Introduction
The strength of the economy and society at large is highly reliant on the existence of successful and sustainable businesses. The achievement of corporate goals and long-term profitability is typified by the manner in which enterprises are directed and controlled (Financial Reporting Council, 2018). The creation and sustenance of successful and beneficial relationships with an array of stakeholders thus play a significant role in the aforementioned long-term success of these enterprises. Corporate governance is essentially intent on assuring the interests of suppliers of finance in the form of stakeholders and shareholders are protected (Ali, 2018). This essentially means that there is a return on investment for the parties involved. The UK Code of Corporate Governance comprises a number of laws, codes of practice, and market management.
The code is imperative as it ensures best practice with regard to amplifying the eminence of engagement between stakeholders and shareholders with corporate organisations (Financial Reporting Council, 2018). Corporate governance is to be grounded on transparency, accountability, and fairness. The organisation’s board is necessitated to address the demand for the company’s long-lasting success, ensuring the materialisation of value for stakeholders and shareholders and further contributing to the community at large (Financial Reporting Council, 2018). The board should ensure that the corporate culture and workforce policies and practices are effectively aligned with the purpose, values, and strategy that governs its operations. Moreover, an imperative matter of concern is the division of responsibilities. The organisation is required to offer an effective balance in assigning responsibilities through epitomising objective rationale and logic as well as endorsing a culture of constructive challenge as well as clear communication.
Issues to address to comply with the provisions of the code
Sherbet Ltd is essentially necessitated to highlight the importance of maintaining the presence of a separate and independent chairperson. The presence of an independent chair is imperative in ensuring that the organisation maintains a long-term perspective with regard to the purpose and operations of the organisation (Tumwebaze et al., 2018; Volkov, 2013). Moreover, having a separate Chair and CEO effectively condenses the risk of highlighting the unprecedented and unwarranted focus on short-term goals, particularly in the situation where there is a powerful remuneration involved in such transactions. Setting up a nominating committee made up of the Non-Executive members of the board is a plausible solution to the question of appointing competent board members (Tumwebaze et al., 2018; Volkov, 2013). The committee is integral in ensuring that select board members are highly qualified and are the best candidate for their areas of expertise and that their knowledge and skills effectively ensure profitability for the organisation. Transparency in appointment will be maintained by the nomination committee that has been set in place (Tumwebaze et al., 2018; Volkov, 2013). The committee will ensure that there is a perfect balance between the board members, in terms of who fully comprehend what makes Sherbet Ltd the organisation that it is, ones who have mastery with regard to their expertise, and board members who have an alternate perspective of matters with regard to the organisation.
Furthermore, senior management officials are necessitated to provide timely information that ensures competent supervision and direction of the Board (Tumwebaze et al., 2018; Volkov, 2013). These entities are imperative in ensuring that the rights of the stakeholders and shareholders are effectively maintained. Timely information will ensure that the organisation effectively realises a binding say on the entities that concern profitability, pay, remuneration, and without-cause removal policies that may influence shareholders’ investment. Nonetheless, the board is necessitated to ensure that risk management and assessment dogma are adhered to within the organisation (Tumwebaze et al., 2018; Volkov, 2013). The goal of risk management is to help identify and document an article to show the risks taken by the organisation in their critical business processes and the internal controls that both have the process to alleviate those risks. The common types of audit risks are control detection and inherent risks. This stems from the inability of the auditor to detect misstatements and errors in an organisations financial statement. This leads to the auditor issuing a wrong judgement on the mentioned statement.
Recommendations for achieving compliance
Increasing diversity is imperative in ensuring that Sherbet Ltd does not suffer the same fate as many other companies with regard to significant losses. Increasing diversity effectively gives rise to augmented financial performance. Diversity assists auditors create better strategies, enhancing diversity and inclusion and business performance. A diversity audit also increases creativity in a workforce, creating room for innovation. The board at Sherbet Ltd currently necessitates an independent panel that is not indebted to the CEO (BK, 2019; Tumwebaze et al., 2018; Volkov, 2013). Increasing diversity in age, experience, and background is imperative in ensuring that the organisation’s vision is optimised by effectively identifying the gaps within the current board. Therefore, setting up a nominating committee made up of the Non-Executive members of the board is a plausible solution to the question of appointing competent board members. The committee is integral in ensuring that select board members are highly qualified and are the best candidate for their areas of expertise and that their knowledge and skills effectively ensure profitability for the organisation (BK, 2019; Tumwebaze et al., 2018; Volkov, 2013). A diversity audit is needed to generate an unbiased and real view of Shebert Ltd’s equity. A diversity audit may include speaking diversity; supplier diversity audits, equality impact assessments and diagnostic diversity surveys. The committee will ensure that there is a perfect balance between the board members, in terms of who fully comprehend what makes Sherbet Ltd the organisation that it is, ones who have dexterity with regard to their expertise, and board members who have an alternate perspective of matters with regard to the organisation.
