Sapphire PLC (Sapphire) is a listed company on the London Stock Exchange and as such is required to apply the UK Corporate Governance Code (2018). The majority of shares in Sapphire are owned by Bob Diamond who is also the Chief Executive of Sapphire. However, 40% of shares are owned by other investors, including institutional investors. Bob has made no secret of his desire to sell all his shares within the next five years and retire ‘to a desert island’. Sapphire has an audit committee but no other Board level committees as Bob doesn’t consider them necessary to run ‘his company’. He determines the remuneration packages for all the executive directors and senior management including himself. The constitution and membership of a Sapphire’s audit committee is as follows: Member A – Chair of the Committee who, before retirement two years ago was the Finance Director of the company Member B – An independent member with no financial experience who joined the committee one year ago Member C – The former Director of Finance at one of Sapphire’s close rivals Member D – A friend of Bob’s from university who is now a partner at the audit firm which undertakes the audit of Sapphire’s financial statements. Required: Describe what is meant by ‘comply or explain’ in relation to the UK Corporate Governance Code.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Sapphire PLC (Sapphire) is a listed company on the London Stock Exchange and as such is required to apply the UK Corporate Governance Code (2018). The majority of shares in Sapphire are owned by Bob Diamond who is also the Chief Executive of Sapphire. However, 40% of shares are owned by other investors, including institutional investors. Bob has made no secret of his desire to sell all his shares within the next five years and retire ‘to a desert island’.

Sapphire has an audit committee but no other Board level committees as Bob doesn’t consider them necessary to run ‘his company’. He determines the remuneration packages for all the executive directors and senior management including himself.

The constitution and membership of a Sapphire’s audit committee is as follows:

Member A – Chair of the Committee who, before retirement two years ago was the Finance Director of the company
Member B – An independent member with no financial experience who joined the committee one year ago
Member C – The former Director of Finance at one of Sapphire’s close rivals
Member D – A friend of Bob’s from university who is now a partner at the audit firm which undertakes the audit of Sapphire’s financial statements.

Required:

Describe what is meant by ‘comply or explain’ in relation to the UK Corporate Governance Code.

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