Chapter 7: MCQ

Which of these costs is NOT associated with an agency relationship between managers and shareholders? a. Monitoring Cost b. Taxation Loss c. Bonding Cost d. Residual Loss

b. Taxation Loss

The Dodd-Frank Wall Street Reform and Consumer Protection act includes provisions that require: a. Executive compensation to be submitted for shareholder approval via a nonbinding vote b. Increased disclosure about the nature of compensation packages and payments related to financial performance c. That compensation can be rescinded if it was paid based on inaccurate financial statements d. All of the above

d. All of the above

The OECD Principles of Corporate Governance link manages' remuneration to shareholder interest to address which agency problem? a. Risk aversion b. Dividend retention c. Horizon problem d. All of the above

d. All of the above

Which of the following were examples of risk management deficiencies that lead to the GFC: i. risk being monitored at the individual level rather than the entity level. ii. information about risks not reaching the board. iii. the organizational culture of 'pursuing growth in profits' iv. remuneration packages for high risk activities v. alerting shareholders to a potential investment with a high return a. i, ii, iii, v b. ii, iii, iv, v c. i, ii, iii, iv d. i, ii., iii., iv., v.

c. i, ii, iii, iv

Which of the following is NOT a requirement of the Sarbanes-Oxley Act: a. No loans by company to directors b. The use of checklists c. Audit partner rotation every 5 years d. The disclosure of whether there is a code of ethics for senior financial officers

b. The use of checklists

An advantage of a principles-based approach to corporate governance is that: a. It places a higher level of duty on directors to determine which corporate governance practices are required b. It requires a corporation to prepare an annual report and provide them to shareholders c. It bans loans to directors d. All of the options are correct

a. It places a higher level of duty on directors to determine which corporate governance practices are required

What is one of the ways that accounting is used to direct and control the manager of a corporation? a. Linking of a mangers performance to a bonus that depends on accounting profit b. Making decisions based on the accounting information regardless of managerial input. c. Threatening to tell shareholders a mangers income if a manager makes a 'poor financial' decision. d. Using income smoothing to assure a manager that they can invest in a low risk investment.

a. Linking of a mangers performance to a bonus that depends on accounting profit

Which of the following is NOT one of the ASX's Principles of Corporate Governance? a. The majority of directors should be executive b. Promote ethical and responsible decision making c. Establish an audit committee d. Ensure level and composition of remuneration is sufficient and reasonable

a. The majority of directors should be executive

According to the 'Anglo-Saxon' model whose interest should be the focus of corporate governance? a. Employees b. Shareholders c. Community d. Environment

b. Shareholders

In what ways can accounting cause financial reporting problems? i. disclosure can lead to constraining of the behaviour of a manager ii. accounting information may lead a manager to making a different approach to a company's original financial approach iii. there is a drive or desire to meet share market expectations based on these accounting results iv. the manipulation of earnings to meet market expectations a. i, ii b. iii, iv c. i, ii, iii d. iv, iii, ii, i

b. iii, iv

What element of executive remuneration has been argued to have contributed to the global financial crisis? a. Share options b. Bonuses on the basis of short-term profits c. Bonuses on non-financial key performance indicators d. High fixed salary components

b. Bonuses on the basis of short-term profits

Which of the following examples is NOT advantage of good corporate governance? a. Expanding the company's shareholder base b. Reducing perceived risks to investors c. Increasing the cost of capital d. Increased market confidence

c. Increasing the cost of capital

When it comes to corporate governance many commentators have argued the most important factor is: a. Strong accounting systems b. Harsh legal penalties c. Personal ethics d. Codes of practice

c. Personal ethics

Which of the following is NOT an example of good corporate governance in relation to shareholders? a. Treat all shareholders equally b. Have rules that allow shareholders to call extraordinary meetings c. Provide shareholders with all information made available to directors d. All of the above

c. Provide shareholders with all information made available to directors

Corporate governance is: a. A coherent system of concepts that underlie financial reporting b. A term referring to management's choosing to voluntarily disclose non-compulsory information in annual reports c. The system by which corporations are directed and controlled. d. A set of broad principles that provide the basis for guiding actions or decisions

c. The system by which corporations are directed and controlled.

1. Which of the following problems has contributed to the growth in corporate governance over the past decades? a. Managers using the resources of the company to benefit themselves b. Corporations taking actions shareholders consider undesirable c. Corporations misleading shareholders to avoid consequences d. All of the above

d. All of the above

To ensure shareholders are sufficiently informed good governance practices include: a. Prepare regular reports b. Have annual reports audited c. Detail related party transactions d. All of the above

d. All of the above

Which of the following statements is most correct? a. Corporate governance is only relevant to listed entities b. Corporate governance is only relevant to developed economies c. Corporate governance not relevant to family entities d. Corporate governance is relevant to most companies globally.

d. Corporate governance is relevant to most companies globally.

Which of the following is NOT an example of corporate governance practice? a. Codes of conduct for directors b. Requirements that most board directors be independent c. Formation of a nominating committee to identify potential new directors d. None of the above, i.e. they are all examples of corporate governance

d. None of the above, i.e. they are all examples of corporate governance

Which of the following is NOT a significant influence on actual corporate governance practice? a. The nature of the requirements b. The environment in which the entity operates c. The commitment of management d. None of the above, they are all significant

d. None of the above, they are all significant