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ACCA Strategic Professional · Strategic Business Leader · Audit and compliance

Halden Plc, a listed manufacturer, has an audit committee made up of three non-executive directors. The finance director attends every meeting and, at the last meeting, proposed that the committee should also approve the executive directors' bonus targets. Which statement best describes the appropriate position under typical corporate governance codes?

Executive bonus targets should be set by the remuneration committee made up of independent non-executive directors. The audit committee's role is oversight of reporting, internal control, risk and audit, so taking on pay decisions would blur responsibilities and weaken independence.

  1. AThe audit committee should approve bonus targets because it already reviews financial performance figures
  2. BBonus targets should be set by the remuneration committee, composed of independent non-executive directors, not by the audit committeeCorrect
  3. CThe finance director should chair the audit committee so that bonus targets are set with full financial knowledge
  4. DBonus targets should be agreed by the external auditor to ensure objectivity

Explanation

Governance codes separate committee roles: the audit committee oversees reporting, internal control, risk and audit, while the remuneration committee, made up of independent non-executives, sets executive pay. Giving the audit committee the task blurs responsibilities. Executives should not set or chair bodies deciding their own rewards.

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