Chapter 17 Corporate Governance And Sustainability Exam Prep

Chapter 17: Corporate Governance and Sustainability

Test Bank

Type: true-false

Title: Chapter 17 Question 01

1) When shareholders appoint directors to run the company on their behalf, agency issues are the only problem that arises.

a. True

Heading reference: Introduction

b. False

Heading reference: Introduction

Type: multiple response question

Title: Chapter 17 Question 02

2) Which of the following difficulties arise as a result of information asymmetry? Please select all that apply.

Heading reference: Introduction

a. Shareholders are only as well informed as the directors allow.

b. Shareholders’ interests are subordinated to those of the directors.

c. Shareholders cannot be certain that the annual financial statements present the full picture of the company’s profits, cash flows and financial position.

d. Shareholders lack the necessary information to be able to be certain that the company is being run honestly, ethically and in accordance with the law.

Type: true-false

Title: Chapter 17 Question 03

3) The agency problem arises from the fact that agents appoint principals to undertake tasks on their behalf.

a. True

Heading reference: Introduction

b. False

Heading reference: Introduction

Type: true-false

Title: Chapter 17 Question 04

4) Agents will always work in their own best interests and not in the best interests of their principals.

a. True

Heading reference: Introduction

b. False

Heading reference: Introduction

Type: true-false

Title: Chapter 17 Question 05

5) Information asymmetry and agency problems have a common source.

a. True

Heading reference: Introduction

b. False

Heading reference: Introduction

Type: multiple choice question

Title: Chapter 17 Question 06

6) Which one of the following statements does not describe the governance role of shareholders?

a. Satisfy themselves that the appropriate governance structure is in place.

Heading reference: Corporate governance: a definition

b. Appoint the auditors.

Heading reference: Corporate governance: a definition

c. Supervise the management of the organization.

Heading reference: Introduction, Corporate governance: a definition,

d. Appoint the directors.

Heading reference: Corporate governance: a definition

Type: true-false

Title: Chapter 17 Question 07

7) Executive directors are responsible for the governance of their companies.

a. True

Heading reference: Corporate governance: a definition

b. False

Heading reference: Corporate governance: a definition

Type: true-false

Title: Chapter 17 Question 08

8) Corporate governance involves shareholders and the board of directors interacting and working together in the effective direction and control of their company.

a. True

Heading reference: Corporate governance: a definition

b. False

Heading reference: Corporate governance: a definition

Type: multiple choice question

Title: Chapter 17 Question 09

9) Which one of the following statements is not true?

a. The aim of Corporate Governance is to give investors confidence in the honesty and accountability of listed companies.

Heading reference: Corporate governance: a definition

b. Internal auditors report on the annual financial statements.

Heading reference: External audit, Internal audit

c. External auditors cannot be employees of the auditee company.

Heading reference: External audit

d. Internal control systems are set up to assist directors with their duty to safeguard the assets of the company and to ensure that operations are fully under control.

Heading reference: Internal audit

Type: multiple choice question

Title: Chapter 17 Question 10

10) Which one of the following statements does not describe the function of the Stock Exchange listing rules?

a. Guarantee the efficiency and regulation of the stock market.

Heading reference: Stock exchange rules

b. Provide a high degree of confidence in the operations and integrity of the market.

Heading reference: Stock exchange rules

c. Are applied by companies listing on the market on a comply or explain basis.

Heading reference: Stock exchange rules

d. Aim to protect investors.

Heading reference: Stock exchange rules

Type: multiple choice question

Title: Chapter 17 Question 11

11) Which one of the following statements does not describe non-executive directors?

a. Employed by the company.

Heading reference:

Corporate governance: the parties involved

Board effectiveness

b. Elected by shareholders.

Heading reference:

Corporate governance: the parties involved

Board effectiveness

c. Members of various board committees.

Heading reference: Corporate governance: the parties involved

d. No executive management functions.

Heading reference:

Corporate governance: the parties involved

Board effectiveness

Type: multiple response question

Title: Chapter 17 Question 12

12) External auditors: Please select all that apply.

Heading reference: External audit

a. Are qualified accountants.

b. Prepare the annual report and financial statements.

c. Report directly to the shareholders without involving the directors.

d. Report on the truth and fairness of the annual financial statements.

Type: multiple choice question

Title: Chapter 17 Question 13

13) Which one of the following statements does not describe executive directors?

a. Exercise executive management functions.

