s provided, please complete your answers making sure to:
 Please restrict your answers to no more than 300 words per question
 Please include any calculations that you used to reach your answer
Referencing Your Answers
Students undertaking the course must exhibit a range of skills in order to be
confirmed as competent in their course. These skills include:
 Understanding a question.
 Possessing knowledge about the issue, which in some assessments
includes locating information from references.
 Providing an answer, this shows personal understanding.
Please make sure that all assessments are documented in a way that
exhibits your personal study and/or research. To that end would you
please acknowledge all material and sources used in the presentation of your
assessment whether they are books, articles, reports, Internet searches, or any
other document or personal communication. For example if:
 An idea is sourced; reference it e.g. (Bagra 2010).
 You are directly quoting, wrap it in quote marks e.g. “Tom Horner sat in a
corner” (Peters 2007 page 7).
 You are quoting from the internet include quote marks and the web
reference e.g. “ban on conflicted remuneration structures including
commissions” <http://futureofadvice.treasury.gov.au/content/Content.asp
x?doc=reforms.htm> accessed on the 28th of December 2012.
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Please note that no more than 5% of direct quoting which is referenced is
deemed to be acceptable and no amount of direct quoting without referencing
is deemed acceptable. Any direct quoting should form only a small portion of any
answer and the answer should demonstrate the student understands and can
interpret the question and provide an appropriate answer.
Whilst this will require more work for you I hope you will understand that we are
trying to maintain high standards and support your progression into further
qualifications.
Document Naming Instructions:
Save this file to your computer and please use the following protocol when
naming the file;
SUBMISSION this relates to the number of times the file has been submitted. For
example, your first submission would be S1, with any re-submission the file
name should be recorded S2.
Note:If you are submitting handwritten assessments all questions must be
completed in blue or black pen. If assessments are received in pencil or with
illegible handwriting, a resubmission will be required.
Note: It is your responsibility as a student to keep a copy of all assessment
submissions. IIT do not take responsibility for the loss of any submissions.
Distance Education Students
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Student Declaration
I understand that by completing this form I am bound by the
following declaration.
To the best of my knowledge and belief, no part of this
assignment for the above unit has been copied from any other
student’s work or from any other source except where due
acknowledgment is made in the text, or has been written for
me by another person.
Name: Date:
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ADACC – Chapter 7
Short Answer Question 1:
What factors might determine that a non-executive director is NOT independent?
List at least four factors and explain their application to the independence of the
directors.
Non-executive directors are also called the independent directors or
external directors. They are not a part of the executive management
team but they are the members of the board of directors. They are not
considered as the employees of the organization and are different from
the executive directors who are a part of the board of directors and also
serve as the executive managers of the organization (Brennan, Kirwan &
Redmond, 2016).Though the non-executive directors are not a part of
the management team but are responsible for certain activities. These
activities include the activities of policy making and the planning
exercises. Similarly, the non-executive directors are also responsible for
monitoring the executive directors and act according to the interests of
the stakeholders of the company. Sometimes the non-executive
directors are appointed for maintaining the public relations of an
organization (Annuar & Abdul Rashid, 2015).
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Short Answer Question 2:
As an accountant for an industrial company, you have been working on year-end
inventory valuation and you are reporting to the senior accountant. You have
reached an opinion that some items of inventory are obsolete, and that their
value should be written down to zero. The senior accountant disagrees. He thinks
that the inventory should be kept at its current recorded value, without any
write-off, in order to avoid a reduction in the reported profit for the year. He also
tells you that the matter should not be discussed with the external auditors,
should they do an inventory check.
When you argue that inventory should be valued fairly and properly, you are
reminded that the company pays your salary and the senior accountant will
decide how much that should be next year.
What should you do?
