Which of the following actions normally requires shareholder approval?

a. Appointing the chief executive officer.

b. Issuing a dividend.
c. The corporate strategic plan.
d. Changing the nature of the corporation.

Which of the following is not generally a power of the board of directors of a corporation?
a. Selecting officers.
b. Declaring dividends.
c. Determining management compensation.
d. Amending the Articles of Incorporation.

Which of the following is not true concerning corporations?

a. All shareholders owe a fiduciary duty to the corporation.
b. Officers owe a fiduciary duty to the corporation.
c. Directors who act in good faith may use the business judgment rule as a defense.
d. Directors owe a fiduciary duty to the corporation.

Which of the following is not a right of the shareholder of a corporation?

a. Right to inspect the books and records
b. Right to share in dividends if declared.
c. Right to determine the mission of the corporation.
d. Right to sue on behalf of the corporation if the officers and directors fail to uphold
corporate rights.

To which of the following rights is a stockholder of a public corporation entitled?

a. The right to have annual dividends declared and paid.
b. The right to vote for the election of officers.
c. The right to a reasonable inspection of corporate records.
d. The right to have the corporation issue a new class of stock.

Which of the following is correct with respect to the rights of stockholders in a corporation?
a. Stockholders have no right to manage their corporation unless they are also directors or
officers.
b. Stockholders have a right to receive dividends.
c. Stockholders have no right to inspect the books and records of their corporation.
d. Stockholders have a right to get a list of their corporation’s customers to use for a
business mailing list.
A corporate stockholder is entitled to which of the following rights?
a. Elect officers.
b. Receive annual dividends.
c. Approve dissolution.
d. Prevent corporate borrowing.

Which of the following best identifies the reason that effective corporate governance is

important?
a. The separation of ownership from management.
b. The goal of profit maximization.
c. Excess management compensation.
d. Lack of oversight by boards of directors.

The articles of incorporation and bylaws of a corporation serve as a basis for the governance

structure of a corporation. Which of the following items are normally included in the bylaws of

the corporation as opposed to the articles of incorporation?

a. Purpose of the corporation.
b. Number of authorized shares of stock.
c. Procedure for electing directors.
d. Powers of the corporation.

Which of the following forms of compensation would most likely align management’s behavior

with the interests of the shareholders?

a. A fixed salary.
b. A salary plus a bonus based on current period net income.
c. A salary plus stock options that cannot be exercised for 10 years.
d. A salary plus stock.

Which of the following is not a duty that is typically reserved for the board of directors of a

corporation?
a. Selection and removal of the chief executive officer.
b. Determining executive compensation.
c. Amending the articles of incorporation.
d. Decisions regarding declaration of dividends.
Which of the following is a legal rule that prevents directors from being held liable for making

bad decisions if they act with good faith, loyalty, and due care?
a. The good faith rule.
b. The business judgment rule.
c. The due care rule.
d. The director liability rule.

Which of the following does not act as an external corporate governance mechanism?
a. External auditors.
b. The SEC.
c. Credit analysts.
d. Independent boards of directors.

The Sarbanes-Oxley Act provides that at least one member of the audit committee should be..
a. Independent.
b. The chief financial officer of the company.
c. A financial expert.
d. A CPA.

Which of the following is necessary to be an audit committee financial expert according to the

criteria specified in the Sarbanes-Oxley Act of 2002?

a. An understanding of income tax law.
b. An understanding of generally accepted accounting principles and financial statements.
c. An understanding of corporate law.
d. An understanding of corporate governance rules and procedures.

Which of the following is most effective as an external monitoring device for a publicly held

corporation than the others?

a. Internal auditors.
b. External auditors.
c. The SEC.
d. Attorneys.

An important corporate governance mechanism is the internal audit function. For good corporate

governance, the chief internal audit executive should have direct communication to the audit

committee and report to

a. The chief financial officer.
 b. The chief executive officer.
c. The controller.
d. The external auditors.

According to the Sarbanes-Oxley Act of 2002, which of the following statements is correct

regarding an issuer’s audit committee financial expert?

a. The issuer’s current outside CPA firm’s audit partner must be the audit committee
financial expert.
b. If an issuer does not have an audit committee financial expert, the issuer must disclose
the reason why the role is not filled.
c. The issuer must fill the role with an individual who has experience in the issuer’s
industry.
d. The audit committee financial expert must be the issuer’s audit committee chairperson to
enhance internal control.