Heading reference: Corporate governance: the parties involved

b. Implement company policies.

Heading reference: Corporate governance: the parties involved

c. Involved with various board committees.

Heading reference:

Corporate governance: the parties involved

Board effectiveness

Ensuring the integrity of financial statements

Directors’ remuneration

d. Deal with day-to-day operational issues.

Heading reference: Corporate governance: the parties involved

Type: multiple choice question

Title: Chapter 17 Question 14

14) Which one of the following statements describes the role of internal auditors?

a. To set up the internal control system to prevent and detect fraud and error.

Heading reference: Internal audit

b. To assess the effectiveness of the risk management, control and governance procedures.

Heading reference: Internal audit

c. To report on the truth and fairness of the annual report and financial statements and their compliance with the requirements of both the Companies Act 2006 and of IFRS.

Heading reference: External audit, Internal audit

d. To present a subjective view of all an organization’s activities and operations.

Heading reference: Internal audit

Type: multiple choice question

Title: Chapter 17 Question 15

15) Which one of the following statements is not an accurate description of the role of the external audit and the external auditors’ report?

a. Enables users of financial statements to place a high degree of confidence in the audited financial information.

Heading reference: External audit

b. Assists shareholders in overcoming their information asymmetry problem.

Heading reference: External audit

c. Gives shareholders reasonable assurance that the annual report and financial statements present a true and fair view of the results for the year.

Heading reference: External audit

d. Bases the audit report on a 100% check of all the transactions undertaken during the year and a 100% check on the year end account balances.

Heading reference: External audit

Type: multiple response question

Title: Chapter 17 Question 16

16) The Stock Exchange listing rules require: Please select all that apply.

Heading reference: Stock exchange rules

a. Mandatory compliance with the Corporate Governance Code.

b. Companies to provide a statement in their annual reports and accounts stating how the principles of the Corporate Governance Code have been applied.

c. Confirmation of compliance with the provisions of the Corporate Governance Code.

d. Companies to abide by the Corporate Governance Code.

Type: multiple response question

Title: Chapter 17 Question 17

17) External auditors: Please select all that apply.

Heading reference: External audit

a. Are appointed by the directors.

b. Use their expert knowledge to ensure all statutory disclosures have been made and that the annual financial statements comply with the requirements of IFRS.

c. Review the financial statements prepared by the directors.

d. Undertake testing of balances and transactions.

Type: multiple response question

Title: Chapter 17 Question 18

18) Internal audit Please select all that apply.

Heading reference: Internal audit

a. Is appointed by the board of directors.

b. Has a very wide ranging remit.

c. Is completely independent when its reports are made to the audit committee and not to the executive directors.

d. Focuses its audit work on the entire range of organizational operations.

Type: true-false

Title: Chapter 17 Question 19

19) External audit is proactive and aims to add value to every part of an organization’s activities and operations.

a. True

Heading reference: External audit, Internal audit

b. False

Heading reference: External audit, Internal audit

Type: true-false

Title: Chapter 17 Question 20

20) Non-executive directors’ dominance of the board ensures the effective enforcement of the Corporate Governance Code in each and every company.

a. True

Heading reference: Company decision making

b. False

Heading reference: Company decision making

Type: true-false

Title: Chapter 17 Question 21

21) Directors are less likely to make risky decisions when their company complies with the requirements of the Corporate Governance Code (CGC).

a. True

Heading reference: Company decision making

b. False

Heading reference: Company decision making

Type: multiple choice question

Title: Chapter 17 Question 22

22) Which one of the following would not promote board effectiveness?

a. Timely information.

Heading reference: Board effectiveness

b. Continuity of leadership.

Heading reference: Board effectiveness

c. Diversity.

Heading reference: Board effectiveness

d. Training.

Heading reference: Board effectiveness

Type: true-false

Title: Chapter 17 Question 23

23) Division of responsibilities is a means of exercising control.

a. True

Heading reference: Company decision making

b. False

Heading reference: Company decision making

Type: true-false

Title: Chapter 17 Question 24

24) Effective leadership of the board is exercised by chief executives acting on their own initiative.

a. True

Heading reference: Company decision making

b. False

Heading reference: Company decision making

Type: multiple response question

Title: Chapter 17 Question 25

25) Board effectiveness is achieved by: Please select all that apply.

Heading reference: Board effectiveness

a. Avoiding complacency.

b. Giving directors sufficient time in which to undertake and fulfil their duties.

c. Evaluation of directors’ performance.

d. Likeminded directors.

