2010 年 12 月 ACCA 考试 P1 真题
Section A-This ONE question is compulsory and MUST be attempted
1
In the 2009 results presentation to analysts,the chief executive of ZPT,a
global internet communications company,announced an excellent set of results to the
waiting audience.Chief executive Clive Xu announced that,compared to 2008,sales had
increased by 50%,profi ts by 100% and total assets by 80%.The dividend was to be
doubled from the previous year.He also announced that based on their outstanding
performance,the executive directors would be paid large bonuses in line with their
contracts.His own bonus as chief executive would be $20 million.When one of the
analysts asked if the bonus was excessive,Mr Xu reminded the audience that the share
price had risen 45% over the course of the year because of his efforts in skilfully
guiding the company.He said that he expected the share price to rise further on the
results announcement,which it duly did.Because the results exceeded market
expectation,the share price rose another 25% to $52.
Three months later,Clive Xu called a press conference to announce a restatement
of the 2009 results.This was necessary,he said,because of some'regrettable
accounting errors'.This followed a meeting between ZPT and the legal authorities
who were investigating a possible fraud at ZPT.He disclosed that in fact the fi gures
for 2009 were increases of 10% for sales,20% for profi ts and 15% for total assets
which were all signifi cantly below market expectations.The proposed dividend would
now only be a modest 10% more than last year.He said that he expected a market reaction
to the restatement but hoped that it would only be a short-term effect.
The first questioner from the audience asked why the auditors had not spotted
and corrected the fundamental accounting errors and the second questioner asked
whether such a disparity between initial and restated results was due to fraud rather
than 'accounting errors'.When a journalist asked Clive Xu if he intended to pay back
the $20 million bonus that had been based on the previous results,Mr Xu said he did
not.The share price fell dramatically upon the restatement announcement and,because
ZPT was such a large company,it made headlines in the business pages in many
countries.
Section A-This ONE question is compulsory and MUST be attempted
1 Later that month,the company announced that following an internal
investigation,there would be further restatements,all dramatically downwards,for
the years 2006 and 2007.This caused another mass selling of ZPT shares resulting
in a fi nal share value the following day of $1.This represented a loss of shareholder
value of $12 billion from the peak share price.Clive Xu resigned and the government
regulator for business ordered an investigation into what had happened at ZPT.The
shares were suspended by the stock exchange.A month later,having failed to gain
protection from its creditors in the courts,ZPT was declared bankrupt.Nothing was
paid out to shareholders whilst suppliers received a fraction of the amounts due
to them.Some non-current assets were acquired by competitors but all of ZPT's 54,000
employees lost their jobs,mostly with little or no termination payment.Because the
ZPT employees'pension fund was not protected from creditors,the value of that was
also severely reduced to pay debts which meant that employees with many years of
service would have a greatly reduced pension to rely on in old age.ced to pay debts
which meant that employees with many years of service would have a greatly reduced
pension to rely on in old age.ced to pay debts which meant that employees with many
years of service would have a greatly reduced pension to rely on in old age.ced to
pay debts which meant that employees with many years of service would have a greatly
reduced pension to rely on in old age.
The government investigation found that ZPT had been maintaining false
accounting records for several years.This was done by developing an
overly-complicated company structure that contained a network of international
branches and a business model that was diffi cult to understand.Whereas ZPT had begun
as a simple telecommunications company,Clive Xu had increased the complexity of the
company so that he could'hide'losses and mis-report profi ts.In the company's
reporting,he also substantially overestimated the value of future customer supply
contracts.The investigation also found a number of signifi cant internal control
defi ciencies including no effective management oversight of the external reporting
process and a disregard of the relevant accounting standards.
In addition to Mr Xu,several other directors were complicit in the activities
although Shazia Lo,a senior qualifi ed accountant working for the fi nancial
director,had been unhappy about the situation for some time.She had approached the
fi nance director with her concerns but having failed to get the answers she felt
she needed,had threatened to tell the press that future customer supply contract
values had been intentionally and materially overstated(the change in fair value
would have had a profi t impact).When her threat came to the attention of the
board,she was intimidated in the hope that she would keep quiet.She fi nally accepted
a large personal bonus in exchange for her silence in late 2008.
Section A-This ONE question is compulsory and MUST be attempted
The investigation later found that Shazia Lo had been continually
instructed,against her judgement,to report fi gures she knew to be grossly
optimistic.When she was offered the large personal bonus in exchange for her
silence,she accepted it because she needed the money to meet several expenses related
to her mother who was suffering a long-term illness and for whom no state health
care was available.The money was used to pay for a lifesaving operation for her mother
and also to rehouse her in a more healthy environment.Shazia Lo made no personal
fi nancial gain from the bonus at all(the money was all used to help her mother)but
her behaviour was widely reported and criticised in the press after the collapse
of the company.
