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University Malaysia Kelantan

(UMK)

Malaysian Graduate School of Entrepreneurship and Business


(MGSEB)

Course Name:

Financial Reporting and Control

Course Code: GST 5033

Problem Based Learning- 1, 2 & 5


Submitted To:

Prof Dr. Zulkarnain Bin Muhamad Sori


Submitted By:
Mohammad Osman Goni

(Matric No. P13D179F )

Date of submission: August 26, 2014

Problem Based Learning ONE:


Question 1:
What is the purpose of Business?
The purpose of a business is to achieve, e.g. to increase sales whereas a business objective is the
stated measurable target of how to achieve these aims, e.g. to increase sales. Among the given 5
factors such as life balance, happiness, money, profits and losses, the main purpose of the
business is to maximize the profit of the business.
Profit maximization or profit growth is the primary aim of most business. The owners of
Business & shareholders will want the business to make as much profit as possible since it will
mean higher dividend payments for them. They will also want the firm to maximize profits so
that they can reinvest some of these profits to help the business grow.

Question 2:
If I am going to invest in this kind of business, what form of business
organization I would choose?
I would like to choose the partnership business for investing this sort of business because I will
do the business with my friend. The reasons for choosing this form of business are easy to
establish and start-up costs are low, more capital is available for the business, have greater
borrowing capacity, high-caliber employees can be made partners, there is opportunity for
income splitting, an advantage of particular importance due to resultant tax savings, partners
business affairs are private, there is limited external regulation, its easy to change your legal
structure later if circumstances change.

Describe the forms of business organization that available in Malaysia and the
process of incorporation?
There are three (3) different types of business entities to choose from in Malaysia:
1. Sole Proprietorship (also known as Sole Trader)
2. Partnership business entity
3. Limited Company (SDN. BHD. or Sendirian Berhad or BHD. or Berhad)

Sole Proprietor (or Sole Trader)


Like many other countries out there, the Sole Proprietorship business entity in Malaysia is owned
solely by one individual, as his/her liability is unlimited. What unlimited liability means is: If a
business fails or is declared bankrupt, creditors can sue the sole proprietors owner for all debts
owed to respective merchants. This means personal assets; personal income and employment
income are all liable.
Partnerships
The Partnership business entity is a joint-entity holder with two or more persons to carry out a
legal business in Malaysia. The Companies Commission of Malaysia requires that partnership
entities MUST comprise of at least two (2) members and a maximum twenty (20) members.
Partners in partnership business entities are also bounded by unlimited liability.
Limited Company (SDN BHD or BHD)
Sendirian Berhad (SDN BHD) is a private limited company, where it prohibits any invitation to
the public to subscribe to any of its shares, deposit money with the company for investment or
subscription. Minimum members in a private limited company are TWO (2) and maximum is
FIFTY (50).
Berhad (BHD) is a public limited company where its shares can be offered to the public for fixed
periods and any other forms of subscription. The minimum amount of members (shareholders)
are TWO (2) and maximum of unlimited amount of members.
Process of Incorporation in Malaysia
Steps to Register Business in Malaysia-Small Enterprise (Sole Proprietorship &
Partnership)

In Kuala Lumpur visit SSM (Suruhanjaya Syarikat Malaysia), Companies Commission of


Malaysia at The Mall, opposite PWTC in Kuala Lumpur.
The SSM office has shifted from second floor to 16th floor.
Get the Forms from the Counter
Fill Up all the details required data. If you are not sure you My look up at the notice
board as it has got completed sample form for reference.
After the form is filled up then get a Queue number at the same counter. The officer will
check whether the form is complete before issuing the queue number.
Upon your turn, the officer will perform a name search to determine availability of your
required company names.
Once you agree on the company name then just pay the charges. You will have to come
back in an hour time to collect your certificate and your business is registered.

Incorporation of Company Malaysia


The two types of companies that can be incorporated under the Companies Act 1965 (CA 65)
are:
1. A company limited by shares
2. An unlimited company
1. Company Limited by Shares
A company having a share capital may be incorporated as a private company (identified through
the words Sendirian Berhad or Sdn. Bhd. appearing together with the companys name) or
public company Berhad or Bhd appearing together with the companys name).
The requirements to form a company are:
i.
ii.
iii.

