GOOD GOVERNANCE AND SOCIAL RESPONSIBILITY (FINAL EXAM)

MULTIPLE CHOICE

1. Financial institutions play the largest role in corporate governance structure and monitoring in:
a. The United States.
b. Japan.
c. The United Kingdom.
d. Korea.

2. Corporate governance reforms clearly separate the board’s oversight function from managerial functions in:
a. The United States.
b. Germany.
c. The United Kingdom.
d. Japan.

3. A two-tier board of directors system consisting of a management board and a supervisory board best describes
the governance structure of:
a. The United States.
b. Germany.
c. The United Kingdom.
d. Japan.

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4. The network of organizations that shapes the business structure and dominates business practice in Japan is
the:

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a. Iinkai-to-secchi-kaisha.

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b. Keiretsu.
c. Shinobu.

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d. Sikkoyaku.

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Rules and procedures for the selection of directors and appointment of officers are developed by the
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organization’s:
a. Charter.
b. Bylaws.
c. Mission statement.
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d. Code of conduct.
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6. By using electronic communication, companies can do which of the following?

a. Increase costs.
b. Improve the timeliness and transparency of communications.
c. Participate in virtual meetings.
d. None of the above.
ed d

7. What challenges are intruding upon the corporate governance structures of the twenty-first century?
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a. Internet.
b. Globalization.
c. Regulations.
d. All of the above.
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8. The first level of agency problems is associated with:

a. Potential conflicts of interest between individual investors and their trustees and fiduciaries.
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b. Potential conflicts of interest between professional money managers and corporations and their corporate
clients.
c. Ownership society.
d. Monitoring public companies' governance, affairs, and business.
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9. Providing timely access to information, enhancing shareholders’ rights, and promoting shareholder democracy
can result in:
a. Positive effects on corporate governance.
b. Negative consequences such as directors challenging the CEO's preferences.
c. An increase in the likelihood that a merger or acquisition will ensue.
d. All of the above.

10. The relation between the company and other corporations or organizations is determined by:
a. Intercorporate networks.
b. The structure of power and opportunity.
c. Corporate governance.
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 d. None of the above.

11. _______ establish(es) the legal relations between the investors of a corporation and its management.
a. The articles of incorporation.
b. Property rights.
c. The corporate charter.
d. Proxy statements.

12. External auditors are not and should not be expected to provide absolute assurance regarding reliability of
financial statements primarily because of:
a. The nature and limitation of evidence-gathering procedures.
b. Management assertions and financial representations that are not certain by nature.
c. The possibility of false documentation.
d. All of the above.

13. Audit committees should utilize internal auditor services in fulfilling their oversight responsibilities over:
a. Financial reporting.
b. Internal controls.
c. Audit activities.
d. All of the above.

14. SOX prohibits independent auditors from performing which services for their client?
a. Financial reporting.
b. Providing certain internal auditing outsourcing activities contemporaneously with audit services.

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c. Improving the internal audit function.

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d. Establishing and maintaining an internal audit function.

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15. To maintain their independence and objectivity, internal auditors should refrain from:

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a. Making decisions on behalf of management.
b. Financial reporting.

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c. Providing consulting services.

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d. Compliance with applicable laws, rules, and regulations.
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16. Which of the following is/are the duty/duties of the SEC:
a. Enforce rules and laws.
b. Interpret securities laws.
c. Both (a) and (b).
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d. Neither (a) nor (b).

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17. The primary focus of SOX was to improve the _________ of public financial reports.
a. Reliability.
b. Quality.
c. Transparency.
d. All of the above.
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18. Which of the following is not helpful in transparency of financial reporting?

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a. Working with the audit committee and management.

b. Providing assurance on financial information used by the company's management.
c. Participating in the development of nonfinancial measures with other participants in the financial reporting
process (e.g. customers, suppliers).
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d. All of the above.

19. Which of the following is not a feature of a high-quality financial report?

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a. Relevance.
b. Usefulness.
c. Reliability.
d. Opaqueness.
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20. Which of the following is/are responsible for promoting effective functioning, ethical conduct, and professional
behavior throughout the company?
a. CEO.
b. Management.
c. Board of directors.
d. All of the above.

