Deck 7: Corporate Governance

Question 1

Which of these costs is NOT associated with an agency relationship between managers and shareholders?

A)Bonding Cost.
B)Monitoring Cost.
C)Taxation Loss.
D)Residual Loss.

Answer 1

C

Question 2

Which of the following is NOT a significant influence on actual corporate governance practice?

A)The commitment of management.
B)The nature of the requirements.
C)The environment in which the entity operates.
D)None of the above,they are all significant.

Answer 2

D

Question 3

Implementation of good corporate governance practices and principles will:

A)completely prevent corporate failure.
B)guarantee corporate failure.
C)minimise the chance of corporate failure.
D)not impact the change of corporate failure.

Answer 3

C

Question 4

To ensure shareholders are sufficiently informed good governance practices include:

A)Detail related party transactions.
B)Prepare regular reports.
C)Have annual reports audited.
D)All of the above.

Question 5

Which of the following is NOT an example of good corporate governance in relation to shareholders?

A)Provide shareholders with all information made available to directors.
B)Treat all shareholders equally.
C)Have rules that allow shareholders to call extraordinary meetings.
D)All of the above.

Question 6

Which of the following examples is NOT advantage of good corporate governance?

A)Increasing the cost of capital.
B)Expanding the company's shareholder base.
C)Reducing perceived risks to investors.
D)Increased market confidence.

Question 7

Which of the following is NOT one of the ASX's Principles of Corporate Governance?

A)Establish an audit committee.
B)The majority of directors should be executive.
C)Promote ethical and responsible decision making.
D)Ensure level and composition of remuneration is sufficient and reasonable.

Question 8

The Dodd-Frank Wall Street Reform and Consumer Protection act includes provisions that require:

A)That compensation can be rescinded if it was paid based on inaccurate financial statements.
B)Executive compensation to be submitted for shareholder approval via a non-binding vote.
C)Increased disclosure about the nature of compensation packages and payments related to financial performance.
D)All of the above.

Question 9

Which of the following problems has contributed to the growth in corporate governance over the past decades?

A)Corporations misleading shareholders to avoid consequences.
B)Managers using the resources of the company to benefit themselves.
C)Corporations taking actions shareholders consider undesirable.
D)All of the above.

Question 10

When it comes to corporate governance many commentators have argued the most important factor is:

A)Personal ethics.
B)Strong accounting systems.
C)Harsh legal penalties.
D)Codes of practice.

Question 11

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 organisational 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,iv.
B)i,ii,iii,v.
C)ii,iii,iv,v.
D)i,ii,iii,iv,v.

Question 12

What element of executive remuneration has been argued to have contributed to the global financial crisis?

A)Bonuses on non-financial key performance indicators.
B)Share options.
C)Bonuses on the basis of short-term profits.
D)High fixed salary components.

Question 13

An advantage of a principles-based approach to corporate governance is that:

A)It bans loans to directors.
B)It places a higher level of duty on directors to determine which corporate governance practices are required.
C)It requires a corporation to prepare an annual report and provide them to shareholders.
D)All of the options are correct.

Question 14

Which of the following is NOT an example of corporate governance practice?

A)Formation of a nominating committee to identify potential new directors.
B)Codes of conduct for directors.
C)Requirements that most board directors be independent.
D)None of the above,i.e.they are all examples of corporate governance.

Question 15

The OECD Principles of Corporate Governance link manages' remuneration to shareholder interest to address which agency problem?

A)Horizon problem.
B)Risk aversion.
C)Dividend retention.
D)All of the above.

Question 16

Corporate governance is:

A)The system by which corporations are directed and controlled.
B)A coherent system of concepts that underlie financial reporting.
C)A term referring to management's choosing to voluntarily disclose non-compulsory information in annual reports.
D)A set of broad principles that provide the basis for guiding actions or decisions.

Question 17

According to the 'Anglo-Saxon' model whose interest should be the focus of corporate governance?

A)Community.
B)Employees.
C)Shareholders.
D)Environment.

Question 18

Which of the following is NOT a requirement of the Sarbanes-Oxley Act:

A)Audit partner rotation every 5 years.
B)No loans by company to directors.
C)The use of checklists.
D)The disclosure of whether there is a code of ethics for senior financial officers.

Question 19

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,iii.
B)i,ii.
C)iii,iv.
D)iv,iii,ii,i.

Question 20

What is one of the ways that accounting is used to direct and control the manager of a corporation?

A)Threatening to tell shareholders a mangers income if a manager makes a 'poor financial' decision.
B)Linking of a mangers performance to a bonus that depends on accounting profit.
C)Making decisions based on the accounting information regardless of managerial input.
D)Using income smoothing to assure a manager that they can invest in a low risk investment.

Question 21

Which of the following statements is most correct?

A)Corporate governance not relevant to family entities.
B)Corporate governance is only relevant to listed entities.
C)Corporate governance is only relevant to developed economies.
D)Corporate governance is relevant to most companies globally.