A minimum of two subscribers to the shares of the company (Section 14 CA);


A minimum of two directors (Section 122);
A company secretary who can be either :
An individual who is a member of a professional body prescribes by the Minister of
Domestic Trade Cooperative and Consumerism; or
An individual licensed by the Companies Commission of Malaysia (SSM)
Both the director and company secretary shall have their principal or only place or
residence within Malaysia.

Incorporation Procedures
1. Application of Name Search
A name search must be conducted to determine whether the proposed name of the company is
available. Refer to Government Gazette No. 716 dated 30 January 1997, Gazette (Amendment)
dated 11 October 2001, Guidelines for Naming A Company and Guidelines for Application of
Company Name. The steps involved are:
(i) Completion and submission of Form 13A CA (Request For Availability Of Name) to SSM;
and
(ii) Payment of a RM30.00 fee for each name applied.
Where the proposed companys name is approved by SSM, it shall be reserved for three months
from the date of approval.

2. Lodgment of Incorporation Documents


Incorporation Documents (as further explained in Part B below) must be submitted to SSM
within 3 month from the date of approval of the companys name by SSM, failure of which a
fresh application for a name search must be done. (Steps (i) and (ii) above shall have to be
repeated).

Who is the regulator(s) for the different kind of business organization?


The Companies Commission of Malaysia (SSM) is a statutory body formed as a result of a
merger between the Registrar of Companies (ROC) and the Registrar of Businesses (ROB) in
Malaysia which regulates companies and businesses. SSM came into operation on 16 April 2002.
The main activity of SSM is to serve as an agency to incorporate companies and register
businesses as well as to provide company and business information to the public. As the leading
authority for the improvement of corporate governance, SSM fulfils its function to ensure
compliance with business registration and corporate legislation through comprehensive
enforcement and monitoring activities so as to sustain positive developments in the corporate and
business sectors of the Nation.
SSM is responsible for the administration and enforcement of the following legislation:

Companies Act 1965 (Act 125);


Registration of Businesses Act 1956 (Act 197);
Trust Companies Act 1949 (Act 100);
Kootu Funds (Prohibition) Act 1971 (Act 28);
Limited Liability Partnerships Act 2012 (Act 743);
any subsidiary legislation made under the Acts specified above such as:
Companies Regulations 1966; and
Registration of Businesses Rules 1957

What are the documents involve during incorporation and yearly filing?
Documents for Sole Proprietorship and Partnership
Form - paper filing:
Statement of Registration Sole Proprietorship REG706
Statement of Registration General Partnership REG707

Change
Form - paper filing:
Dissolution or Change of Proprietorship Registration REG720
Dissolution or Change of Partnership Registration REG721
Dissolution
Form - paper filing:
Dissolution or Change of Proprietorship Registration REG720
Dissolution or Change of Partnership Registration REG721

Incorporation documents to be lodged with SSM


1. Memorandum and Article of Association

An original of the Memorandum and Article of association shall each be stamped at


RM100.00. Stamps are affixed at the Inland Revenue Boards stamp office.
The first directors and secretaries shall be named in the Memorandum and Article of
Association.
The subscribers to the companys shares shall sign the Memorandum and Articles of
Association in front of a witness.
Table A of the Fourth Schedule in the CA can be adopted as the Article of Association of
the company (Section 30 CA).

*NOTE: For incorporation of a private company, the articles of association shall contain the
following stipulations.
(i) Restriction on the right to transfer the companys shares;
(ii) Limitation on the number of members to not exceed fifty;
(iii) Prohibition to any invitation to the public to subscribe the shares/debentures of the company;
(iv) Prohibition on public invitation to deposit money with the company.
Form 48A (Statuary Declaration By A Director Or Promoter Before Appointment)
The director or promoter declares under oath that:
He/She is not a bankrupt; and
He/She has not been convicted and imprisoned for any prescribed offences.

Form 6 (Declaration of Compliance)


This declaration states that all the requirements of the CA have been complied with. It must be
signed by the company secretary who handles the registration and is named in the Memorandum
and Articles of Association.
Additional Documents:
1. Original copy of Form 13A.
2. A copy of the letter from SSM approving the name of the company.
3. A copy of the identity card of each director and company secretary.
Certificate of Corporation
A Certificate of Incorporation will be issued by SSM upon compliance with the incorporation
procedures and submission of the duly completed Incorporation Documents.

