Evershine Group Company Limited (“ES”) manufactures and sells small home electronic appliances under the brand “Evershine.” There are four factories in the Mainland China. Finished goods are stored in the warehouse at these four factories respectively. From time to time, there are some finished goods missing. However, since the quantity of missing goods is not high, the management decides that it is not necessary to set up an internal audit department.

The CEO of ES is also the Chairman of the Board. All Board members are executive directors. Most of them are specialists in engineering or design. The only Board member who has experience and skills in finance and accounting is the CFO. The Board holds frequent meetings to discuss company issues. In a recent meeting, it is resolved that ES should apply for listing on the Hong Kong Stock Exchange.

Required:

(a) Identify FIVE corporate governance issues of ES and advise how they could be improved in view of the listing plan. (10 marks)

(b) Suggest with examples how ES could ensure the four factories in the Mainland China fulfil their corporate social responsibility (“CSR”) in the areas of:

(i) environmental, and (3 marks)

(ii) product safety performance. (3 marks)

(c) If ES implements some CSR policies, describe FOUR potential advantages. (4 marks)

(d) ES has appointed an independent valuer to provide a brand valuation of “Evershine.”

(i) What is the difference between a management’s expert and an auditor’s expert? (2 marks)

(ii) Discuss the factors that the auditor has to consider if they would like to rely on the valuation report prepared by the independent valuer. (4 marks)

(iii) Suggest some audit procedures that the auditor can perform if they decide to rely on the valuation report.