Inventories have been considered as the largest current assets of a
business. The inventory valuation is the amount of money that is
associated with the goods stored in the inventory at the end of the
accounting period (Nisha, 2015). The valuation of the inventory is based
on the costs of the inventories at the time of acquisition and at the time
of sales. The inventory valuation helps in the evaluation of the cost of
goods sold and also helps in the evaluation of the profitability. This
valuation is important as the excess or shortage of inventory affects the
profitability and the production of the business (Onoja & Abdullahi,
2015). It is important to have an accurate valuation of the inventories as
the recorded amount of the inventory affects the net income and the
gross profit along with the costs of goods sold. The incorrect valuation of
the inventories will affect the income statements of two consecutive
years as the closing inventory of the current will become the opening
inventory of the next accounting period (Muller, 2019).
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Short Answer Question 3:
Identify examples of how accounting contributes to:
a) Conformance in governance
b) Business governance or ‘performance’
a) The group of stakeholders of the organizations mandatorily
requires good corporate governance especially in today’s world.
This requirement has become mandatory due to the failure of
giant corporate groups in the last few decades and the accounting
as discipline has been held liable for this. The accounting and
corporate governance are interrelated with each other. The
accounting department is solely responsible for all the activities of
corporate governance in an organization (Tricker & Tricker, 2015).
b) Accounting plays an important role for the smooth running of the
business. It helps to assist in all types of economic activities in the
various sectors. Therefore, it helps in taking business decisions. It
is not possible without accounting to know about the successful
decisions of the business, requirement of capital, payment of
taxes, proper utilization of resources. It provides relevant data to
the business owners, employees and management as a whole
along with the investors, creditors, clients and the government
(Wu, Straub & Liang, 2015).
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Short Answer Question 4:
What is the difference between corporate governance and management?
The corporate governance deals with the policies and procedures which
a business organization forms in order to operate the business as per
the law and also for the optimal benefits of the stakeholders. On the
other hand, management refers to the techniques which a business
organization follows for running its operations smoothly (Muda, et al.,
2018).
Corporate government differs from management as corporate
governance is primarily concerned with the protection of the business
whereas the corporate government is concerned with the growth of the
organization (Rothaermel, 2017).
The word governance comes from the word “govern” which
governs the actions of the business group for the benefit of the society.
In terms of business it refers to the policies which directs and restricts
the actions of the people. Alternatively, the actions which are
undertaken by the business for the leading to a positive direction is
termed as management (Rothaermel, 2017).
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Short Answer Question 5:
James Quinn is the Executive Chairman of a company that is about to seek a
Stock Market listing. He also holds 30 per cent of the issued shares. He founded
the company 25 years ago to provide language tuition and in the last 10 years
has opened private schools. During this time he was the Managing Director but
last year changed to being the Chair and appointed his deputy to the role of
CEO. The company has a strategy to expand into other areas of education by
acquisition including running pre-school nurseries and professional training.
There are two non-executive directors on the 10-person board. One is a politician
involved in education, whom the Chair believes may be helpful in getting
education contracts, and the other is a partner with the firm’s corporate lawyers.
Evaluate the corporate governance of this company.
The performance of the education sectors has always been a topic of
debate especially at the levels of government and individual institution.
This debate has been raised due to the growth in the participation rates
of the higher education and the pressures on the educational sectors for
obtaining operating from the sources other than the public money
(Tricker & Tricker, 2015). Recently, the education sectors have been
asked to become more effective and efficient and at the same time to
be more responsive, accountable and self managing with more
entrepreneurship. According to the Australian Association of Tertiary
Education Management, the role of the academic sectors has changed
where the sectors are not directly managed by them but the
appointment of administrators have been done for doing the same
(Yermack, 2017).
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Short Answer Question 6:
a) Give 3 examples of a conflict of interests for directors.
b) Suggest a situation in which a director may be accused of failing to act
with reasonable care, skill and diligence.
c) Suggest a situation in which a director may choose to exercise their
powers for an improper purpose.
Examples of conflict of interests of directors (Bebchuk & Hamdani,
2016)-
1. The rule against self dealing- It arises when their personal
interests conflicts with their duties which they serve in the
organization
2. Conflicts with clients over business matters- If any of the
directors is involved with any other business of the same
industry they should not attract the clients of that particular
company which they are presently serving.
3. Mixing of personal and corporate transactions- The director can
own a company which serves the company in which he is
associated as a board member but he should not earn profit
from the former one.