Question 3:
Who are the stakeholders of business organization?
If I want to make sure that my business is to be a company society wants to exist, I must
anticipate social change and respond to desires and needs as they evolve. In each unit that has
direct involvement with stakeholders-from sales departments and the Customer Relations Center,
which interact with customers, to purchasing departments, which deal directly with suppliersHonda takes every opportunity to maintain awareness of stakeholder.

Figure: Stakeholders

A corporate stakeholder can affect or be affected by the actions of a business as a whole.


Primary Stakeholders - usually internal stakeholders are those that engage in economic
transactions with the business. (For example stockholders, customers, suppliers, creditors, and
employees)
Secondary Stakeholders - usually external stakeholders are those who - although they do not
engage in direct economic exchange with the business - are affected by or can affect its actions.
(For example the general public, communities, activist groups, business support groups and the
media)

Why they become stakeholders?


Stakeholders:
Stakeholder's concerns:
Government taxation, VAT, legislation, employment, truthful reporting, diversity,
legalities, externalities.
rates of pay, job security, compensation, respect, truthful communication.
Employees
value, quality, customer care, ethical products.
Customers
providers of products and services used in the end product for the customer,
Suppliers
equitable business opportunities.
credit score, new contracts, liquidity.
Creditors
jobs, involvement, environmental protection, shares, truthful communication.
Community
Trade Unions quality, worker protection, jobs.
profitability, longevity, market share, market standing, succession planning,
Owner(s)
raising capital, growth, social goals.
return on investment, income.
Investors

What is the difference between a shareholder and a stakeholder?


A shareholder is a person or entity that owns shares in a corporation. A shareholder is entitled to
vote for the board of directors and a small number of additional issues, as well as receive
dividends from the business and share in any residual cash if the entity is sold or dissolved.
The term stakeholder represents a substantially broader group, because it refers to anyone having
an interest in the success or failure of a business. This group can include shareholders, but goes
well beyond shareholders to also include creditors and customers, employees, the local
community, and the government.
Thus, shareholders are a subset of the larger group of stakeholders. Traditionally, shareholders
have been considered more important than all other stakeholders in a business, since they own
the entity and have rights to receive its cash flows under certain circumstances. The public view
of the priority of shareholders over stakeholders is gradually changing, in light of the increasing

impact of pollution by businesses on local communities and employees, as well as the impact of
work force reductions on local governments, communities, and employees. If this trend
continues, corporations may find themselves under increasing pressure to make expenditures to
please other stakeholders, resulting in reduced earnings per share that impact the wealth of
shareholders.

Question 4:
Do I need to disseminate information about my business from time to time? If
yes, what kind of information that I have to disclose? In what forms?
The dissemination of the information can be for external users about the financial position of the
company. The finance department of a company generates a variety of financial information that
is helpful in decision making, including:
A profit and loss statement, or statement of financial performance, provides a picture of our car
dealer businesss trading performance over a defined period, such as a month or a whole
financial year. It records sales, expenses, profits or losses, and any tax payments for the period.
On the assets side of the balance sheet:

fixed assets generally longer-term assets like machinery as well as intangible assets
such as intellectual property rights
current assets short-term assets such as stock and cash.
Liabilities are similarly divided into short and longer-term items, including:
current liabilities amounts you owe that are due for payment within one year such as
suppliers bills
long-term liabilities amounts due after more than one year, for example, long-term bank
loans
shareholder funds share capital (amounts paid into the company for shares) and
reserves, including retained profit.

I shall flow the Full disclosure principle as follows:


Financial statements normally provide information about a company's past performance.
However, pending lawsuits, incomplete transactions, or other conditions may have imminent and
significant effects on the company's financial status. The full disclosure principle requires that
financial statements include disclosure of such information. Footnotes supplement financial
statements to convey this information and to describe the policies the company uses to record
and report business transactions.

The form of information disclosures can be found in a number of places including the
following:

The company's financial statements including any supplementary schedules and notes (or
footnotes).
Management's Discussion and Analysis that is included in a publicly-traded corporation's
annual report.
Quarterly earnings reports, press releases and other communications.
The first note or footnote in a company's financial statements will disclose the significant
accounting policies such as how and when revenues are recognized, how property is
depreciated, how inventory and income taxes are accounted for, and more.
Other disclosures in the notes to the financial statements include the effects of foreign
currencies, contingent liabilities, leases, related-party transactions, stock options, and
much more.

