Chapter 11 and 12

The system of policies by which an organisation is directed and controlled is known as which ONE of the following?

Corporate governance

Which one of the following is associated with a 'rules based' approach to ethics? Easier for personnel Prevention Discretionary Spirit of the law

Easier for personnel

Which one of the following options correctly states the number of independent non- executive directors required by the UK Code on Corporate Governance? Large listed companies require half their board to be independent non-executive directors. Large listed companies require two-thirds of their board to be independent non-executive directors. All companies require half their board to be independent non-executive directors. Small listed companies require at least three independent non-executive directors.

Large listed companies require half their board to be independent non-executive directors.

To which of the following does a director owe a duty of care and skill? The public at large The company's creditors The shareholders as a body

The shareholders as a body

consultant has made the following statements, which he maintains are drawn from the definition of corporate governance in the OECD's Principles of Corporate Governance. Statement (1): Corporate governance comprises the practices and procedures for ensuring that a company is run in such a way that it achieves its objectives. Statement (2): Corporate governance is a set of relationships between a company's management, its board, its shareholders and other stakeholders.

1 does not match, 2 matches

Jumpers plc has just obtained a premium listing on the London Stock Exchange. A consultant has made the following two statements about the company and the UK Corporate Governance Code. Statement (1): As Jumpers plc has a premium listing, the Listing Rules mean that the Code applies so the company must never depart from any of its requirements. Statement (2) If Jumpers plc had joined the FTSE 100, compliance with the Code would be a statutory requirement. Identify whether each statement is true or false.

Both false

Hofstede developed an influential model of the dimensions on which national cultures differ. X Inc is a company based in the country of Zee with a national culture that supports single status pay arrangements, informal styles of dress in the workplace and self-managed team working. According to Hofstede, this would be classified as:

Low-power distance

In addition to contributing to decision -making by the board as a whole, independent non-executive directors should make up? All the membership of the remuneration committee All the membership of the audit committee All the membership of the nomination committee

All the membership of the remuneration committee All the membership of the audit committee

What attributes are identified by the institute of business ethics as being typical of ethical business leaders?

Fair mindedness Ability to listen Honesty Courage openness

Which ONE of the following is NOT a responsibility of the Nominations/Appointments Committee? Review regularly the structure, size and composition of the board and make recommendations to the board. Recommend and monitor the level and structure of the remuneration of senior managers. Regularly evaluate the balance of skills, knowledge and experience of the board. Make recommendations to the board concerning the standing for reappointment of directors.

Recommend and monitor the level and structure of the remuneration of senior managers.

Which of the following would NOT be a benefit to a company of implementing a strong system of corporate governance? Reduced management costs Increased investor confidence Meeting listing requirements Reduction in the risk of mismanagement

Reduced management costs

The appointment of suitably qualified, independent external (statutory) auditors is the decision of a listed company's:

Shareholders

The chairman of Raygold plc, a premium listed company, is considering which of the company's non-executive directors can be classified as independent. Even if a non-executive director has worked as an employee for the company in the past, they may still be classified as independent if the period of employment finished at least:

5 years

Which of the following is the best example of the separation of ownership and control in a company, giving rise to a potential conflict of interest? A small company where the directors own all the shares. A medium-sized company where the directors own the majority of the shares. A large company where the directors, taken together, are the largest shareholders but have less than a 50% stake. A large quoted company where the external shareholders own the vast majority of the shares, the remaining shares being owned by the directors.

A large quoted company where the external shareholders own the vast majority of the shares, the remaining shares being owned by the directors.

Which one of the following is correct? A listed public company has complied with the UK Code on Corporate Governance if it produces a report explaining why it has not complied with its recommendations. It is a criminal offence for a listed company to fail to comply with the UK Code on Corporate Governance. A public company may be sued for breach of statutory duty if it fails to comply with the UK Code on Corporate Governance. The UK Code on Corporate Governance has no status and may be ignored by all companies.

A listed public company has complied with the UK Code on Corporate Governance if it produces a report explaining why it has not complied with its recommendations.

An old friend has asked you to tender for accounting work for him. You are keen to assist. From an ethical as well as a business perspective, what is the most appropriate action for you to take?

Ask a colleague to handle the matter

Which ONE of the following statements is CORRECT? Corporate Social Responsibility is a requirement of law. Corporate Social Responsibility is another word for ethics. Corporate Social Responsibility is the outward manifestation of ethical policy. Corporate Social Responsibility is the requirement for professional accountants to be held responsible for their actions.

Corporate Social Responsibility is the outward manifestation of ethical policy.

Which ONE of the following statements is FALSE? The UK Corporate Governance Code is a rigid set of rules. The UK Corporate Governance Code requires that every company should be headed by an effective board with collective responsibility. The UK Corporate Governance Code requires that the board should present a fair, balanced and understandable assessment of the company's position and prospects. The UK Corporate Governance Code requires that director remuneration should be linked to corporate and individual performance.