21. CEO pay is negatively related to skill when:

a. There is no large shareholder to monitor management.
b. The CEO has been paid largely in options and stocks.
c. The firm has a large shareholder.
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 d. None of the above.

22. The audit committee should be composed of independent, nonexecutive, outside directors. Independence is
characterized by the SEC as:
a. Not receiving any compensation from the company other than that as a board member.
b. Not having been employed by the company or its affiliates within the past five years.
c. Not having been a member of the immediate family of the company's executives or its affiliates within the
past five years.
d. All of the above.

23. Members of the audit committee should exhibit all of the following characteristics except:
a. Lack of trust and confidentiality.
b. Sufficient financial reporting understanding.
c. Commitment in terms of time and effort.
d. Independence, integrity, and objectivity.

24. What is the relationship between the external auditor and the audit committee?
a. The external auditor is hired, fired, and overseen by the audit committee.
b. The audit committee assembles the compensation package for the external auditor and should approve all
audit services.
c. External auditors are held accountable to the audit committee, evaluate the effectiveness of the audit
committee, and consider ineffective audit committees as material weaknesses in internal control.
d. All of the above.

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25. Effective oversight functions of audit committees contribute to:

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a. More effective corporate governance.
b. A reliable reporting process.

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c. Credible audit functions.

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d. All of the above.

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26. An independent director is one who:

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a. Did not attend a school supported by the company.
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b. Does not have outside relationships with other directors.
c. Does not have any other relationships with the company other than his or her directorship.
d. All of the above.

27. The oversight function of the board of directors consists of:

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a. Representing shareholders and protecting their interests.

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b. Approving the company's major operating, investing, and financial activities.

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c. Holding the board, its committees, and its directors accountable for the fulfillment of the assigned fiduciary
duties and oversight functions.
d. All of the above.

28. The primary responsibilities of the board of directors include all but which of the following:
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a. Define the company's mission and goals.

b. Establish or approve strategic plans and decisions to achieve these goals.
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c. Appoint senior executives to manage the company in accordance with the established strategies, plans,
policies, and procedures.
d. Make managerial decisions that will increase the company's stock price.
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29. Which of the following best describes the role of a company’s directors:
a. They take day-to-day management decisions.
b. They have ultimate responsibility for how the company is run.
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c. They aim to maximize the wealth of the investors.

d. They are the company’s main investors.

30. To which body within the company is the CEO answerable?

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a. The board of directors

b. The employees
c. The shareholders’ annual general meeting
d. The company’s trade union representatives

31. Organisational structures can be divided into the following three broad categories:
a. Large, medium, small.
b. Structures based on functions, divisions and matrix
c. Strict hierarchy, board control, devolved control
d. Collective control, co-operative arrangements, shareholder control.

32. A hostile takeover occurs when:

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 a. The acquirer is a rival company of the one it is seeking to acquire
b. The acquirer makes an offer which is well below market value of the target company
c. The board of the target company rejects the offer of the acquirer, who then proposes it to the shareholders
d. The acquirer is a private equity group

33. Environmental issues are the responsibility of:

a. Individuals, groups of volunteers, businesses
b. Voluntary organizations, local and national governments
c. Governments, businesses and consumers
d. Consumers, businesses, and NGOs.

34. The concept of sustainable development refers to:

a. Meeting the needs of future generations
b. Avoiding environmental errors by the current generation
c. Meeting the needs of the present generation without compromising the ability of future generations to do the
same
d. Relying on renewable fuels

35. Ethics focuses on:

a. Differences between cultures
b. Principles of right and wrong
c. Values and norms of behaviour in different cultures
d. Universal standards of behavior

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36. Ethical business behaviour includes all by one of the following. Which is the odd one out?

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a. Be truthful in advertising.
b. Strive above all to maximize profits.

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c. Always abide by the law.

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d. Observe high standards of health and safety despite the cost considerations.

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37. All companies have relationships between ethics, social responsibility, law and corporate governance. Which

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of the following statements is correct?
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a. Company law is drafted to be compatible with the code of ethics of most businesses.
b. Ethical behaviour is obligatory, however social responsibility is optional.
c. Policies of social responsibility must not clash with the values of the company.
d. Many corporate governance requirements are incompatible with ethical codes.
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38. Which of the following is an example of good corporate governance?