Who are the parties that interested and why? Please describe?
Financial information helps users to make better financial decisions. Users of financial
information may be both internal and external to the organization.
Internal users (Primary Users) of accounting information include the following:

Management: for analyzing the organization's performance and position and taking
appropriate measures to improve the company results.
Employees: for assessing company's profitability and its consequence on their future
remuneration and job security.
Owners: for analyzing the viability and profitability of their investment and determining
any future course of action.
Accounting information is presented to internal users usually in the form of management
accounts, budgets, forecasts and financial statements.

External users (Secondary Users) of accounting information include the following:

Creditors: for determining the credit worthiness of the organization. Terms of credit are
set by creditors according to the assessment of their customers' financial health. Creditors
include suppliers as well as lenders of finance such as banks.
Tax Authourities: for determining the credibility of the tax returns filed on behalf of the
company.
Investors: for analyzing the feasibility of investing in the company. Investors want to
make sure they can earn a reasonable return on their investment before they commit any
financial resources to the company.
Customers: for assessing the financial position of its suppliers which is necessary for
them to maintain a stable source of supply in the long term.

Regulatory Authorities: for ensuring that the company's disclosure of accounting


information is in accordance with the rules and regulations set in order to protect the
interests of the stakeholders who rely on such information in forming their decisions.

Question 5:
Do I think entrepreneurs and managers need knowledge in accounting? Why?
Yes, entrepreneurs and managers need the knowledge of accounting because the importance of
having financial knowledge is the key in becoming a successful entrepreneur. In todays time
you have to learn to be a leader, an entrepreneur, and financially smart. The creative entrepreneur
can be collapsed in his/her business because lack of financial knowledge. Financial
accounting includes the calculations that allow managers to price products and services. This is
important to make sure manager selling and buying at the right price. For example, manager
should have a good understanding of profit margins, because small changes in margins can have
a large impact on profit.
Many small business entrepreneurs who produce accurate accounts, don't know how to then use
those numbers accounts have produced, to carry out financial accounting. On the other hand,
many entrepreneurs who feel confident about their accounting knowledge take it upon
themselves to do their own monthly accounting. The thinking behind this is sound: "keep your
fingertips on the numbers the business is producing".
As a manager, you'll likely supervise lower-level accountants who handle a company's basic
accounting tasks, such as recording income and expenses, tracking tax liabilities and using these
data to prepare income statements, cash flow statements and balance sheets, but in a smaller
firm, you might perform these tasks yourself. A manager will analyze these basic data and make
forecasts, budgets, performance measurements and plans, then present them to senior
management to assist in its operational decision making. On the other hand, owner/entrepreneur
must understand what the accounts department is presenting before him/her about the companys
financial position and statements.

Question 6:
How do I explain Agency Theory with business setup? Say for example ,
Media Prima Berhad and May Bank Berhad.
Agency theory is the relationship between principals and agents in business. Agency theory is
concerned with resolving problems that can exist in agency relationships; that is, between
principals (such as shareholders) and agents of the principals (for example, company executives).
The two problems that agency theory addresses are:
1) the problems that arise when the desires or goals of the principal and agent are in conflict,
and the principal is unable to verify (because it difficult and/or expensive to do so) what
the agent is actually doing;
2) the problems that arise when the principal and agent have different attitudes towards risk.
Because of different risk tolerances, the principal and agent may each be inclined to take
different actions.
In my car dealer business, I may have the agency problem. Suppose my company have account
in Maybank and we have given an instruction to Maybank to collect worthy of RM 5000 but they
have paid RM 4000 then the agency problem occurs and I have the given the order to Media
Prima Berhad for advertising about any promotion in their media house but unfortunately they
could not able to show/produce the advertisement. An agency such as Maybank and Media
Prima Berhad, in general terms, is the relationship between two parties, where one is a principal
such as our car dealer and the other is an agent who represents the principal in transactions with a
third party. Agency relationships occur when I hire the agent to perform a service on the
principals' behalf. Principals commonly delegate decision-making authority to the agents.
Agency problems can arise because of inefficiencies and incomplete information. In accounting,
two important agency relationships are those between stockholders and managers, and
stockholders and creditors.

