Gro-Tech is a profitable but small company in a technology related service industry with annual sales of P150 million. The industry is highly competitive but there are major barriers for entry to new competitors and the long-term future of Gro-Tech is considered by industry analysts to be sound. The board comprises a non-executive chairman, a chief executive who has a large shareholding, an executive finance director, operation director and marketing director and a non-executive director with wide knowledge of the industry and who retired from the company 3 years ago. There is only one committee of the board. The audit committee consists of the chairman, non-executive director and finance director. There is no internal audit function in Gro-Tech but the external auditors are relied on to report on any weaknesses in control and their letter of engagement authorises them to carry out work over and above the financial audit in relation to internal control. The external auditors have always given a clean audit report to the company and have reported that internal controls within Gro-Tech are sound. There is no formal risk management process in place in Gro-Tech although board meetings routinely consider risk during their deliberations. The chairman and chief executive both believe that compliance with corporate governance reforms will not benefit Gro-Tech and is likely to be too costly. This is disclosed in GroTech’s Annual Report. Required: Evaluate the corporate governance of Gro-Tech and, with reasons, recommend what the company can do to improve it. Your response should be put under the following headings. a. The composition of the board b. Audit committee c. Risk management d. Internal control e. Internal audit

Understanding Business

12th Edition

ISBN:9781259929434

Author:William Nickels

Publisher:William Nickels

Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment

Section: Chapter Questions

Problem 1CE

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Gro-Tech is a profitable but small company in a technology related service industry with annual sales of P150 million. The industry is highly competitive but there are major barriers for entry to new competitors and the long-term future of Gro-Tech is considered by industry analysts to be sound. The board comprises a non-executive chairman, a chief executive who has a large shareholding, an executive finance director, operation director and marketing director and a non-executive director with wide knowledge of the industry and who retired from the company 3 years ago. There is only one committee of the board. The audit committee consists of the chairman, non-executive director and finance director. There is no internal audit function in Gro-Tech but the external auditors are relied on to report on any weaknesses in control and their letter of engagement authorises them to carry out work over and above the financial audit in relation to internal control. The external auditors have always given a clean audit report to the company and have reported that internal controls within Gro-Tech are sound. There is no formal risk management process in place in Gro-Tech although board meetings routinely consider risk during their deliberations. The chairman and chief executive both believe that compliance with corporate governance reforms will not benefit Gro-Tech and is likely to be too costly. This is disclosed in GroTech’s Annual Report. Required: Evaluate the corporate governance of Gro-Tech and, with reasons, recommend what the company can do to improve it. Your response should be put under the following headings. a. The composition of the board b. Audit committee c. Risk management d. Internal control e. Internal audit

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