Johanna Ltd. aims to be listed in the Nairobi Securities Exchange. Benjamin Mutie is the chief executive officer and
chairman of Johanna Ltd. He appoints and maintains a board of only five executive directors. While the board sets
the performance targets for the senior management in the company, no formal targets are set for each director and
no review of the board policies is carried out.
Board salaries are set and paid by Benjamin Mutie based on his assessment of all board members, including himself
and not their actual performance.
Internal controls in Johanna Ltd. are monitored by the senior accountant, although the company assumes that, as
external auditors, your firm will carry out a detailed review of internal controls. Johanna Ltd. does not have an
internal audit department or an audit committee. Annual financial statements are prepared, providing detailed
information on past performance.
Required:
(i) Advise Mutie on TWO changes that need to be made to the composition of the board of directors of
Johanna Ltd. in order to comply with the corporate governance requirements.
(ii) Explain to Benjamin Mutie FOUR benefits of setting up an audit committee.
(iii) Benjamin Mutie would like to set up an internal audit department, but is not sure about measuring the
performance of this department.
Describe FOUR key performance indicators of an internal audit department.
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