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a. Domination by a single individual

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b. Lack of board involvement

c. Regular contact with shareholders
d. Emphasis on short-term profitability

39. Shareholder activism means:

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a. The level of shareholder activity within the stock market generally.

b. The level of involvement shareholders have in the running of a company.
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c. The likelihood of shareholders bringing unethical directors to account.

d. The balance of power between shareholders and directors.

40. Corporate governance rules are required because:

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a. Shareholders want to be able to sue directors.

b. Stock markets do not trust financial statements.
c. Management need encouragement to act in the best interests of all stakeholders.
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d. Companies do not always behave ethically.

41. Which of the following is an example of socially responsible behaviour by a business?

a. Ensuring the chairman and chief executive roles are not performed by the same person
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b. Ensuring employees receive health and safety training

c. Ensuring employees have access to recycling facilities
d. Ensuring staff are hired on the basis of ability regardless of age, sex, religion or any disabilities

42. Boards in many countries operate a unitary structure. Which of the following contains two countries that
mainly use such an arrangement?
a. UK and USA
b. UK and Germany
c. USA and Germany
d. France and Germany

43. German boards are often based on a two-tier arrangement containing a supervisory and a management
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 board. Which of the following is not a role of the management board?
a. Preparing resolutions for meetings
b. Providing financial statements for meetings
c. Ensuring the business meets its regulatory obligations
d. Safeguarding stakeholder interests

44. Which board, created by the Sarbanes-Oxley Act, is responsible for policing auditors?
a. The Public Oversight Board for Auditors
b. The Public Company Accounting Oversight Board
c. The Public Company Auditors Oversight Board
d. The Accounting and Auditing Oversight Board

45. Which statement describes corporate governance?

a. The system by which companies are directed and controlled.
b. The duties placed on the board of directors by the stock exchange.
c. Regulations by which shareholders can hold directors to account for their actions.
d. The concept that directors must act in a socially responsible manner.

46. German companies are based on a two-tier board structure. What are the names of the two boards?
a. Policy, Supervisory
b. Supervisory, Management
c. Functional, Policy
d. Executive, Management

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47. Which of the following is not an interest stakeholder of a company?

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a. Employees
b. The media

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c. Competitors

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d. Regulators

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48. Performance bonuses for directors should only adversely affect a company if:

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a. The bonuses are paid in cash
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b. The bonuses are in the form of shares
c. Directors make short-term decisions to achieve them
d. Directors have to improve a company's share price to achieve them

49. An accountant has been asked by their manager to amend a set of accounts contrary to established
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accounting standards. Which sets of values are conflicting?

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a. Corporate and professional

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b. Professional and personal

c. Personal and corporate
d. Professional and societal

50. Which of the following circumstances is most likely to cause an accountant to breach the fundamental
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principle of objectivity?
a. Being asked to act contrary to professional standards
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b. Being offered gifts or hospitality

c. Being asked to act beyond their skills and experience
d. Being asked to turn a blind eye to fraud.
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51. Which of the following fundamental principles would be most at risk when an accountant is rushing to meet
a deadline?
a. Professional competence
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b. Integrity
c. Objectivity
d. Confidentiality
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52. Which of the following statements is incorrect?

a. An accountant should leave their job if their employer does not provide sufficient ethical safeguards.
b. An accountant is always absolved from liability if they did not have explicit knowledge of an ethical problem.
c. Ethical dilemmas may be both financial and non-financial.
d. CIMA students are expected to demonstrate the same level of professional standards as full members.

53. Which of the following statements about ethical dilemmas is correct?

a. Ethical dilemmas involve unclear choices about what is right and wrong.
b. Ethical dilemmas involve clear choices about what is right and wrong.
c. To resolve an ethical dilemma, an accountant should never trust their instincts.
d. To resolve an ethical dilemma, an accountant should never seek advice.

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 54. Which of the following is not a benefit of ethical accountants to society?
a. Credible, accurate and reliable financial statements for investors.
b. Government collecting the correct amount of corporation tax (where accountants are used to calculate the
charge).
c. Assistance to the authorities for the detection and prevention of fraud.
d. Ensuring companies are profitable.