Problem Based Learning TWO:


What are the components of financial statements that are available in the
annual report of Advance Synergy Berhad? Discuss the purpose of each of the
statements?
The Components of Net Income:

Revenue
Cost of Goods Sold
Recurring income before interest and taxes from continuing operations Recurring (pretax) income from continuing operations
Pre-tax earnings from continuing operations
Income (or expense) from discontinued operations

The Components of Balance sheet:


Assets
Non Current Assets:

Property, Plant and Equipment


Investment in properties
Investment in associates
Investment in security
Goodwill on consolidation
Intangible assets
Differed Tax Assets

Current Assets:

Progress Billings
Inventories
Trade and others receivables
Tax recoverable
Investment securities
Short term deposit
Cash and bank balance

Equity and Liabilities:

Equity attributable to the owners of the parent


Non-controlling interest
Non-current liabilities
and current liabilities

Components of Cash Flow Statement

Net Cash flow from Operating activities


Net cash flow from Investing activities
Net cash flow from Financing
Net cash flow from Non-cash investing and financing activities

What is/are the relationship between financial statements?


Income Statement
Net income-the bottom line of income statement flows from the Income Statement to Retained
Earnings on the Balance Sheet. It also becomes the first line of Cash from Operations on the
Cash Flow Statement. Thus Income Statement as a cumulative record over a period of time.
The increase or decrease in net assets of an entity arising from the profit or loss reported in the
income statement is incorporated in the balances reported in the balance sheet at the period end.
The profit and loss recognized in income statement is included in the cash flow statement under
the segment of cash flows from operation after adjustment of non-cash transactions. Net profit or
loss during the year is also presented in the statement of changes in equity.
Balance Sheet
Balance Sheet, or Statement of Financial Position, is directly related to the income statement,
cash flow statement and statement of changes in equity. Assets, liabilities and equity balances
reported in the Balance Sheet at the period end consist of:

Balances at the start of the period;


The increase (or decrease) in net assets as a result of the net profit (or loss) reported in the
income statement;
The increase (or decrease) in net assets as a result of the net gains (or losses) recognized
outside the income statement and directly in the statement of changes in equity (e.g.
revaluation surplus);
The increase in net assets and equity arising from the issue of share capital as reported in
the statement of changes in equity;
The decrease in net assets and equity arising from the payment of dividends as presented
in the statement of changes in equity;

The change in composition of balances arising from inter balance sheet transactions not
included above (e.g. purchase of fixed assets, receipt of bank loan, etc).
Accruals and Prepayments
Receivables and Payables

Statement of Changes in Equity


Statement of Changes in Equity is directly related to balance sheet and income statement.
Statement of changes in equity shows the movement in equity reserves as reported in the entity's
balance sheet at the start of the period and the end of the period. The statement therefore includes
the change in equity reserves arising from share capital issues and redemptions, the payments of
dividends, net profit or loss reported in the income statement along with any gains or losses
recognized directly in equity (e.g. revaluation surplus).
Cash Flow Statement
Statement of Cash Flows is primarily linked to balance sheet as it explains the effects of change
in cash and cash equivalents balance at the beginning and end of the reporting period in terms of
the cash flow impact of changes in the components of balance sheet including assets, liabilities
and equity reserves.
Cash flow statement therefore reflects the increase or decrease in cash flow arising from:

Change in share capital reserves arising from share capital issues and redemption;
Change in retained earnings as a result of net profit or loss recognized in the income
statement (after adjusting non-cash items) and dividend payments;
Change in long term loans due to receipt or repayment of loans;
Working capital changes as reflected in the increase or decrease in net current assets
recognized in the balance sheet;
Change in non-current assets due to receipts and payments upon the acquisitions and
disposals of assets (i.e. investing activities)

How do you relate the statements with accounting equation?


