New Ideas Company (NIC) was launched early this year as a result of a scientific breakthro

New Ideas Company (NIC) was launched early this year as a result of a scientific breakthrough at a university. The company was located in a relatively small regional city, some distance from the main centres of population. Because the initial capital needed was large, the scientists behind the company decided to float the company on the stock exchange and the take up of shares was very good. This meant that the initial capital needs were fully funded. The business itself was highly technical, with many shareholders only weakly understanding the science behind the company. Upon reading the share prospectus, some analysts believed that NIC was a relatively risky business and that it could fail within two years unless a very good management team, including suitable non-executive directors (ideally locally based), was in place.

None of the scientists involved in NIC had any experience of business before and had to learn about the roles of a board and how to effectively run a company. Dr Ranjana Foo, the lead scientist who made the scientific discovery, was thought to be the logical person to become chief executive but she herself questioned her suitability for the role. She said she was happiest working alone and in the quiet environment of her laboratory, and was not inclined to invest valuable time learning about running a business as she was not good at relating to a wide range of people.

Colleagues said of Ranjana that, being a good scientist, she was excellent at detail but sometimes struggled to see the bigger picture on a project. Always popular, however, Ranjana liked to think that all of her colleagues liked her and she tended to avoid confrontation and conflict wherever possible.

One potential director of NIC was an experienced local businessman, Dr Idris. Upon being approached about the position, he said that he may have a conflict of interest because he was a major shareholder in one of the potential suppliers of the capital equipment which NIC would be purchasing.


(a) Assess Ranjana Foo’s suitability to become chief executive officer (CEO) of New Ideas Company (NIC). Your answer should include an explanation of the roles and personal qualities of a CEO. (10 marks)

(b) Explain the benefits, specifically to NIC, of the appointment of ‘suitable non-executive directors’ and discuss the difficulties which the company may encounter in non-executive recruitment. (9 marks)

(c) Explain ‘conflict of interest’ and briefly discuss how a major shareholding in a potential supplier could be a conflict of interest to Dr Idris were he to become a director of NIC. (6 marks)


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  • 发布时间:2018-12-28
After a period of expansion into several overseas markets and some structural decentralisation, Loho Company was considering its internal audit and internal control needs. Although privately owned and therefore not subject to listing rules, Loho’s auditors had often suggested that a formal internal audit function would be beneficial.The launch of several new products and a rapid increase in exports had raised a number of problems at Loho. These included problems in meeting order deadlines, whilst a number of operational constraints had meant that some orders had been delivered to customers late. The increase in overseas business had also, according to Sonja Tan, the financial director, increased the overall risk profile of the business. Credit risk had risen substantially as had a range of risks associated with exporting and overseas investment. In addition to a growth from 150 to 600 employees in its home country, Loho also had recruited a further 200 people overseas in order to facilitate business in those countries.As part of her continuing professional development (CPD), Sonja Tan, the finance director who was also a professional accountant, had been to a seminar on improving internal controls (IC). She believed that at this point in its growth, Loho could benefit from tighter internal controls. Speaking about this to the board on her return from the seminar, she reminded her colleagues that sound internal controls could only provide ‘reasonable assurance’ and that any IC system had inherent limitations and could never be totally effective whatever changes were made to improve them. This came as a surprise to some board members who assumed, because internal controls were often very expensive, that they should be guaranteed to be fully effective.Required:(a) Construct the case for establishing an internal audit function at Loho Company. (10 marks)(b) Explain the reasons why many internal controls can never be guaranteed to be fully effective and discuss why ICs being ‘very expensive’ are no guarantee of their effectiveness. (9 marks)(c) The finance director Sonja Tan learned about improved internal controls as part of her continuing professional development (CPD).Required:Explain the advantages of continuing professional development (CPD) for professional accountants such as finance director Sonja Tan. (6 marks)



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