104 Questions
Which of the following is NOT a factor that investors consider when evaluating a company's governance?
Employee benefits
What is the main responsibility of the board of directors in corporate governance?
Representing the owners of the company
What is the purpose of corporate governance codes?
To ensure transparency and accountability
Why is good corporate governance important for a company?
To minimize the risk of value destruction
Which company's collapse led to the dismantling of its auditor, Arthur Andersen?
Enron
What were some of the governance failings at Enron?
Weak oversight of executives
What was the estimated deficit of HIH when it collapsed?
AU$5.3bn
What are the two key concepts reflected in corporate governance standards and investor expectations?
Accountability and alignment
Who should senior executives feel accountable to?
Non-executive directors
What is the role of the chair of the board?
Facilitating a balanced debate
Why is transparent and honest accounting important?
To hold management and boards to account
Which country was the first to introduce a formal corporate governance code?
United Kingdom
What was the main theme of the Cadbury Committee's report on corporate governance?
The requirement for accountability and alignment
Which major world market does not currently have an official corporate governance code?
United States
What is the common approach taken by most markets regarding compliance with corporate governance codes?
Comply or explain
Which of the following is NOT a key characteristic of effective corporate governance?
Executive remuneration
Which of the following is a challenge in the effective delivery of audits?
Sampling of audit work
What is the role of auditors in relation to corporate governance?
Ensuring financial integrity
Which of the following scandals led to the creation of the Sarbanes-Oxley Act in the USA?
Enron scandal
What did the Greenbury Report in the UK focus on?
Remuneration structures and transparency
Which legislative change tightened standards for banks and oversight in the USA?
Dodd-Frank Act
What did the Olympus scandal reveal about Japanese companies?
Cultural issues in hiding the truth
Which of the following best describes the agency problem in corporate governance?
The interests of professional managers may not align with the interests of the owners
Why is it difficult to solve the agency problem by simply doing what shareholders instruct?
Shareholders often have multiple and conflicting messages
What is the purpose of executive pay structures in corporate governance?
To align the interests of management with those of the owners
What is the role of the Audit Committee in corporate governance?
Overseeing financial reporting, audit, and risk oversight
Which of the following is NOT a key characteristic of effective corporate governance?
Shareholder engagement
What are the main variables influencing best practice in corporate governance?
Legislation, culture, and interpretation
What is the role of auditors in relation to corporate governance?
Assessing the challenges in effective delivery of the audit
Which of the following scandals involved an electric utility turned energy-trading business that used off-balance-sheet vehicles and aggressive accounting techniques to appear profitable?
Enron
What was the estimated deficit of HIH when it collapsed?
AU$5.3bn
Which scandal led to the dismantling of its auditor, Arthur Andersen, after some of its staff were discovered to have shredded documents?
Enron
What are some of the issues that investors consider when evaluating a company's governance?
Related-party transactions
What is the role of the board of directors in corporate governance?
Representing the owners of the company and holding management accountable
What is the purpose of corporate governance codes?
To ensure transparency and accountability
What is the relationship between good corporate governance and business performance?
Good corporate governance may lead to strong business performance
Which of the following is a key element of corporate governance?
Accountability and alignment
Who should senior executives feel accountable to in corporate governance?
Non-executive directors
What is the role of the chair of the board in corporate governance?
All of the above
Why is transparent and honest accounting important in corporate governance?
To hold management and boards accountable
Which of the following scandals led to pressure for heightened standards of corporate governance and for both board and auditor independence across Europe?
The Ahold scandal
Which legislative change tightened standards for, and oversight of, banks?
The Dodd-Frank Act
Which of the following scandals revealed long-running market deceit in Japanese companies?
The Olympus scandal
Which of the following legislative changes lifted expectations for greater integrity in financial reporting and created the Public Company Accounting Oversight Board (PCAOB)?
The Sarbanes-Oxley Act
Which of the following is NOT a role of the Nominations Committee?
Delivering a proper alignment of interests through executive pay
What is the purpose of executive pay structures in corporate governance?
To align the interests of management with those of the owners
What is the main focus of the Audit Committee in corporate governance?
Overseeing financial reporting and the audit
What is the purpose of corporate governance codes?
To formalize corporate governance and develop standards
Which of the following countries has a two-tier board system?
Germany
Which country does NOT currently have an official corporate governance code?
United States
Which of the following is the correct statement regarding the Cadbury Committee's recommendations?
The committee proposed that every public company should have an audit committee that meets at least twice a year.
Which of the following is NOT a characteristic of the Cadbury Code model of recommendations?
The USA is the only major world market without a corporate governance code.
True or false: Corporate governance is the process and structure for overseeing the business and management of a company.
True
True or false: The role of the board of directors in corporate governance has become more important as companies have grown and ownership has become more dispersed.
True
True or false: Good corporate governance should lead to strong business performance and long-term prosperity.
True
True or false: Investors judge a company's governance based on the quality and thoughtfulness of the people on the board.
True
Enron collapsed due to weak oversight of its executives by non-executive directors.
True
The collapse of Enron led to the dismantling of its auditor, Arthur Andersen.
True
HIH collapsed because it had insufficient assets to cover its liabilities.
True
True or false: Corporate governance focuses primarily on accountability and alignment.
True
True or false: The chair of the board should ideally be an independent non-executive director.
True
True or false: Transparent and honest accounting is crucial for holding management and boards accountable.