If any of the directors fail to exercise reasonable skill, care and diligence
then the directors shall be deemed to have acted negligently for the
purpose of discharging their duties and responsibilities and
consequently will be held liable for any loss or damage resulting from
such actions and the director will be liable for the acts of misconduct or
wilful use of the powers (Klettner, 2016).
A director should exercise its power for proper purposes since
many obligations have been imposed on the powers of the directors for
exercising its duties. According to the Supreme Court, while exercising
the powers a director must consider the actual purpose and for which he
has been asked to exercise those powers and should ensure the
correctness of the purpose (Klettner, 2016).
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Short Answer Question 7:
a) In what ways might the audit committee protect the independence of the
external auditors?
b) What are the potential limitations of an audit committee that would reduce
its effectiveness?
It is the duty of the audit committee to safeguard the independence of
the external auditors. It can be done after giving approval to the audit
charter and mandating it periodically. The auditor should maintain the
mental objectivity while performing the audit work (Rathi, 2015).
The limitations of the audit committee-
1. The Audit Committee is not authorised to plan or conduct the
audit plan of an organization or to determine the fairness of the
financial statements.
2. The audit committee members are not the full time employees of
the client organization therefore they should not perform any field
work of audit and accounts.
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Short Answer Question 8:
Shareholders should have the right to participate effectively and vote in general
meetings of shareholders.
What measures or procedures might be applied to ensure that this right is
upheld and protected?
It is the duty of the company to protect the interests and rights of the
shareholders and for doing so they should follow certain rules (Pearce,
2015).
1. The basic rights of the shareholders must be protected in terms
of registration, participation, assignment and transfer of
ownership.
2. The shareholders must participate in the decision making
processes like Memorandum and Articles of Association and
other amendments.
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Short Answer Question 9:
Identify 3 examples of lack of transparency in the provision of information to by
companies.
It is the duty of the organizations to maintain transparency. The
maintenance of transparency has many advantages like
(Schnackenberg & Tomlinson, 2016)-
1. It fosters the happiness of the employees as it has been found
that company transparency is the most important determinant
responsible for happiness in the workplace.
2. It also helps in the smooth running of the operations
3. It also helps in marinating better relationships with the
customers.
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Short Answer Question 10:
The chair of an ASX 200 company is concerned that a non-executive director has
attended only 50% of the board meetings in the past year and has not
contributed greatly to the meetings that they have attended. The director is also
a member of the audit committee and has extensive experience in accounting
and finance. The chair wants to carry out the annual review of performance of
the board before the end of the financial year.
Suggest what the chair might do.
A non-executive director has certain roles and responsibilities that he
has to follow bringing a broad perspective for the organization and the
issues of the business. It brings value to the organization by providing
certain inputs (Annuar & Abdul Rashid, 2015). Specifically, a non-
executive director has to follow four key responsibilities which are-
1. Strategic direction which is the most important duty of a
non executive director
2. Monitoring of the performances is the another key
responsibility for ensuring the performance of the
management as a whole
3. Risk is one of the shared responsibilities that it has to
follow
4. Networking is another key responsibility of a non-
executive director with which it brings value to the
organization
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ADACC – Chapter 7
Short Answer Question 11:
Compare 2 IT systems that meet corporate governance obligations with regards
to recording data from operations and transactions. Eg.MYOB
MYOB
MYOB is business management software and it is cloud based
software designed for mid-sized business organizations. The features of
MYOB include inventory management, finance, payroll and
manufacturing. It helps to deliver end to end solutions for business
management in a single platform and it also eliminates hardware costs
(Sriyono, 2017).
XERO
It is simple accounting software specially designed for sole traders
and small businesses. IT helps to take care of the basic accounting
needs like stock processes, creation of purchase orders and
management of expenses at a reasonable price. It also helps in cash
flow management and accounting transactions (Mageto, 2017).
