Essay preview
Northern Rock Plc
Contents Page
1 Report 2
1.1 Audit Committee and Auditors 2
1.2 Experience: 4
2 Comparison 5
2.1 Chief Executive and Chairman 5
2.2 Audit Committee 5
2.3 Risk Management Committee 6
2.4 Remuneration & Nominations Committee 6
3 Chance of another failure 6
4 Conclusion: 8
5 References 8
Report
In this report I am going to highlight the weaknesses in the corporate governance code of Northern Rock that lead to its downfall. Audit Committee and Auditors
According to the UK Corporate governance code the board should set up formal and obvious arrangements bearing in mind how to apply the corporate reporting internal control, and risk management rules for keeping the right relationship with the company`s auditors. The board should make up an audit committee of at least three non executive directors in the case of smaller companies at least two NEDs. The chairman can be a member in smaller companies but cannot chair the committee unless he or she was considered independent on appointment as chairman. The board should make sure that at least one the member should have recent and relevant experience in the audit committee. The board’s responsibilities are to lay out all the terms in writing and monitor the financial statement of the company, to review the financial performance and reporting. It should also review internal financial control, risk management system if not in place separately to check the effectiveness and internal function of internal audit. The board should also be review and monitor the external auditors work their appointments and re appointments, their remunerations, and more importantly the non audit services should be checked very closely. In the case of Northern rock the board and the audit committee failed to implement the above mentioned guidelines. In July 2007 the chief executive published on the website that operationally Northern rock’s first half of 2007 was a good one. He mentioned that mortgage lending in particular was strong. If that was the case then how did Northern Rock end up being nationalised in just over 7 months? Was someone checking and verifying the statements of the chief executive. The external auditor’s complacency was another issue. In their report of 2006 they gave a clean bill of health. This was later investigated by the House of Lords economic affairs committee which found that the auditors h...