Gro-Tech is a profitable but small company in a technology related service industry withannual sales of P150 million. The industry is highly competitive but there are major barriersfor entry to new competitors and the long-term future of Gro-Tech is considered by industryanalysts to be sound.The board comprises a non-executive chairman, a chief executive who has a largeshareholding, an executive finance director, operation director and marketing director and anon-executive director with wide knowledge of the industry and who retired from thecompany 3 years ago. There is only one committee of the board. The audit committeeconsists 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 toreport on any weaknesses in control and their letter of engagement authorises them to carryout work over and above the financial audit in relation to internal control. The externalauditors have always given a clean audit report to the company and have reported thatinternal controls within Gro-Tech are sound. There is no formal risk management process inplace in Gro-Tech although board meetings routinely consider risk during their deliberations.The chairman and chief executive both believe that compliance with corporate governancereforms will not benefit Gro-Tech and is likely to be too costly. This is disclosed in Gro-Tech’s Annual Report. Evaluate the corporate governance of Gro-Tech and, with reasons, recommend what the companycan 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
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 Gro-
Tech’s Annual Report.
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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