TUTORIAL LETTER 3

MODEL ANSWERS FOR ASSIGNMENT QUESTIONS

Year 2019
Semester Second semester
Subject CORPORATE COVERNANCE
Subject code CGE101

1. DETAILS OF LECTURER / FACILITATOR OF LEARNING

Lecturer/Facilitator of Learning Mr Japie Benade

Consultation times All times via e-mail.

Telephone I prefer e-mails.

E-mail japiebenade@gmail.com

2. EXAMINATION INFORMATION
Please refer to your examination information for the specific semester.

3. MODEL ANSWERS FOR ASSIGNMENT QUESTIONS

Question 1 [5]
1.1. E. (1)
1.2. C. (1)
1.3. C and E. (1)
1.4. C and D. (1)
1.5. C, D and E. (1)

Question 2 [5]
2.1. True (1)
2.2. False (1)
2.3. False (1)
2.4. True (1)
2.5. True (1)

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CGE101
CORPORATE GOVERNANCE
2019 SECOND SEMESTER - TUTORIAL LETTER 3 (MODEL ANSWERS FOR ASSIGNMENT QUESTIONS)

Question 3 [25]
3.1. The - approach: (5)
3.1.1. According to this approach the directors of a company are entitled to consider the
interests of other stakeholders only to the extent that it would be in the of the
shareholders to do so.

The economic justification for this approach to corporate governance is said to be:

The shareholders invested their capital in the company and so they are
entitled to its profits.
The shareholders, as residual claimants of whatever is left over after all other
claims have been paid, are the best positioned to police the efficiency of the
company.
The survival and economic success of the company will deliver benefits to
many stakeholder constituencies, only if the company is financially sound.
3.1.2. The approach: (8)
This approach to corporate governance requires that directors consider the interests
of not only shareholders but all stakeholders in the company, on an equal footing.
The view is that corporate governance should be concerned with balancing economic
and social goals.
It should be seen as a system by which companies ought to be controlled for the
benefit of all stakeholders, which are identified as any group affected by and affecting
s operations for example:
The shareholders;
The employees;
Customers;
Suppliers;
Business partners and sub-contractors;
Society in general.
Local communities;
Non-govermental organisations; and/or
The State.
The environment.
Note to markers: ½ mark each for listing each stakeholder.

3.2. Discussion of the principles-based and rules-based approaches in corporate

governance:
3.2.1. The principles-based approach to corporate governance normally manifests itself in
codes of corporate governance with recommendations on how to apply corporate
governance principles best suited for an organisation and which could be applied on
a voluntary basis. (2)
The rules-based approach to corporate governance on the other hand, manifests
itself in the codification of governance in legislation and a situation whereby legal
sanctions could exist for non-compliance to the legislation. (2)
3.2.2. In South Africa several pieces of legislation containing sections which directly deals
with the governance of corporations and companies has developed over time.
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CGE101
CORPORATE GOVERNANCE
2019 SECOND SEMESTER - TUTORIAL LETTER 3 (MODEL ANSWERS FOR ASSIGNMENT QUESTIONS)

Therefore, there will always be a link between corporate governance and

compliance with the law (referred to in King IV and Wiese as The act). (2)
3.2.3. The principle-based approach to governance has evolved into different approaches of
and a few

(2)
The characteristics of good corporate governance according to the King committee
are:
Transparency.
Accountability.
Responsibility.
Fairness. (4)

Question 4 [25]
4.1. T (6)
The audit committee is responsible for recommending and nominating the
appointment of the external auditor.
The audit committee is responsible for overseeing the external audit process
and review the quality and effectiveness.
The audit committee should approve the terms of engagement and
remuneration of the external auditors.
The audit committee is responsible to monitor and report on the independence
of external auditors.
The audit committee is responsible to define a policy dealing with the
provision of non-audit services by external auditors.
Approve contracts for non-audit services.
The committee should be informed of any reportable irregularity identified by
the external auditors in terms of section 45 of the Audit Profession Act.
Note to markers: Any six of the roles above.

4.2. oversight role regarding internal audit. (4)

The audit committee is responsible for appointing and dismissing the chief
audit executive (CAE).
Should take responsibility for the performance of the CAE.
The audit committee should approve the internal audit plan.
Ensure that the internal audit function is subject to an independent quality
review as and when the committee determines it appropriate.

4.3. The main criteria for the composition of an Audit Committee: (6)
Audit committee members should be suitably skilled and experienced non-
executive directors.
The audit committee should consist of at least three members and all the
members should be non-executive directors.
The chairman of the board cannot be a member or the chairman of the
committee.

