2. Corporate Governance

Question 1

What is corporate governance?

Answer 1

The system by which companies are organised and controlled

Question 2

Why do large and listed companies need to implement corporate governance?

Answer 2

Because management is separate from ownership

Question 3

Who is responsible for appointing the directors and auditors?

Answer 3

Shareholders

Question 4

What are the 4 main roles of the board of directors?

Answer 4

1. Setting the company’s strategic aims
2. Providing the leadership to put them into effect
3. Supervising the day-to-day running
4. Reporting to shareholders

Question 5

What are the 2 approaches to corporate governance?

Answer 5

Rules based (e.g. US) and principles based (e.g. UK)

Question 6

What is the OECD?

Answer 6

The organisations for economic cooperation and development (establish principles for good corporate governance)

Question 7

What are the 2 main principles of governance according to the International Federation of Accountants? (IFAC)

Answer 7

1. Creation and optimisation of sustainable value

2. Appropriately balancing the interests of stakeholders

Question 8

What are the 5 main categories of the UK Corporate Governance Code?

Answer 8

1. Board leadership and company purpose
2. Division of responsibilities
3. Composition, succession and evaluation
4. Audit, risk and internal control
5. Remuneration

Question 9

What are the 5 main aspects of the Sarbanes Oxley Act?

Answer 9

1. Auditor independence (not internal audit, changed ever 5 years)
2. Audit committee must exist
3. Establishment of Public Company Accounting Oversight Board
4. CEO and CFO statement to certify the audit report
5. Produce an internal control report