55. Which of the following examples of unethical behaviour could an accountant face criminal prosecution for if
committed?
a. Sending an abusive email
b. Supplying confidential information about a public listed company to a stock broker
c. Supplying management accounts to directors that are inaccurate
d. Allowing personal problems to interfere with the production of management accounts

56. Where a professional duty conflicts with the law, which should be followed?
a. The professional duty
b. The professional duty if it agrees with the individual’s personal ethics
c. The law
d. The law, only it if agrees with the individual’s personal ethics

57. Several judgements and decisions made by an accountant have been found to be ill judged. The accountant
takes full responsibility for this. Which professional quality are they demonstrating?
a. Social responsibility
b. Scepticism

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c. Independence

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d. Accountability

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58. How can an accountant demonstrate independence?

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a. By double-checking their work.
b. By avoiding situations that might cause an observer to doubt their objectivity.

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c. By questioning the work of others.

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d. By considering the needs of their colleagues at work.
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59. Which of the Seven Principles of Public Life requires individuals to avoid actions that may place them under
financial or other obligations whereby the person holding their obligations could influence their public duties?
a. Objectivity
b. Openness
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c. Integrity
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d. Selflessness
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60. Which of the following statements best describes corporate responsibility?

a. The company must appear ethically in all its marketing materials.
b. The company must put the needs of the community, its shareholders and employees at the heart of
all its decisions.
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c. The company develops policies on issues such as how to support the local community and charities
to ensure it plays a positive role in its local area.
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d. The company must develop relationships with its stakeholders so it can learn from them and meet
their needs in a more efficient and environmentally friendly way.

61. Which of the following is an example of an accountant's social responsibility?

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a. To increase the profitability of the business they work for.

b. To ensure the maximum corporation tax is paid by their employer.
c. To use recycling facilities if provided by their employer.
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d. To provide accurate financial information to shareholders.

62. How can accountants demonstrate accountability?

a. By questioning work given to them.
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b. By taking responsibility for a mistake.

c. By ensuring their work is free from error.
d. By replying to an email on behalf of a colleague.

63. Which statement describes the principle of objectivity?

a. By following this principle, an accountant minimises the risk of passing on incorrect information.
b. Following this principle requires an accountant to keep their mind free from bias.
c. Following this principle requires an accountant to stay technically up to date.
d. Following this principle requires scepticism and close attention to detail when reviewing information.

64. Under which circumstance might an accountant have to disclose information given to them in confidence?
a. When requested by a regulator
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 b. B When requested by a lawyer
c. C When requested by a fellow employee or client
d. D When requested by an employer

65. Which of the following is not a right of an auditor?

a. Attendance at board meetings
b. To receive copies of written resolutions
c. Access to the books and accounts of the company at all times
d. To speak at general meetings on matters concerning them as auditors

66. Which of the following is eligible to act as a company's auditor?

a. A spouse of an employee of the company
b. An officer of the company
c. A shareholder of the company
d. A spouse of an employee of a subsidiary of the company

67. If a director breaches his fiduciary duty, which of the following never applies?
a. The director may have to account for a secret profit if he has made one.
b. If the director holds more than 50% of the shares he can ratify his own breach of duty at an annual
general meeting.
c. The director can be automatically absolved from breach of duty by the articles.
d. The director may be liable in tort

68. Which of the following is not a mitigating circumstance for the disqualification of a director?

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a. Lack of dishonesty

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b. Absence of personal gain
c. Likelihood of repeating the offence

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d. The director was unpaid

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69. Which of the following statements about the duties of directors is correct?

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a. The directors have a duty to ensure that no individual shareholder suffers a financial loss as a result

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of purchasing the company's shares.
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b. Directors owe their duties to the members.
c. Current and past directors owe duties.
d. Directors have a duty to distribute a dividend to ordinary shareholders each year.

70. Which of the following is incorrect?

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a. Directors are agents of a company.

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b. If the board of directors exceeds its powers, the company cannot be held liable on a contract with a
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third party.
c. Individual directors are not permitted to contract on behalf of the company unless authorised by the
company.
d. The board of directors may delegate authority to a managing director who may contract on behalf of
the company.
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