QUESTION 5[TOTAL MARKS 20]

(a)An employee, Fred, working in the accounts office of a medium-sized company listed on the London Stock Exchange, was working late one evening during the week. He realised he had left his pen in the boardroom at an earlier meeting and, given its value, went upstairs to look for it. As he approached the door he heard the following discussion: Chief Executive: I am deeply concerned that if this fall in profit figures is disclosed in the next annual report, there will be all sorts of problems with the shareholders. We may even lose a number of big investors. A Non-executive director (also the cousin of the Chief Executive): (large sigh) Well, I suppose we could always find a way of making them look better. Chief Executive: How? I can't see it at all. Non-executive director: Well, we could make them just slightly higher than last year's figures by including the proceeds of the sales of our toothbrush division. Chief Executive: But the sale doesn't go through until October. Non-executive director: No, but it will and it doesn't make much difference, we need the money on the books now. Chief Executive: But when the accounts are signed off, won't that be fraudulent? Non-executive director: Not really I don't see why it's just a manipulation of timing rather than numbers. Chief Executive: OK. That sounds good to me. Lets sort it out now. Fred heard one of them move towards the door, and quickly slipped back to the stairs. He left work and spent the evening worrying about what he should do, if anything. He decided he would anonymously ask the Company Secretary how he could deal with this situation, and bring the issue out into the open.

Required:

(i) As Company Secretary you receive a report from the employee about the overheard conversation. Write a summary for board members of the corporate governance problems raised by this employee, and the weaknesses in the companys corporate governance which are evident from the conversation which was overheard. [10 marks]

(b) It has recently acquired a new subsidiary company, Inka, which is Tilson plc (Tilson) is a company listed on the London Stock Exchange. located in Europe and has a two-tier board structure. It is intended that Inka will continue to operate independently and a representative from each of its boards will report to the board of Tilson. You are Company Secretary of Tilsonand are assisting the board in developing an appropriate governance framework to take account of the addition of Inka to the group. In addition, the Chairman of Tilson, Alex Ross, has been invited to join the board of a UK charity and has asked you for some advice in this regard.

Required :

Prepare a briefing note for Alex in which you: explain the high level principles relating to governance in the voluntary and community sector; and refer to any relevant codes or guidelines which will assist Alex in understanding how this differs from the corporate perspective. [10 marks]