Which one of the following statements is true?

Conflicts of interests between management and stakeholders can result in

bankruptcies or major frauds.

It is the responsibility of internal audit to design and monitor controls that

reasonably assure that objectives are met.

The management board approves the mission, vision, objectives and strategy of the
entity.

Corporate governance addresses the principal–agent relationship between

management and directors on the one hand and the relationship between the
company and suppliers on the other.

Common stock that is widely distributed among individuals describes what type of
corporate governance structure?

Network.

Supervisory.

Market.

Public.
Which of the following is not something performed by the company’s board?

Defines the company’s strategy.

Oversees management and ensures the quality of information provided to

shareholders and to financial markets through the financial statements.

Day to day supervision of the sales manager.

Appoints the corporate officers responsible for managing the company and
implementing this strategy.

The Sarbanes–Oxley Act requires that executive officers attest to all the following except:

Based on their knowledge there are no untrue statements or omissions of material

fact.

The statements fairly present the company’s financial condition.

All deficiencies in internal control or any fraud has been disclosed to regulators.

Their conclusions about effectiveness of internal control.

In a two-tier structure of corporate governance:

The chair of the non-executive board is also chair of the executive board.

CEO and chair of the board are split.

Non-executives are responsible for the day-to-day operations.

Members of the supervisory board are appointed by the executive board.

A board member is independent when:

She is a top executive of the company supervised.

She represents the shareholders – not other constituencies.

She is a family member of the CEO.

She has no relationship of any kind whatsoever with the corporation, its group or
the management of either that is such as to colour her judgement.

Which of the following is not a responsibility of audit committees?

Monitoring management.

Reviewing corporate reporting processes.

Management compensation.

Relations with the independent auditor.

The 2012 EU Commission Communication ‘Action Plan: European company law and
corporate governance’ strives to:

Improve the framework for cross-border operation of companies.

Encourage short-term shareholder engagement.

Enhance competition between companies and investors.

Prevent countries from introducing a two-tier board structure.

Which of the following is not a code of corporate governance?

Vienot.
 Cromme.

The Sarbanes–Oxley.

King.

According to agency theory:

The management board is the agent.

Information asymmetry does not exist.

The management board is the principal.

Self-interest plays no role.

The framework for establishing good corporate governance and accountability was
originally set up by the

Cadbury Committee

Rowntree Committee

Nestlé Committee

Thornton Committee

External audit of the accounts of a limited company is required

by the Companies Act 2006

because it is demanded by the company’s bankers

at the discretion of the shareholders

to detect fraud
Directors’ responsibilities are unlikely to include

a duty to keep proper accounting records

a duty to propose high dividends for shareholders

a fiduciary duty

a duty of care

Directors may not be disqualified for

persistent breaches of company legislation

continuing to trade when the company is insolvent

paying inadequate attention to the company finances

being convicted of drunken driving

Which of the following actions will not help directors to protect themselves from non-
compliance with their obligations and responsibilities?

including a disclaimer clause in their service contracts

ensuring that regular management accounts are prepared by the company

seeking professional help

keeping themselves fully informed about company affairs

1. Which of the following is not one the underlying principles of the corporate
governance Combined Code of Practice?
a. Openness  Integrity

 Accountability 
acceptability

Ans: d

2. External audit of the accounts of a limited company is required

a. because it is demanded by the company’s bankers
b. by the Companies Act 2006
c. at the discretion of the shareholders
d. to detect fraud
Ans: b

3. Directors’ responsibilities are unlikely to include.

a. a fiduciary duty
b. a duty to keep proper accounting records
c. a duty to propose high dividends for shareholders
d. a duty of care
Ans: c
4. A company may become insolvent if it
a. has negative working capital
b. cannot meet its budgeted level of profit
c. makes a loss
d. cannot pay creditors in full after realisation of its assets
Ans: d

5. A director of a limited company may not be liable for wrongful trading if he or she
a. took every step to minimise the potential loss to creditors
b. increased the valuation of its inventories to cover any potential shortfall
c. introduced into the balance sheet an asset based on a valuation of its brands sufficient
to meet any shortfall
d. brought in some expected sales from next year into the current year
Ans: a