Furthermore, senior management officials are necessitated to provide timely information that ensures competent supervision and direction of the Board (BK, 2019; Tumwebaze et al., 2018; Volkov, 2013). Nonetheless, the board is necessitated to ensure that risk management and assessment dogma are adhered to. The decision-making process is made effective by apposite risk management policies and consequent cost-effective decisions.
The advantages and drawbacks of listing
Listing as a plc is imperative for both the growth and development of the enterprise in question. Companies are afforded a platform from which they can fortify their particular configuration and status. For the Sherbet Ltd. organisation, the listing will most importantly provide liquidity to the investors and guarantee ease in operations regarding the effective supervision of compliance (Korchak, 2016; Metropolitan Stock Exchange, 2017). Moreover, going public will serve as a basis from which the organisation gains access to capital. This will effectively thwart the financial constraints that materialise from the need for additional monetary assets that are imperative in funding the organisation’s growth and expansion plans. The listing also serves as proof of compliance with an assortment of regulatory norms as well as evidence of transparency and efficiency in organisational operations (Korchak, 2016; Metropolitan Stock Exchange, 2017). This effectively enhances Sherbet Ltd.’s visibility and integrity to the investing public and other interested corporate institutions.
Consequently, this also amplifies employee morale. However, sensitive information may be easily accessible to market competitors, which may put the organisation at a disadvantage. The increased visibility advances the organisation’s public perception, which, as a result, amplifies the value of the organisation’s personnel as well as their drive to achieve corporate goals (Korchak, 2016; Metropolitan Stock Exchange, 2017). However, going public necessitates that the stock value will essentially dictate the organisation’s success (Smith, 2019). Consequently, this will put Sherbet Ltd in a vulnerable position as the organisation can potentially collapse due to external pressures, inhibiting the organisation’s stability. Listing could also potentially lead to significant strain on resources.
The rules around audit rotation
A series of repeated inaccuracies have been avoided by mandatory audit firm rotation, which is crucial to improve audit quality. Mandatory audit firm rotation has encouraged fresh thinking and has also strengthened scepticism. Audit partner rotation usually improves the integrity of reporting financially and the auditing process (Mayse, 2018). Independent auditors can therefore observe and achieve credible financial statements with unbiased relationships. To avoid negative drawbacks involving relevant stakeholders, preserving auditor independence is a fundamental requirement. Not only does auditor independence solidify the public trust but also interested investors and shareholders (Mayse, 2018).
The rule of audit rotation states that if joint auditors of which both have had audit tenure f more than ten years, at the date of effect, then only one of the audit firms are required to rotate. At the same time, the latter is granted an additional two eras before audit rotation is needed. A change of auditors is beneficial because it brings new solutions to technical problems, deepens understanding, and leads to more accessible access to global resources. Sherbet Ltd did not initially adhere to this but decided that a change was necessary in order to improve the credibility of their published financial statements. This decision was, however, not well received by board member FD Iqbal who felt the change was not necessary.
Ethical concerns
Familiarity may pose a great threat to the integrity of the auditing process. The company is obliged to rotate the audit personnel after half a decade since the objectivity of the parties involved in the audit may prove questionable. Auditors are highly necessitated to preserve and uphold autonomy from the entity that they are auditing. Professional accountants will be too sympathetic to their interests and will be too lenient and accepting of their work. The auditing process should be devoid of any forms of allegiance. It should be vigilant of the situation of rewards and gifts and also thwart any forms of favouritism that may essentially arise. The misuse of material is a pressing concern. The process will essentially hand auditors access to a number of corporate materials, which should not be siphoned off or pocketed for individual gains.