The investigation found that the auditor,JJC partnership(one of the largest in
the country),had had its independence compromised by a large audit fee but also
through receiving consultancy income from ZPT worth several times the audit
fee.Because ZPT was such an important client for JJC,it had many resources and jobs
entirely committed to the ZPT account.JJC had,it was found,knowingly signed off
inaccurate accounts in order to protect the management of ZPT and their own senior
partners engaged with the ZPT account.After the investigation,JJC's other clients
gradually changed auditor,not wanting to be seen to have any connection with
JJC.Accordingly,JJC's audit business has since closed down.This caused signifi cant
disturbance and upheaval in the audit industry.
Because ZPT was regarded for many years as a high performing company in a growing
market,many institutional investors had increased the number of ZPT shares in their
investment portfolios.When the share price lost its value,it meant that the overall
value of their funds was reduced and some individual shareholders demanded to know
why the institutional investors had not intervened sooner to either find out what
was really going on in ZPT or divest ZPT shares.Some were especially angry that even
after the first restatement was announced,the institutional investors did not make
any attempt to intervene.One small investor said he wanted to see more 'shareholder
activism',especially among the large institutional investors.
Section A-This ONE question is compulsory and MUST be attempted
Some time later,Mr Xu argued that one of the reasons for the development of the
complex ZPT business model was that it was thought to be necessary to manage the
many risks that ZPT faced in its complex and turbulent business environment.He said
that a multiplicity of overseas offi ces was necessary to address exchange rate
risks,a belief challenged by some observers who said it was just to enable the ZPT
board to make their internal controls and risk management less transparent.
(a)Because of their large shareholdings,institutional investors are sometimes
able to intervene directly in the companies they hold shares in.
Required:
(i)Explain the factors that might lead institutional investors to attempt to
intervene directly in the management of a company;(6 marks)
(ii)Construct the case for institutional investors attempting to intervene in
ZPT after the fi rst results restatement was announced.(6 marks)
(b)Distinguish between absolutist and relativist approaches to ethics and
critically evaluate the behaviour of Shazia Lo(the accountant who accepted a bonus
for her silence)using both of these ethical perspectives.(10 marks)
Section A-This ONE question is compulsory and MUST be attempted
(c)The ZPT case came to the attention of Robert Nie,a senior national legislator
in the country where ZPT had its head offi ce.The country did not have any statutory
corporate governance legislation and Mr Nie was furious at the ZPT situation because
many of his voters had been badly fi nancially affected by it.He believed that
legislation was needed to ensure that a similar situation could not happen again.Mr
Nie intends to make a brief speech in the national legislative assembly outlining
the case for his proposed legislation and some of its proposed provisions.
Required:
Draft sections of the speech to cover the following areas:
(i)Explain the importance of sound corporate governance by assessing the
consequences of the corporate governance failures at ZPT;(10 marks)
(ii)Construct the case for the mandatory external reporting of internal fi
nancial controls and risks;(8 marks)
(iii)Explain the broad areas that the proposed external report on internal
controls should include,drawing on the case content as appropriate.(6 marks)
Professional marks will be awarded in part(c)for the
structure,flow,persuasiveness and tone of the answer.(4 marks)
(50 marks)
Section B–TWO questions ONLY to be attempted
2
At a board meeting of JGP Chemicals Limited,the directors were discussing
some recent negative publicity arising from the accidental emission of a chemical
pollutant into the local river.As well as it resulting in a large fine from the
courts,the leak had created a great deal of controversy in the local community that
relied on the polluted river for its normal use(including drinking).A prominent
community leader spoke for those affected when she said that a leak of this type
must never happen again or JGP would suffer the loss of support from the community.She
also reminded JGP that it attracts 65% of its labour from the local community.
As a response to the problems that arose after the leak,the JGP board decided
to consult an expert on whether the publication of a full annual environmental report
might help to mitigate future environmental risks.The expert,Professor Appo(a
prominent academic),said that the company would need to establish an annual
environmental audit before they could issue a report.He said that the environmental
audit should include,in addition to a review and evaluation of JGP's safety
controls,a full audit of the environmental impact of JGP's supply chain.He said that
these components would be very important in addressing the concerns of a growing
group of investors who are worried about such things.Professor Appo said that all
chemical companies had a structural environmental risk and JGP was no exception to
this.As major consumers of natural chemical resources and producers of potentially
hazardous outputs,Professor Appo said that chemical companies should be aware of
the wide range of ways in which they can affect the environment.CEO Keith Miasma
agreed with Professor Appo and added that because JGP was in chemicals,any
environmental issue had the potential to affect JGP's overall reputation among a
wide range of stakeholders.