6. Fraudulent trading may be

a. a civil offence committed by any employee
b. a criminal offence committed only by directors of a limited company
c. a civil and a criminal offence committed only by directors of a limited company
d. a civil and a criminal offence committed by any employee
Ans: d

7. Disqualification of directors may result from breaches under the

a. Sale of Goods Act 1979
b. Financial Services Act 1986
c. Companies Act 2006 and Insolvency Act 1986
 d. Health and Safety at Work Act 1974
Ans: c

8. Directors may not be disqualified for

a. continuing to trade when the company is insolvent
b. persistent breaches of company legislation
c. paying inadequate attention to the company finances
d. being convicted of drunken driving
Ans: d

9. Which of the following actions will not help directors to protect themselves from
non-compliance with their obligations and responsibilities?
a. keeping themselves fully informed about company affairs
b. ensuring that regular management accounts are prepared by the company
c. seeking professional help
d. including a disclaimer clause in their service contracts
Ans: d

10. Co-ording to Cadbury (2002), corporate governance is an issue of power and:

a. Rights 
Accountability

 Profit 
Appropriability

Ans: b

11. The OECD argues that corporate governance problems arise because:
a. Ownership and control is separated
b. Managers always act in their own self interest
c. Profit maximization is the main objective of organizations
d. Stakeholders have differing levels of power
Ans: a

12. The Institute of Chartered Accountants in England and Wales considers argue that
one particular stakeholder group should have primacy over all other groups.
Which stakeholder group are they referring to?
a. Customer 
s Managers

 Shareholders  Society
Ans: c

13. An organization that is owned by shareholders but managed by agents on their

behalf is conventionally known as the modern:
a. Conglomerat 
e Corporation

 Company  Firm
Ans: b

14. The modern corporation has four characteristics. These are limited liability, legal
personality, centralized management and:
a. Fiduciary  Stakeholders
duty

 Shareholders 
Transferability

Ans: d

15. What makes a corporation distinct from a partnership?

a. If the members of a corporation die, the corporation remains in existence providing it has
capital
b. If the members of a corporation die, the corporation ceases to exist
c. A corporation cannot own property
d. A corporation cannot be held responsible for the illegal acts of its employees
Ans: a

16. The term 'asymmetry of information' means information in a corporation is:

a. Transferable to all stakeholders
b. Not transferable to all stakeholders
c. Not equally transparent to all stakeholders
d. Equally transparent to all stakeholders
Ans: c

17. The view that sees profit maximization as the main objective is known as:
a. Shareholder  Principal-agent
theory problem

 Stakeholder theory  Corporation theory

Ans: c

18. Where an organization takes into account the effect its strategic decisions have
on society, this is known as:
a. Corporate governance
b. Business policy
c. Business ethics
d. Corporate social responsibility
Ans: d
19. Which intervention resulted from the Enron scandal?
a. The Hampel Committee
b. The Sarbannes-Oxley Act
c. The Greenbury Committee
d. The Cadbury Committee
Ans: b
 20. Executive pay in the UK was reviewed by:
a. The Greenbury Committee
b. The Hampel Committee
c. The Cadbury Committee
d. The Higgs Committee
Ans: a
21. In Japan, some corporations operate within the philosophy of 'kyosei'. The term
'kyosei' means:
a. No man shall be richer than another man
b. All stakeholders are equal
c. Living and working for the common good
d. If the corporation is bad, society is bad
Ans: c

22. When managerial self-dealings are excessive and left unchecked,

a. they can have serious negative effects on share values
b. they can impede the proper functions of capital markets.
c. they can impede such measures as GDP growth.
d. all of the above
Ans: d

23. Corporate governance structure

a. varies a great deal across countries.
b. has become homogenized following the integration of capital markets.
c. has become homogenized due to cross-listing of shares of many public corporations.
d. none of the above
Ans: a

24. In a public company with diffused ownership, the board of directors is entrusted
with
a. monitoring the auditors and safeguarding the interests of shareholders.
b. monitoring the shareholders and safeguarding the interests of management.
c. monitoring the management and safeguarding the interests of shareholders.
d. none of the above
Ans: c

25. The key weakness of the public corporation is

a. too many shareholders, which makes it difficult to make corporate decision.
b. relatively high corporate income tax rates.
c. conflicts of interest between managers and shareholders.
d. conflicts of interests between shareholders and bondholders.
Ans: c