Type: true-false

Title: Chapter 17 Question 26

26) Executive directors can ignore the views and opinions of the non-executive directors.

a. True

Heading reference: Company decision making

b. False

Heading reference: Company decision making

Type: multiple choice question

Title: Chapter 17 Question 27

27) Which one of the following will not assist the audit committee in assessing whether the annual report and financial statements present a fair, balanced and understandable assessment of a company’s position and prospects?

a. Requiring audit committee members to have competence relevant to the sector in which the company operates.

Heading reference: Ensuring the integrity of financial statements

b. Requiring at least one audit committee member to have recent and relevant financial experience.

Heading reference: Ensuring the integrity of financial statements

c. Requiring the audit committee to be composed of at least three non-executive directors.

Heading reference: Ensuring the integrity of financial statements

d. Requiring the audit committee to meet with the external auditor on a regular basis to discuss the financial statements and any issues arising.

Heading reference: Ensuring the integrity of financial statements

Type: multiple choice question

Title: Chapter 17 Question 28

28) Which one of the following is not a role of the audit committee set out in the Corporate Governance Code?

a. Monitoring the integrity of the financial statements of the company and any formal announcements relating to the company’s financial performance, and reviewing significant financial reporting judgements contained in them.

Heading reference: Ensuring the integrity of financial statements

b. Reviewing the company’s internal financial controls and internal control and risk management systems.

Heading reference: Ensuring the integrity of financial statements

c. Monitoring and reviewing the effectiveness of the company’s internal audit function and reviewing the effectiveness of the external audit process.

Heading reference: Ensuring the integrity of financial statements

d. Determining the executive directors’ remuneration.

Heading reference: Ensuring the integrity of financial statements, Directors’ remuneration

Type: true-false

Title: Chapter 17 Question 29

29) The audit committee’s remuneration is determined by the financial results for the year.

a. True

Heading reference: Corporate governance: the parties involved, Ensuring the integrity of financial statements

b. False

Heading reference: Corporate governance: the parties involved, Ensuring the integrity of financial statements

Type: true-false

Title: Chapter 17 Question 30

30) The executive directors of a company have a duty to prepare and present annual financial statements which show a true and fair view of a company’s profit or loss and cash flows for the year and of its financial position at the year-end date.

a. True

Heading reference: Ensuring the integrity of financial statements

b. False

Heading reference: Ensuring the integrity of financial statements

Type: true-false

Title: Chapter 17 Question 31

31) Ensuring that the annual report and financial statements present a fair, balanced, and understandable assessment of the company’s position and prospects is a collaborative effort.

a. True

Heading reference: Ensuring the integrity of financial statements

b. False

Heading reference: Ensuring the integrity of financial statements

Type: multiple choice question

Title: Chapter 17 Question 32

32) Which one of the following statements does not accurately represent Milton Friedman’s view of the social responsibility of business?

a. Companies only exist to make a profit for their shareholders.

Heading reference: Corporate social responsibility reporting

b. Directors’ sole responsibility is to the shareholders.

Heading reference: Corporate social responsibility reporting

c. As long as a profit is being made in any way whatsoever, nothing else is seen to matter.

Heading reference: Corporate social responsibility reporting

d. Directors should ignore all other performance measures and indicators and report only financial data.

Heading reference: Corporate social responsibility reporting

Type: multiple choice question

Title: Chapter 17 Question 33

33) The Companies Act 2006, Section 172(1) requires directors to act in the way they consider would be most likely to promote the success of the company for the benefit of its members as a whole. In doing so, directors should have regard to various considerations. Which one of the following is not one of the matters that Section 172(1) requires directors to have regard to?

a. The need to act fairly as between stakeholders of the company.

Heading reference: Duty to promote the success of the company

b. The impact of the company’s operations on the community and the environment.

Heading reference: Duty to promote the success of the company

c. The need to foster the company’s business relationships with suppliers, customers and others.

Heading reference: Duty to promote the success of the company

d. The interests of the company’s employees.