The UK Corporate Governance Code is a rigid set of rules.

he national culture in the country of Erewhon is characterised by a high 'power distance' score, and an acceptance that power is distributed unequally, and concentrated in the hands of a small number of key individuals. By contrast, the country of Wenland has a lower 'power distance' score, and people strive to get power distributed more evenly. Based on the 'power distance' scores of the two countries, identify if each of the following statements is likely to be true or false. 1. The corporate governance code in Erewhon prohibits the role of CEO and chair being combined, but the code in Wenland permits this. 2. The corporate governance code in Wenland requires a higher proportion of independent NEDs on the board than the code in Erewhon does.

1 false, 2 true

The following statements have been made about ethical audits and corporate responsibility. Statement (1): An ethical audit is a process which measures both the internal and external consistency of a company's values base. Statement (2): How far an organisation protects stakeholders with which it has contractual relationships is a measure of its corporate responsibility. Identify whether each statement is true or false.

1 true, 2 false

Which ONE of the following statements is FALSE? A unitary board structure comprises a single board made up of executive and non-executive directors. An advantage of a unitary board structure is the clear separation between those that manage the company and those that own it. A dual board structure consists of two boards, a lower tier management board, and an upper tier supervisory board. A disadvantage of the dual board structure is Increased bureaucracy, which may result in slower decisions being made.

An advantage of a unitary board structure is the clear separation between those that manage the company and those that own it.

Which ONE of the following statements is FALSE? Corporate governance is the system by which companies are directed and controlled. The aim of corporate governance is to ensure that companies are run well in the interests of their shareholders and the wider community. Corporate governance regulations originally developed largely due to a series of high profile corporate failures in the 1980s and early 1990s. Corporate governance regulations override company law.

Corporate governance regulations override company law.

financial system comprises which three of the following? Governance structures Intermediaries Securities Markets Regulator

Intermediaries Securities Markets

Which of the following statements is consistent with the principles of good corporate governance? Less than half of the board of directors should be non-executives. Executive directors can sit on the remuneration committee, as long as they form less than half of the total committee. Internal and external auditors should report to an audit committee made up entirely of non-executive directors. Once appointed, non-executive directors can keep their position for many years.

Internal and external auditors should report to an audit committee made up entirely of non-executive directors.

he audit committee of Lancaster plc is considering its recommendation to the board about re-appointing Kirk & Co as the company's external (statutory) auditors. Under the requirements of the UK Corporate Governance Code, the committee is concerned with the past effectiveness of the audit process. It should also be concerned with which of the following pairs of characteristics of the audit firm?

Its independence and objectivity

Which of the following individuals could be regarded as being independent? A person who has been an employee of the company in the previous five years A person who has had a material business relationship with the company in the previous three years A person who has served on the board of the company for more than nine years

None of them

Which one of the following is correct in relation to the UK Code on Corporate Governance? A failure to comply with the UK Code on Corporate Governance may result in a finding of wrongful trading on the part of the directors. Acting in ignorance of the UK Code on Corporate Governance may result in a director being disqualified from acting as a director. The UK Code on Corporate Governance requires disclosure of the extent to which it has been complied with. The UK Code on Corporate Governance gives rise to civil but not criminal liability.

The UK Code on Corporate Governance requires disclosure of the extent to which it has been complied with.

he board of directors of Kempton plc, a premium listed company, is considering the membership of its remuneration committee. In this regard, which statement is true? The chair of the board must be one of the members of the remuneration committee. The chair of the board may be both a member and chair of the remuneration committee. The chair of the board may be a member but cannot chair the remuneration committee. The chair of the board cannot be a member of the remuneration committee.

The chair of the board may be a member but cannot chair the remuneration committee.

Under the requirements of the UK Corporate Governance Code, who is responsible for monitoring a company's risk management and internal control systems?

The entire board of directors

Non-executive directors can perform an important role in corporate governance in all but one of the following ways: They act as independent advisors ensuring that executive directors make decisions in the best interest of shareholders. They play a role on the remuneration committee to ensure fair pay to directors. They are members of the audit committee to whom internal and external auditors report. They are responsible for all key business decisions so they should ensure that shareholders' interests are taken into account.

They are responsible for all key business decisions so they should ensure that shareholders' interests are taken into account.

Which of the following statements is correct regarding non-executive directors? They should make up at least half of the board of directors in larger companies. They help the executive directors with the daily running of the company. They may be friends or relatives of the executive directors, as this helps their working relationship. Once appointed, they should continue to act as non-executives for as long as possible as this will ensure they are knowledgeable and experienced.

They should make up at least half of the board of directors in larger companies.

Which of the following is not an objective of corporate governance? To increase disclosure to all stakeholders. To ensure that the company is run in a legal and ethical manner. To allow managers better control by decreasing the amount of time consuming reporting. To increase level of confidence for all investors.

To allow managers better control by decreasing the amount of time consuming reporting.