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Doubt 1: Sir I wanted to understand how is it fair that Board decides remuneration of NEDs? I find it ironical and muddling as the board itself consists of majorly NEDs (independent and non-independent), so how can such comittee members decide their own remuneration objectively?
Doubt 2: how can the chair of board be allowed to even be a member of remuneration committee(RC)? He would make all efforts to influence his own pay cheque if his remuneration is being discussed in the RC.
The remuneration committee is separate from the nomination committee – is separate from the audit committee – is separate from the risk committee (if there is a separate risk committee) – these are all committees that assist the board of directors in the discharge of their duties.
The remuneration committee should have delegated responsibility for determining the policy for executive director remuneration and setting remuneration for the chair, executive directors and senior management.
The remuneration of NEDs should be determined in accordance with the company’s Articles of Association (if relevant) or the board. Levels of remuneration for the chair and all NEDs should reflect the time commitment and responsibilities of the role and should NOT include share options or other performance-related elements.
For all directors: “No director should be involved in deciding their own remuneration outcome.”
Remuneration policies are disclosed in the annual report. If the shareholders don’t like how the directors are managing the company on their behalf they can remove them by ordinary resolution in a general meeting – or sell their shares!
Quote from your answer:
For all directors: “No director should be involved in deciding their own remuneration outcome.”
By this it becomes conspicuous that even though board decides pay of NEDs- while the pay cheque of NEDs is being discussed the NEDs WON’T be involved in the discussion process and only executives will be there, in the meeting.
Similarly even though CHAIR of board is a member of remuneration committee(RC), he won’t be able to sit in the discussions where his salary is being discussed by RC?
am i right or wrong ma’am?
There will be a remuneration policy which for NEDs will specify terms – how much time they are required to commit, etc. If the remuneration of the NED with recent financial experience on the audit committee (call him Frank) is being discussed – he’s not on the remuneration committee. If he happened to be in the board meeting at which the board decides on NEDs remuneration, Frank doesn’t vote on the resolution.
You really don’t have to worry about such minutae – it is the principles of corporate governance that you need to know in so far as they are relevant to audit – you might get a couple of OTs in Section A in this syllabus area.
I haven’t attempted any OTs yet maam. But given the atypical and eerily hard questions that are asked in this section(heard from my friends) i am just trying to understand things in as much detail as possible…
I suggest you look at some so you know what sort of thing you might be asked rather than rely on hearsay – otherwise you are potentially wasting study time on this “background” topic rather than focussing on the syllabus areas that will always come up in Section B (“risk”, “controls”, “substantive procedures” + bits that could come from elsewhere but you can’t predict) and auditor’s reports (for which I think there is always a question in Section A).
Here’s a sample question:
X Co is a listed company and has an audit committee.
Which of the following responsibilities should be included within the terms of reference for
the audit committee?
(1) Reviewing and monitoring the external auditor’s independence and objectivity
(2) Appointing and removing the external auditors
(3) Evaluating and monitoring the effectiveness of the internal audit function
A. 1, 2 and 3
B. 1 and 2 only
C. 1 and 3 only
D. 2 and 3 onlyAnd are you using the practice tests? https://opentuition.com/acca/aa/aa-practice-questions Even though these cannot be exam style and standard (because there are no “stand-alone” OTs in AA), they are not “trivial” but seek to test comprehension as well as knowledge.
C is the answer? Because appointing and removal of external auditors can only be done shareholders! am i right?
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