The accounting equation essentially shows what the firm owns (its assets) are purchased by
either what it owes (its liabilities) or by what its owners invest (its shareholders equity or
capital). This relationship is expressed in the form of an equation:
Assets = Liabilities + Owner's Capital

This equation has to balance because everything the firm owns (assets) has to be purchased
with something, either a liability or owner's capital. Assets refer to items like inventory or
accounts receivable. Examples of liabilities are bank loans or accounts payable. Owner's capital
or equity is the investment or capital the owner has in the firm. Another example is business
profit.
The expanded accounting equation, after you consider sales revenue and expenses, is:
Assets = Liabilities + Owner's Equity + Revenue - Expenses Draws

Revenues increase Owner's Equity


Expenses decrease Owner's Equity
Draws or Dividends decrease Owner's Equity

The expanded accounting equation shows the relationship between the income statement and the
balance sheet. The Owner's Equity component of the accounting equation can be broken down
into two parts - revenue and expenses. So far, the accounting equation has focused on the
components of the balance sheet. Now, breaking the owner's equity part of the accounting
equation into revenues and expenses shows the relationship between the balance sheet and the
income statement since revenue and expenses are the key components of the firm's income
statement.
Revenues, also called sales revenues, are what the business earns for providing its product or
service to customers. Expenses are what it costs the business to provide the product or service to
the customers. The relationship between revenues and expenses is simple. If revenues are greater
than expenses, then the business generates a profit. If revenues are less than expenses, then the
business sustains a loss.
The owner or owners of the company can also withdraw a salary or equity from the business. If
the company is incorporated, then that salary may be in the form of dividends paid by the
corporation. However, if the company is small and a sole proprietorship, partnership, or limited
liability company, then the owner or owners will take a draw from the business as their salaries.

Problem Based Learning FIVE:


Bursa Malaysia
Bursa Malaysia is an exchange holding company approved under Section 15 of the Capital
Markets and Services Act 2007. It operates a fully integrated exchange, offering the complete
range of exchange-related services including trading, clearing, settlement and depository
services.
Securities Commission (SC) of Malaysia:
Securities Commission (SC) a statutory body entrusted with the responsibility of regulating and
systematically developing the capital markets in Malaysia.
Company Commission Malaysia
The main purpose of SSM is to serve as an agency to incorporate companies and register
businesses as well as to provide company and business information to the public.
Malaysian Accounting Standards Board:
The MASB makes up the frameworks for financial reporting in Malaysia. These frameworks
comprises an independent standard-setting structure with representation from all relevant parties
in the standard-setting process, including preparers, users, regulators and the accountancy
profession.
Malaysian Institute of Accountants
The most important aspect of MIA's role is the fact that it is the guardian of the credibility of the
accountancy profession in Malaysia. In doing this, MIA has to lead the profession to ensure that
it conforms to the role that is expected accountants and that public interest is always upheld.
MIA's function in maintaining the credibility of the profession is three-pronged, namely via
education & development, the promotion of adherence to professional standards and practices
and finally, surveillance and enforcement.
Malaysian Institute of Certified Public Accountants

To advance the theory and practice of accountancy in all its aspects.


To recruit, educate, train and assess by means of examination or otherwise a body of
members skilled in these areas.
To preserve at all times the professional independence of accountants in whatever
capacities they may be serving.
To maintain high standards of practice and professional conduct by all its members.
To do all such things as may advance the profession of accountancy in relation to public
practice, industry, commerce, education and the public service.

ACCA/CIMA/ICAEW/AUDIT NEGRA
ACCA (the Association of Chartered Certified Accountants) is the global body for
professional accountants. They aim to offer business-relevant, first-choice qualifications to
people of application, ability and ambition around the world who seek a rewarding career in
accountancy, finance and management.
The Chartered Institute of Management Accountants (CIMA) is a United Kingdom-based
professional body offering training and qualification in management accountancy and related
subjects, focused on accounting for business; together with ongoing support for members.
The Institute of Chartered Accountants in England and Wales (ICAEW) is the largest
professional accountancy body in Europe. As a world-class professional accountancy body, the
ICAEW provides leadership and practical support to over 134,000 members in 165 countries,
working with government, regulators and industry to maintain the highest standards.
Audit Negara
To Carry Out Audit In A Professional And Independent Manner And To Produce Balanced
Report To The Parliament And State Legislatures Towards Enhancing Good Governance In The
Public Sector
Roles of Audit Negara Malaysia
1.
2.
3.
4.
5.

To prepare quality and timely Audit Reports to Parliament and State Legislatures
To carry out audit activities and prepare reports in an independent and balanced manner
To fulfill the needs and expectations of stakeholders and auditees
To manage audit activities efficiently and effectively
To be a model employer