Heading reference: Duty to promote the success of the company

Type: true-false

Title: Chapter 17 Question 34

34) While recognizing that other parties are interested in a business, its activities and its performance, stakeholder theory prioritizes shareholders’ interests above those of other stakeholders.

a. True

Heading reference: Corporate social responsibility reporting

b. False

Heading reference: Corporate social responsibility reporting

Type: true-false

Title: Chapter 17 Question 35

35) Milton Friedman’s view of the social responsibility of business ignores the effect that businesses and the products they produce have on the natural environment, on consumers, on communities and on other interested parties.

a. True

Heading reference: Corporate social responsibility reporting

b. False

Heading reference: Corporate social responsibility reporting

Type: true-false

Title: Chapter 17 Question 36

36) The Companies Act 2006 Section 172(1) requires directors to promote the success of the company solely for the benefit of its members as a whole.

a. True

Heading reference: Duty to promote the success of the company

b. False

Heading reference: Duty to promote the success of the company

Type: true-false

Title: Chapter 17 Question 37

37) For businesses, sustainability can be defined as leaving the planet no worse off at the end of the accounting period than it was at the beginning.

a. True

Heading reference: Sustainability and environmental reporting

b. False

Heading reference: Sustainability and environmental reporting

Type: true-false

Title: Chapter 17 Question 38

38) A sustainability strategy is perfectly compatible with Milton Friedman’s insistence that profit generation is the only social responsibility of business.

a. True

Heading reference: The rationale for adopting and reporting a sustainability strategy

b. False

Heading reference: The rationale for adopting and reporting a sustainability strategy

Type: multiple choice question

Title: Chapter 17 Question 39

39) Which one of the following statements is not true?

a. Corporate social responsibility reporting presents information on a business’ profits, employees and its impact on both society and the environment.

Heading reference: Corporate social responsibility reporting, Duty to promote the success of the company

b. A sustainability strategy generates only long-term benefits for stakeholders.

Heading reference: The rationale for adopting and reporting a sustainability strategy

c. The Companies Act 2006 states that companies listed on the stock exchange should present information on environmental matters, the company’s employees and social, community and human rights issues.

Heading reference: Duty to promote the success of the company

d. Disclosing information about a company’s social responsibility and sustainability activities is part of good corporate governance.

Heading reference: The rationale for adopting and reporting a sustainability strategy

Type: multiple response question

Title: Chapter 17 Question 40

40) Which of the following statements are true? Please select all that apply.

Heading reference:

Addressing shareholder concerns

Shareholder communications

Duty to promote the success of the company

a. Businesses have a wider duty of accountability than just to shareholders.

b. The board of directors has a responsibility to ensure effective engagement with both shareholders and other stakeholders.

c. Compliance with the listing rules ensures that boards of directors study the Corporate Governance Code to make sure that their companies comply with the Code.

d. The annual report and accounts is the sole channel through which the board of directors communicates with the shareholders.

Type: multiple choice question

Title: Chapter 17 Question 41

41) Being straightforward and honest in all professional business relationships defines which fundamental principle of ethics for professional accountants?

a. Integrity

Heading reference: Professional accountants’ ethical principles

b. Objectivity

Heading reference: Professional accountants’ ethical principles

c. Confidentiality

Heading reference: Professional accountants’ ethical principles

d. Professional behaviour

Heading reference: Professional accountants’ ethical principles

Type: multiple choice question

Title: Chapter 17 Question 42

42) Complying with all relevant legislation and regulations is part of the definition of which fundamental principle of ethics for professional accountants?

a. Objectivity

Heading reference: Professional accountants’ ethical principles

b. Professional due care and competence

Heading reference: Professional accountants’ ethical principles

c. Confidentiality

Heading reference: Professional accountants’ ethical principles

d. Professional behaviour

Heading reference: Professional accountants’ ethical principles

Type: true-false

Title: Chapter 17 Question 43

43) The fundamental ethical principle of objectivity requires professional accountants to maintain independent judgement at all times.

a. True

Heading reference: Professional accountants’ ethical principles

b. False

Heading reference: Professional accountants’ ethical principles

Type: multiple choice question

Title: Chapter 17 Question 44

44) Which one of the following statements is not true?

a. The fundamental ethical principle of confidentiality requires that all information acquired by professional accountants in the course of their professional work must be kept confidential.

Heading reference: Professional accountants’ ethical principles

b. The fundamental ethical principle of integrity requires that professional accountants must be objective in all their professional and business judgements and dealings at all times.

Heading reference: Professional accountants’ ethical principles

c. Professional accountants must gain their professional qualification and then maintain their professional knowledge and skills through continuing professional education.

Heading reference: Professional accountants’ ethical principles

d. Professional accountants must avoid any actions that might bring discredit upon the accounting profession as a whole.

Heading reference: Professional accountants’ ethical principles