The following factors describe a potential audit client. For each factor, indicate whether it is indicative of poor corporate governance. Explain the reasoning for your assessment. Finally, determine the risks to reliable financial reporting that are associated with each factor. a.The company is in the financial services sector and has a large number of consumer loans, including mortgages, outstanding. b.The CEO’s and CFO’s compensation is based on three components: (a) base salary, (b) bonus based on growth in assets and profits, and (c) significant stock options. c.The company has an internal auditor who reports directly to the CFO and makes an annual report to the audit committee.
The following factors describe a potential audit client. For each factor, indicate whether it is indicative of poor corporate governance. Explain the reasoning for your assessment. Finally, determine the risks to reliable financial reporting that are associated with each factor.
a.The company is in the financial services sector and has a large number of consumer loans, including mortgages, outstanding.
b.The CEO’s and CFO’s compensation is based on three components: (a) base salary, (b) bonus based on growth in assets and profits, and (c) significant stock options.
c.The company has an internal auditor who reports directly to the CFO and makes an annual report to the audit committee.
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