True
True or false: The agency problem is a result of the separation of ownership and control.
True
True or false: The main reasons for the lack of implementation or upholding of effective corporate governance include board structure, diversity, effectiveness, and independence; executive remuneration, performance metrics, and key performance indicators (KPIs); reporting and transparency; financial integrity and capital allocation; and business ethics.
True
True or false: The role of auditors in relation to corporate governance includes ensuring the independence of audit firms and addressing conflicts of interest; auditor rotation; sampling of audit work and technological disruption; auditor reports; auditor liability; and internal audit.
True
True or false: Governance issues can have material impacts on potential investment opportunities, including public finance initiatives; companies; infrastructure/private finance vehicles; and societal impact.
True
True or false: The agency problem arises when the interests of professional managers align with the interests of the owners of the business.
False
True or false: Directors have a duty under company law to care for the success of the shareholders directly.
False
True or false: The major focus of executive pay structures is to create a balanced compensation package that includes performance-related remuneration based on short-term goals.
False
True or false: The Nominations Committee is responsible for overseeing financial reporting and the audit.
False
True or false: The Cadbury Committee was created in response to the Caparo and Polly Peck scandals.
True
True or false: The Cadbury Code model of recommendations is followed throughout most of the world.
True
True or false: The USA is the only major world market without an official corporate governance code.
True
True or false: Most markets adopt the language of 'comply or explain' in their corporate governance codes.
True
True or false: The Greenbury Report revised the UK's corporate governance code in 1995 to increase transparency over pay levels at newly privatized utilities?
True
True or false: The Sarbanes-Oxley Act in the USA was established in response to the Enron, Tyco, and WorldCom scandals in 2002?
True
True or false: The Olympus scandal in Japan revealed long-running market deceit and led to heightened standards of corporate governance in the country?
True
True or false: The 2010 Dodd-Frank Act in the USA tightened standards for, and oversight of, banks in response to the financial crisis of 2008?
True
True or false: Corporate governance frameworks include roles and responsibilities, systems and processes, and shareholder engagement.
True
True or false: Effective corporate governance includes characteristics such as board structure, diversity, effectiveness, and independence.
True
True or false: Auditors play a role in corporate governance and face challenges such as conflicts of interest and auditor liability.
True
True or false: Corporate governance focuses on two key concepts: accountability and alignment.
True
True or false: The chair of the board should ideally be an independent non-executive director.
True
True or false: Transparent and honest accounting is crucial for holding management and boards accountable.
True
True or false: The agency problem is a consequence of the separation of ownership and control in corporations.
True
True or false: The Cadbury Committee was established after the Carillion's failure.
True
True or false: The Cadbury Committee proposed that every public company should have an audit committee.
True
True or false: The USA is the only major world market without an official corporate governance code.
True
True or false: The Cadbury Code model is followed throughout most of the world.
True
True or false: Corporate governance is the process and structure for overseeing the business and management of a company.
True
True or false: The role of the board of directors has become less important as companies have grown in scale and complexity.
False
True or false: Good corporate governance should lead to strong business performance and long-term prosperity.
True
True or false: Investors judge a company's governance based on the quality of its policies and processes, as well as the people on the board.
True
True or false: The agency problem arises when the interests of managers align with the interests of the owners of the business.
False
True or false: The duty of directors under company law is to prioritize the success of the shareholders directly.
False
True or false: Executive pay structures aim to align the interests of management with those of the owners.
True
True or false: The three key committees of the board are the Nominations Committee, the Audit Committee, and the Remuneration Committee.
True
Enron used off-balance-sheet vehicles and aggressive accounting techniques to appear profitable.
True
The collapse of Enron led to the dismantling of its auditor, Arthur Andersen.
True
The HIH scandal was caused by under-reserving and aggressive insurance practices.
True
True or false: The Greenbury Report revised the UK's corporate governance code in 1995 to increase transparency over remuneration structures.
True
True or false: The Sarbanes-Oxley Act in the USA was established in response to the Enron, Tyco, and WorldCom scandals to ensure greater integrity in financial reporting.
True
True or false: The Olympus scandal in Japan revealed long-running market deceit and led to heightened standards of corporate governance in the country.
True
True or false: The financial crisis of 2008 led to the creation of stewardship codes in the UK and tightened standards for banks through the Dodd-Frank Act in the USA.
True
Study Notes
Corporate Governance: Accountability and Alignment
- Corporate governance is the process and structure for overseeing the business and management of a company.
- The role of the board of directors has become more important as companies have grown and ownership has become more dispersed.
- Good corporate governance practices are essential for the effectiveness of the board.
- Investors expect companies to disclose their corporate governance structures and processes.
- Investors consider various governance issues when evaluating a company, such as shareholder rights, executive pay, audit practices, and board independence.
- Corporate governance is about people and processes, and it involves developing an appropriate culture that supports strong business performance.
- Board members are supported by processes to exercise their responsibilities effectively.
- Investors judge a company's governance based on the quality of its policies and processes and the people on the board.
- Corporate governance systems provide insight into accountability mechanisms and decision-making processes.
- Accountability and alignment are key concepts in corporate governance.
- Board structure, independence of directors, and diversity are important for accountability.
- Transparent and honest accounting, as well as independent audits, are crucial for accountability.
Make Your Own Quizzes and Flashcards
Convert your notes into interactive study material.
Get started for free