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Case Study Question:
In preparation for joining the parliamentary select committee Robert Johnson has
asked you to prepare for him a briefing paper on the COMCO collapse, covering
the following areas:
a) Explain the factors that might lead institutional investors to attempt to
intervene directly in the management of a company, in particular after
COMCO’s first results restatement was announced.
b) Identify any corporate governance compliance failures which may have
contributed to the failure of COMCO. For each failure identify the specific
regulation/compliance requirement not adhered to.
c) Advise which internal control / corporate governance processes may have
prevented the collapse of COMCO. Provide reasons for your advice.
In order to determine the performance of the organization it is required
by the management to compliance internal control system with the
requirements of corporate governance. The committee of COSO has
developed an internal control system with an integrated framework
which defines a process for providing reasonable assurance for the
achievement of business objectives. It has been made by the board of
directors and the related parties of governance.
It is the responsibilities of every organization to have an internal
control structure with each party having specific responsibilities like the
management who is responsible for the ownership of the system, audit
committee which provides governance and guidance and internal
auditors who evaluates the effectiveness of control system.
The internal control system is the responsibility of every personnel
of an organization and it should be included in the job description of
such personnel. It is the responsibility of every personnel for
communicating the problems with operations, code of conduct,
violations of policy and any other illegal acts. Similarly, the systems of
information technology also helps in the determination of use and
suitability for recording data related to operations and corporate
governance since information is the lifeblood in modern business world.
It is important for every organization for delivering business
requirements and to meet compliance requirements.
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References
Annuar, H. A., & Abdul Rashid, H. M. (2015). An investigation of the control
role and effectiveness of independent non-executive directors in
Malaysian public listed companies. Managerial Auditing
Journal, 30(6/7), 582-609.
Bebchuk, L. A., & Hamdani, A. (2016). Independent directors and
controlling shareholders. U. Pa. L. Rev., 165, 1271.
Brennan, N. M., Kirwan, C. E., & Redmond, J. (2016). Accountability
processes in boardrooms: a conceptual model of manager-non-
executive director information asymmetry. Accounting, Auditing &
Accountability Journal, 29(1), 135-164.
Klettner, A. (2016). Corporate Governance Regulation: The changing roles
and responsibilities of boards of directors. Routledge.
Mageto, J. (2017). Accounting Softwares in Australia. An Overview.
Muda, I., Maulana, W., Sakti Siregar, H., & Indra, N. (2018). The Analysis of
Effects of Good Corporate Governance on Earnings Management in
Indonesia with Panel Data Approach. Iranian Economic
Review, 22(2), 599-625.
Muller, M. (2019). Essentials of inventory management. HarperCollins
Leadership.
Nisha, N. (2015). Inventory valuation practices: A developing country
perspective. International Journal of Information Research and
Review, 2(7), 867-874.
Onoja, E. E., & Abdullahi, Y. U. (2015). Inventory valuation practices and
reporting: Nigerian textile industry experience. Mediterranean
Journal of Social Sciences, 6(4), 74.
Pearce, J. A. (2015). The rights of shareholders in authorizing corporate
philanthropy. Vill. L. Rev., 60, 251.
Rathi, N. S. (2015). Factors Affecting the Independence of Auditors.
In 12th International Conference on Business Management (ICBM).
Rothaermel, F. T. (2017). Strategic management. New York, NY: McGraw-
Hill Education.
Schnackenberg, A. K., & Tomlinson, E. C. (2016). Organizational
transparency: A new perspective on managing trust in organization-
stakeholder relationships. Journal of Management, 42(7), 1784-
1810.
Sriyono, H. (2017). Effect of Tutorial Instructional Strategy and Drill in
Using MYOB Accounting in Vocational High School Bekasi West Java
Province.
Tricker, R. B., & Tricker, R. I. (2015). Corporate governance: Principles,
policies, and practices. Oxford University Press, USA.
Wu, S. P. J., Straub, D. W., & Liang, T. P. (2015). How information
technology governance mechanisms and strategic alignment
influence organizational performance: Insights from a matched
survey of business and IT managers. Mis Quarterly, 39(2), 497-518.
Yermack, D. (2017). Corporate governance and blockchains. Review of
Finance, 21(1), 7-31.
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