Question 5 (16 marks - approximately 34 minutes) TM Business (TM) is a large private company produces complex engineering products. The board is currently considering to apply for an initial public offering in Hong Kong. Steve Tam, being the chairman and chief executive officer (CEO) of TM, who was a very famous experience senior management in engineer industry and was appointed as TM's chairman and CEO last year. He was very successful in restoring the profits of TM and gained a reputation as a top-class businessman, Steve is prepared appoint other directors who shared his belief to ensure the listing proceeds. Mr. Lee, the only TM's independence non- executive director, recommended an external review to provide unbiased guidance to the board and he approached Carol Chiu, an external consultant to review TM's corporate governance. Mr. Lee maintains his share options in the company. Dave Wong, the executive finance director and who chairs the audit committee. Dave only concerns about financial controls and as long as financial controls are seen to be fully in place he is less concerned with other aspects of internal control when Carol asked about operational controls in the production facility, Dave said that these were not the concern of the audit committee and he trusted the production director, Ivan Lam, who has good reputation as a production manager. He said that he never ask Ivan to provide compliance evidence to the audit committee. He explained that the establishment of the audit committee was to fulfil the Corporate Governance Code and he believed that audit committee didn't add value to the company When Carol asked about TM's internal auditor, Dave said that they used to have internal auditors and the chief internal auditor reported directly to him. The whole team left TM a year ago and were not replaced Dave didn't feel they needed any internal auditors because he believed that only financial control information was important and he could get that information from TM's accountant. Required: Based on the above information: (a) Critically evaluate TM's audit committee arrangements (8 marks) (b) Identify and explain the weaknesses of TM's board structure (exclude audit committee) Recommend processes for removing these weaknesses (8 murks)