26. When company ownership is diffuse,

a. a "free rider" problem discourages shareholder activism.
b. the large number of shareholders ensures strong monitoring of managerial behavior
because with a large enough group, there's almost always someone who will to incur the
costs of monitoring management.
 c. few shareholders have a strong enough incentive to incur the costs of monitoring
management.
d. both a) and c) are correct
Ans: d

27. In many countries with concentrated ownership

a. the conflicts of interest between shareholders and managers are worse than in countries
with diffuse ownership of firms.
b. the conflicts of interest are greater between large controlling shareholders and small
outside shareholders than between managers and shareholders.
c. the conflicts of interest are greater between managers and shareholders than between
large controlling shareholders and small outside shareholders.
d. corporate forms of business organization with concentrated ownership are rare.
Ans: b

28. In what country do the three largest shareholders control, on average, about 60
percent of the shares of a public company?
a. United States 
Canada

 Great Britain  Italy

Ans: d

29. The public corporation

a. is jointly owned by a (potentially) large number of shareholders.
b. offers shareholders limited liability.
c. separates the ownership and control of a firm's assets.
d. all of the above
Ans: d

32. The reach of codes is

a. Primarily to Directors of Board
b. Applicable to all
c. Applicable to the public only
d. the same as the reach of the law
Ans: a

Q1. The primary stakeholders are:

a.Customers. b. Suppliers. c. Shareholders. d. Creditors.

Q2. The goal of corporate governance and business ethics education is to:

a. Teach students their professional accountability and to uphold their personal Integrity to society.
b. Change the way in which ethics is taught to students.

c. Create more ethics standards by which corporate professionals must operate.

d. Increase the workload for accounting Standards

Q3. The corporate governance structure of a company reflects the individual companies’:

a. Cultural and economic system.

b. Legal and business system.

c. Social and regulatory system.

d. All of the above.

Q4. The internal audit function is least effective when the department:

a.Is non-independent. b. Is competent. c. Is objective. d. Exhibits integrity

Q5. Under the _____________, both internal and external corporate governance

mechanisms are intended to induce managerial actions that maximize profit and

shareholder value.

a. Shareholder theory.

b. Agency theory.

c. Stakeholder theory.

d. Corporate governance theory.

Q6. One of the objectives of the Sarbanes-Oxley Act was to:

a. Increase the cost of compliance with federal regulations.
b. Force foreign companies to delist from U.S. capital market exchanges.
c. Improve the quality and transparency of financial reporting.
d. Increase the compliance burden for small companies

Q7. An organization’s appropriate tone at the top promoting ethical conduct is an

example of:
a. Ethics sensitivity.
b. Ethics incentives.
c. Ethical behavior.
d. Consequentialist.

Q8. An independent director is one who:

a. Did not attend a school supported by the company.
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.

Q9. The chairperson of the board of directors and CEO should be leaders with:
a. Vision and problem solving skills.
b. The ability to motivate.
c. Business acumen.
d. All of the above.
Q10. A board that is elected in a classified system is known as a:
a. Diversified board.
b. Staggered board.
c. Rotating board.
d. Declassified board.

Which of the following statements regarding institutional shareholders is correct?

A These shareholders have extensive power to monitor the activities of the company.
B Institutional shareholders prefer to exert their power privately rather than publicly.
C These shareholders often aim to improve outcomes rather than sell their shareholding.
D Institutional shareholders are known to publicly use their voting power to encourage sound
corporate governance.
Which of the following regarding corporate governance is correct?
A Corporate governance can temper growth.
B Good corporate governance can result in excessive risk-taking.
C Corporate governance often result in prompt and effective decision-making.
D The aim of corporate governance is to protect the interests of shareholders and the
stakeholders

Which of the following regarding agency theory is correct?

A Agency theory only applies to large entities.
B Agents act in the best interest of the principal.
C Agents are assumed to be in a position of power.
D Agency theory defines the relationship between directors & shareholders

All those who are affected by or can affect the ~perations of the organisation are known as:

a.Owners b. interested parties c. stakeholders d. stockholders

A whistle blower is an employee who

a. exposes organizational wrongdoing

b. complains a lot to company management

c. engages in un-ethical behavior

d. referees disputes with other employees

Who are organizational stakeholders?

a. Customers b. Community c. Providers of finance d. All of the above