Question 2
A. Wirely Co, a well-established wholesaler of electrical materials for more than 15 years has recently been listed in the London Stock Exchange (LSE). The company operates in three regions of England, the Northeast, Central and Southwest. The company maintains a small audit team located in a small office in the Central region.
The board of directors have recently decided to expand the audit team to include more specialist skills in order to cater for the
growing trading activities, which we see another two small teams set up for the other regions.
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However, the directors are unsure whether to recruit more internal auditors or to outsource the whole function.
Required:
Explain the FIVE advantages and FIVE disadvantages for Wirely Co of outsourcing the internal audit department instead of expanding the teams.
(10 marks)
B. Damien Ltd is a printing and publishing company planning to raise finance for its recently expanding business. The directors of the company are considering listing the company on the London Stock Exchange in order to raise much-needed capital. After due consultation with the company’s external auditors, the management was advised about some compliance issues with corporate governance provisions which include establishing an audit committee.
Consequently, the finance director is currently looking to appoint non-executive directors for the audit committee. Two potential non-directors have been identified by the finance director for the committee. The first is currently Manas Selmon, an executive director of a multi-national conglomerate who also sits on the audit committee of another company as a non-executive director.
He has agreed to a fee which will not be related to profit. Another potential candidate that the finance director is considering is Ethan Browne, the brother-in-law who is currently an executive director of a small printing company. He is willing to accept the role and has expressed interest in a fixed eight-year contract.
Required:
(i) Explain SEVEN benefits of Damien Ltd of establishing an audit committee
(ii) Discuss the issues to be considered in appointing the two potential candidates as nonexecutive directors of Damien Ltd.
Note: The total marks will be split equally between each nominee.
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