After a recent financial crisis, there had been a number of high profile company failures and a general loss of confidence in business. Consequently, an updated corporate governance code was proposed, with changes to address these concerns. In line with the new corporate governance changes, Kuala Nerus Berhad decided to establish an audit committee function. However, it was unable to find a candidate with the requisite financial experience. Thus, it appointed its currently non-executive director, Encik Johan, an engineer with 10 years experienced in the boardroom as the new audit committee chairman Encik Johan met Dato Razlan, who is currently the Chairman and the Chief Executive Officer of Kuala Nerus Berad and suggested few names for audit committee team. He said that in his own field of engineering, colleagues inside and outside a certain company often supported each other and that this was often encouraged. Since Kuala Nerus Berhad is an energy company and highly regulated, he considered it important that all members of audit committee were professional engineers so that they fully understood the industry and its technical challenges. Dato Razlan agreed with the suggestion and re-appointed three non-executive directors who were professional engineers and recently retired members of the Kuala Nerus executive board.

Miss Juanna, the internal auditor approached Dato Razlan and warned that the appointment of audit committee members should not be taken lightly, Dato Razlan disagreed and explained that Kuala Nerus Berhad had an outstanding ethical reputation in the industry and there is no reason to believe that the appointment brought any negative impact. Furthermore, the company adopted a principles-based approach and he believed that the company had made an appropriate decision.

Required:

a) Explain the agency problem (with regard to agency theory) that might incur given the case above (7 marks)

b) Criticise the ways in which Kuala Nerus Berhad's audit committee has failed to meet best practice (good governance), (6 marks)

c) Dato Razlan is currently the Chairman and also the Chief Executive Officer of Kuala Nerus Berhad. Discuss the argument in favour of and against merging the roles of Chairman and Chief Executive Officer (CEO). (6 marks)

d ) Compare and contrast rules-based versus principles-based approaches of corporate governance. Explain to Dato Razlan how to make ethical behaviour sustainable for his organisation (6 marks)

CenPines Berhad is a listed company that seeks to apply sound corporate governance principles. The composition of CenPines's Board of Directors complies with the Malaysia Code of Corporate Governance (MCCG) 2017. CenPines has established a Risk Management Committee chaired by the Chief Risk Officer. It also has an Internal Audit section managed by the Head of Internal Audit. Both the Risk Management Committee and the Internal Audit section recommend and monitor internal controls and report directly to the Audit Committee of the Board of Directors.

CenPines's business is in the area of hospitality, with hotels and restaurants as its key areas. The objectives of CerPines include to safeguard the investment of and interest of the owner's property and ensure a return in investment for the owners and shareholders, as well as to contribute towards the growth of tourism industry in Malaysia. Encik Aneq, who has recently returned to Malaysia after 10 years living abroad, has been appointed as the Chairman.

He is really concerned to the newly released MCCG 2017 and need your favour to understand the principles

Required:

a) Discuss the relationship between the following activities: governance, risk management, internal controls and internal audit. (Note: You are required to discuss the relationships between the four activities, it is not sufficient to describe each one individually). (13 marks)

b) Discuss, from the perspective of shareholders, one (1) benefit and one (1) limitation of each of the following: good corporate governance good risk management good internal controls. (12 marks)