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CGE101
CORPORATE GOVERNANCE
2019 SECOND SEMESTER - TUTORIAL LETTER 3 (MODEL ANSWERS FOR ASSIGNMENT QUESTIONS)

The audit committee should collectively possess the skills, qualifications and
expertise required to fulfil its mandate.
Members are required to keep up to date with relevant developments.
Members should therefore be allowed to consult with specialists or
consultants according to a process approved by the board.

4.4. T
providing oversight and disclosure.
Oversight roles in terms of: (2)

The integrity of the annual financial statements.

Oversight of financial and other reporting risks, regardless of whether a
separate risk committee has been appointed.
Note to markers: Any two of the above roles.
Disclosure roles in terms of: (7)
Determine whether it is satisfied that the auditor is independent.
Its views of the quality of the audit.
Its views on the effectiveness of the finance and internal audit functions.
Its views on the effectiveness of the internal audit.
Its views on the effectiveness of internal financial controls.
Its views on the effectiveness of the CFO and the finance function.
The arrangements in place for combined assurance.
Significant matters it considered in relation to the external assurance of
reports. And how it addressed these matters.
Note to markers: Any seven of the above roles.

Question 5 [25]
5.1. The board inter alia, should ensure it with the following actions: (9)
The board should provide effective leadership based on an ethical foundation.
The board should ensure that the company is and is seen to be a responsible
corporate citizen.

The board should ensure that the company has an effective and independent
audit committee.
The board should be responsible for the governance of risk.
The board should be responsible for information technology (IT) governance.
The board should ensure that the company complies with applicable laws and
considers adherence to non-binding rules, codes and standards.
The board should ensure that there is an effective risk-based internal audit.
ions affect the

internal controls.
Note to markers: Any nine of the above actions.

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CGE101
CORPORATE GOVERNANCE
2019 SECOND SEMESTER - TUTORIAL LETTER 3 (MODEL ANSWERS FOR ASSIGNMENT QUESTIONS)

5.2. The role of the company secretary according to King IV: (10)

Not be a director of the company.

Assist the nomination committee with the director appointment process.
Assist with director induction, training and development.
Provide guidance to the directors regarding their duties and good governance.
Ensure that board and committee charters are kept up to date.
Prepare and circulate board papers.
Elicit responses, feedback and input for board and board committee meetings.
Assist in the drafting of yearly work plans.
Ensure the preparation and circulation of minutes of board and board committee
meetings.
Assist with the evaluation of the board, its committees and individual directors.
Note to markers: Any ten of the above actions.

5.3. Criteria for the composition of the remuneration committee: (6)

The majority of the members should be non-executive directors.
The majority of non-executive directors should be independent.
The chairman of the board may be a member of the committee, but may not be
the chairman of the committee.
The chief executive officer (CEO) may be a member of the committee and
should attend meetings by invitation.

Question 6 [15]
6.1. The way organizations govern their IT activities has evolved into an intricate mosaic
of dispersed decision rights spanning organizations, entities, and institutions often
involving a multiplicity of stakeholders.
Such IT governance arrangements defy conventional dichotomizations such as
centralization/decentralization or insourcing/ outsourcing of IT activities that were
historically pervasive in the IT governance literature. (2)
6.2. According to the IT Governance Cube in the article:
6.2.1. Who is governed? (2)
Projects
The firm
The ecosystem
Note to markers:1 mark each for any two correct answers listed.

6.2.2. What is governed? (2)

IT Artifacts
Content
Stakeholders
Note to markers:1 mark each for any two correct answers listed.

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CGE101
CORPORATE GOVERNANCE
2019 SECOND SEMESTER - TUTORIAL LETTER 3 (MODEL ANSWERS FOR ASSIGNMENT QUESTIONS)

6.2.3. How is it governed? (2)

Decision rights
Control
Architecture
Note to markers: 1 mark each for any two correct answers listed.

6.3. According to the IT Governance Cube in the article:

6.3.1. Most important antecedents on the left hand side of the cube: (2)
IT Properties
Organisation Properties
Environment Properties
Note to markers:1 mark each for any two correct answers listed.

6.3.2. Most important consequences on the right hand side of the cube: (2)
Outcomes
Innovation partitioning
Orchestration
Evolutionary dynamics
Note to markers:1 mark each for any two correct answers listed.

6.4. Recommended practises by King Iv regarding the governance of Information

Technology: (3)
Ensure that the IT charter and policies are established and implemented.
Ensure promotion of an ethical IT governance culture and awareness, and a
common IT language
Ensure that an IT internal control framework is adopted and implemented
Receive independent assurance on the effectiveness of the IT internal
controls.
Note to markers:1 mark each for any three correct answers listed.

TOTAL: [100]

4. CONCLUSION
Good luck with your studies and the examination!

Kind regards
Mr J Benade

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