Moreover, the audit should accordingly be devoid of client patronage and advocacy entities, which may lead to huge conflicts in the interests of the parties involved in the scenario. The lack of full disclosure of necessary information may prove an integral ethical concern. The audit findings should be clearly and fully disclosed to the organisation under scrutiny, as well as the organisation from which the auditor is employed. The appropriation and communication of all necessary information effectively ensure that the organisations in question equally receive appropriate treatment while also disapproving the auditor bias in operation.
Materiality
How and why specific issues are of importance to an organisation or in the business sector is clearly defined by the concept of materiality. Materiality in auditing not only means not just a quantified amount but also the effect of the amounts on various contexts. Material issues can have a key impact on the reputational, legality, financial, and economic aspects of an organisation. Materiality, in essence, could be considered qualitatively and quantitatively and is regarded as a key aspect for planning, scoping, and reporting. Information is regarded as material in cases whereby its misstatement can influence the economic decisions of users on the grounds of the financial information afforded. A transaction can be material due to either its nature or its amount. In terms of the amount, the transaction is made a percentage of a figure in Profit and loss or the Balance Sheet. One of the bases of percentages is applied in every item for the material amount.
Nonetheless, studies have essentially maintained that no single rule is designated to determine materiality within the organisation’s transactions. Nonetheless, the IASB desists from affording the regulatory standards concerning materiality calculation. As such, the entities of the calculation of materiality are based on the subjective discretion of the team obligated to the audit operations. Materiality, according to the single rule, is obtained as 0.5% of total assets within the organisation in question.
The Role of the Auditor
Auditors are necessitated to preserve an attitude of professional scepticism, which calls for auditors to distinguish the prospect that misstatement as a result of fraud may possibly transpire, in spite of the auditor’s preceding experience of the client’s veracity and candour (Kaplan Financial Knowledge Bank, 2020; Al-Dalabih, 2018). The auditor is necessitated to acquire rational assertion that Sherbet Ltd’s financial statements are devoid of any form of material misstatement, albeit in consequence of either error or fraud. Through inquiry, the audit team is necessitated to understand the various tactics in place that are concerned with assessing and responding to the prospect of fraudulent documentation of financial statements(Kaplan Financial Knowledge Bank, 2020; Al-Dalabih, 2018). On the detection of fraud, the audit team is obliged to communicate the issue in a timely manner to the appropriate level of management within the board. In situations where the auditor or the team in question is rather uncertain of the integrity of the parties charged with this form of governance, they are necessitated to pursue legal counsel in order to better understand the most appropriate course of action (Kaplan Financial Knowledge Bank, 2020; Al-Dalabih, 2018). Increasing the auditor’s roles is imperative as it guarantees that the revenue of the organisation is effectively and quite essentially truthfully reported as per the necessities of the organisation. Tainting the independence of the auditing team and personnel essentially impairs the necessity to file financial account registries and statements, which may potentially carry significant and adverse effects on the organisation.
Reflective Writing
I know that I need to develop my critical thinking and problem-solving skills. The ability to meet challenges confidently is an essential skill set for school readiness. Manageable steps to identify problems, brainstorm, test appropriate solutions, and analyse results by introducing problem-solving skills have helped me improve how I deal with challenges today and those that lie ahead. Viewing problems as chances to grow has broadened my understanding resulting in a rise in confidence. The classroom is now a controlled, safe environment where with the help of my teachers, I get to hone my problem-solving skills even further. An advantage of acquiring this skill has been that it taught me discernment, helping me distinguish what a solvable problem is.
Through a lot of questioning and using analogies, I had a lot of motivation to search for background knowledge. These questions inspired me to make connections to real-life situations. Critical thinking and problem-solving are essential skills in the career I aspire to be. I desire to be a public audit. A general audit guarantees that taxpayers’ hard-earned money is accurately accounted for and precisely spent on the task intended at its core. As an auditor, objective analysis and evaluation of facts and information in an audit are essential to provide actionable insight. Critical thinking also brings about a business acumen crucial skill for an auditor. Using the Kolb cycle, my problem-solving skills have greatly improved. “Learning is the process whereby knowledge is created through the transformation of experience.” (Kolb,1984).
Reference List
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