Section B–TWO questions ONLY to be attempted
2
When the board was discussing the issue of sustainability in connection with
the environmental audit,the finance director said that sustainability reporting
would not be necessary as the company was already sustainable because it had no 'going
concern' issues.He said that JGP had been in business for over 50 years,should be
able to continue for many years to come and was therefore sustainable.As far as he
was concerned,this was all that was meant by sustainability.
In the discussion that followed,the board noted that in order to signal its
seriousness to the local community and to investors,the environmental audit should
be as thorough as possible and that as much information should be made available
to the public 'in the interests of transparency'.It was agreed that contents of the
audit(the agreed metrics)should be robust and with little room left for
interpretation–they wanted to be able to demonstrate that they had complied with
their agreed metrics for the environmental audit.
Required:
(a)Explain'sustainability'in the context of environmental auditing and
criticise the fi nance director's understanding of sustainability.(6 marks)
(b)Explain the three stages in an environmental audit and explore,using
information from the case,the issues that JGP will have in developing these stages.(9
marks)
(c)Define'environmental risk'.Distinguish between strategic and operational
risks and explain why the environmental risks at JGP are strategic.(10 marks)
(25 marks)
Section B–TWO questions ONLY to be attempted
3
KK is a large listed company.When a non-executive directorship of KK Limited
became available,John Soria was nominated to fi ll the vacancy.John is the
brother-in-law of KK's chief executive Ken Kava.John is also the CEO of Soria
Supplies Ltd,KK's largest single supplier and is,therefore,very familiar with KK
and its industry.He has sold goods to KK for over 20 years and is on friendly terms
with all of the senior offi cers in the company.In fact last year,Soria Supplies
appointed KK's fi nance director,Susan Schwab,to a non-executive directorship on
its board.The executive directors of KK all know and like John and so plan to ask
the nominations committee to appoint him before the next AGM.
KK has recently undergone a period of rapid growth and has recently entered
several new overseas markets,some of which,according to the finance director,are
riskier than the domestic market.Ken Kava,being the dominant person on the KK
board,has increased the risk exposure of the company according to some
investors.They say that because most of the executive directors are less
experienced,they rarely question his overseas expansion strategy.This expansion has
also created a growth in employee numbers and an increase in the number of executive
directors,mainly to manage the increasingly complex operations of the company.It
was thought by some that the company lacked experience and knowledge of international
markets as it expanded and that this increased the risk of the strategy's
failure.Some shareholders believed that the aggressive strategy,led by Ken Kava,has
been careless as it has exposed KK Limited to some losses on overseas direct
investments made before all necessary information on the investment was obtained.
As a large listed company,the governance of KK is important to its
shareholders.Fin Brun is one of KK's largest shareholders and holds a large portfolio
of shares including 8% of the shares in KK.At the last AGM he complained to KK's
chief executive,Ken Kava,that he needed more information on
directors'performance.Fin said that he didn't know how to vote on board
reappointments because he had no information on how they had performed in their
jobs.Mr Kava said that the board intended to include a corporate governance section
in future annual reports to address this and to provide other information that
shareholders had asked for.He added,however,that he would not be able to publish
information on the performance of individual executive directors as this was too
complicated and actually not the concern of shareholders.It was,he said,the
performance of the board as a whole that was important and he(Mr Kava)would manage
the performance targets of individual directors.
Required:
(a)Explain the term'confl ict of interest'in the context of non-executive
directors and discuss the potential confl icts of interest relating to KK and Soria
Supplies if John Soria were to become a non-executive director of KK Limited.(8
marks)
(b)Assess the advantages of appointing experienced and effective non-executive
directors to the KK board during the period in which the company was growing
rapidly.(7 marks)
(c)Explain the typical contents of a'best practice'corporate governance report
within an annual report and how its contents could help meet the information needs
of Fin Brun.(10 marks)
(25 marks)
Section B–TWO questions ONLY to be attempted
4
During the global economic recession that began in mid 2008,many companies
found it diffi cult to gain enough credit in the form of short-term loans from their
banks and other lenders.In some cases,this caused working capital problems as
short-term cash fl ow defi cits could not be funded.