GOVERNANCE AND COMPLIANCE AUDIT APRIL 2023 PAST PAPER

TUESDAY: 25 April 2023. Morning Paper. Time Allowed: 3 hours.
Answer ALL questions. Marks allocated to each question are shown at the end of the question. Do NOT write anything on this paper.

QUESTION ONE

MSWAKI ENTERPRISES LIMITED

Mswaki Enterprises Ltd. (MEL) was established in the year 2000 as a wholly-owned family business operating in Nairobi, Kenya. The company’s main business is production of various products from value-addition of fruits. The firm has contracted farmers all over the country who ensure that it has a steady supply of fruits. Once fruits are received at the company, it adds value and supplies the produce to supermarkets and retail shops.

MEL is planning to expand its operations across the East African Region by opening subsidiaries and trading depots. Mr. Mswaki is the Chairman of the Board, his wife Hasidi, the CEO, and their three children; Maneno, Mengi and Machache are the directors in charge of the three functional departments. Major decisions are solely made by Mr. Mswaki with little input from the CEO and the other directors. The company has been consistently making profits over the years although many business analysts opine that MEL is a sleeping giant. The company has potential to grow into a regional giant in the fruits processing industry.

As per the law, the Regulator, a government agency managing the horticultural sector carried out a governance and compliance audit towards the end of last year. An inception meeting was held in November 2022 where the terms of engagement were unanimously agreed upon. The audit focused on reviewing statutory compliance requirements, quality standards and procedures, among other reviews. The assignment was carried out in two weeks and an audit report presented to the board.

The governance audit report revealed several areas of non-compliance. Concerns were raised regarding certain operating licenses and the product quality. Several products were flagged for not meeting market quality and packaging standards. Among the many recommendations, the Regulator directed the company to put in place corrective measures within three months to address the identified gaps. MEL was advised to hire independent directors in its board. The Regulator also demanded that MEL should be carrying out regular internal audits, statutory audits and legal audits.

Corporate governance matters had been thrown to the backburner at MEL as the audit report indicated which raised a red flag. This exposed the company to legal and reputational risks. Five senior managers had been sacked without following due legal procedure exposing the company to legal suits at the Employment and Labour Relations Court. The company had also been taken to court by the surrounding community for improper disposal of effluence from their industry into a nearby river.

The Regulator advised the company that governance audits needed to be carried out after every two years. This would help mitigate threats before they occurred. One of the Regulator’s audit team member informed Mr. Mswaki that with these interventions, the company would be able to produce five times its current capacity. This jolted Mr. Mswaki into action and he organised an urgent board meeting to develop strategies and action plans to implement the recommendations.

Required:

1. Examine FIVE benefits of the governance audit report that was presented to the board of Mswaki Enterprises Limited (MEL) by the Regulator. (10 marks)

2.  Analyse the importance of the governance audit inception meeting held in November, 2022 between the Regulator’s audit team and MEL. (10 marks)

3. A red flag was raised due to a certain risk that MEL was exposed to.
Evaluate the FIVE narrow risks associated with this red flag. (10 marks)

4. Analyse FIVE strategy implementation roles of the organ that was tasked to develop strategies and action plans for implementing the proposed recommendations by the Regulator. (10 marks)

(Total: 40 marks)

 

QUESTION TWO
1. In the context of governance audit, explain the following terms:

Attestation. (1 mark)

Assurance. (1 mark)

2. Explain THREE benefits which could accrue to an organisation that regularly carries out compliance audits. (3 marks)

3. Reasonable assurance and limited assurance are two levels of assurance provided by auditors in their reports.

Analyse FIVE differences between the two. (10 marks)

(Total: 15 marks)

 

QUESTION THREE

1.  Describe THREE qualities of a good governance auditor. (3 marks)

2. Outline FOUR documents that should accompany the completed Champion of Governance (COG) Awards self- assessment form submitted by an organisation to the Institute of Certified Secretaries. (4 marks)

3. Evaluate FOUR roles of governance audit management letter. (8 marks)

(Total: 15 marks)

 

QUESTION FOUR

1.  Explain FIVE aspects of effective communication in governance audit process. (5 marks)

2.  Evaluate FIVE roles of a Governance auditor in an audit assignment. (10 marks)

(Total: 15 marks)

 

QUESTION FIVE

1. Highlight FIVE working papers that may be maintained during governance audit. (5 marks)

2.  Outline FIVE limitations that may affect gathering of governance audit evidence. (5 marks)

3. Identify FIVE post audit events that a governance auditor may consider after concluding an audit assignment. (5 marks)

(Total: 15 marks)

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