The Corporate Governance Code (the CG Code) published by the Hong Kong Stock Exchange contains a combination of broad principles, specific code provisions and recommended best practices. The listed companies in Hong Kong are required to adopt the comply or explain approach to the CG Code.

ZOKA Limited (ZOKA) is a garment manufacturing company, registered in Hong Kong. ZOKA plans for an initial public offering (IPO) in the coming year. The Company is primarily owned by Mr Chan and Mr Wu who are the Chairman and Chief Executive Officer (CEO) of ZOKA respectively. Both of them involve in the daily management of the Company. They are also the majority shareholders of the Company, each of them holds 40% of the Companys issued shares. The remaining 20% are owned by other 4 minority shareholders equally.

ZOKAs board of directors consists of six members including Mr Chan, Mr Wu, three executive directors and one independent non-executive director. They meet on a regular basis to discuss key business matters. ZOKAs board of directors consists of members who have extensive experience in the textiles industry and strong finance backgrounds.

ZOKA has an internal audit team but has yet to set up any audit committee or any other committees to support the board. Both Mr Chan and Mr Wu do not have the relevant knowledge in the setup of audit committee and has requested a senior partner from ZOKAs external auditor to become a member of the audit committee to help out with the formation of the audit committee.

The head of the internal audit team reports directly to Mr Wu. ZOKAs company secretarial function is outsourced to a third-party professional service provider. The service provider provides Mr Chan and Mr Wu with the latest corporate governance information on a regular basis.

The prior year financial statements audit documented that ZOKA has set a good practice at the top and introduced a clear code of conduct to all its employees. The tests of controls also indicated that ZOKAs key controls over financial reporting were effective.

Required: (a) Explain the meaning of comply or explain approach required by the Hong Kong Stock Exchange for a listed company in Hong Kong when applying the CG Code. (2 marks)

(b) Compare and contrast the duties and functions of Mr Chan being the Chairman and Mr Wu being the CEO of ZOKA. (4 marks)

(c) Identify elements which indicate that ZOKA complies with the CG Code. (6 marks)

(d) Recommend how ZOKA can improve its corporate governance for the preparation of the IPO.