Ch 6 - Corporate Governance

Question 1

What is CORPORATE GOVERNANCE?

Answer 1

The means by which a company is DIRECTED and CONTROLLED.

Question 2

What has driven the need for REGULATION and GUIDANCE on how companies should be operated and the info they disclose?

Answer 2

Corporate Accounting Scandals have driven the need.

Question 3

What are the different approaches to Corporate Governance?

Answer 3

• Rules based - e.g. US
• Principles based - e.g. UK

Question 4

Can you explain RULES based approach?

Answer 4

Instils the code into LAW and appropriate penalties for transgression.

Question 5

Can you explain PRINCIPLES based approach?

Answer 5

Requires the entity to adhere to the SPIRIT rather than the letter of the code.

Question 6

Corporate Governance Rules suggest COMMITTEES should be used within an entity as control mechanisms by having specialist to co-ordinate, what?

Answer 6

• Internal & external AUDITORS
• Deal with REMUNERATION
• Risk and NOMINATIONS

LEADERSHIP is not a Corporate Governance driven committee

Question 7

What are the 5 elements of the financial statements?

Answer 7

Assets, Liabilities, Equity, Income & Expenses

Question 8

How does the Framework define EQUITY?

Answer 8

The residual interest in the assets of the entity after deducting all its liabilities - shows the net amount invested in the business by the owners.

Question 9

In the accounting equations calculate ASSETS?

Answer 9

Liabilities + Capital

Question 10

In the accounting equations calculate CAPITAL?

Answer 10

Assets - Liabilities

Question 11

In the accounting equations calculate LIABILITIES?

Answer 11

Assets - Capital

Question 12

The Framework identities 2 fundamental qualitative characteristics?

Answer 12

• Relevance
• Faithful representation

Question 13

The Framework identifies 4 enhancing qualitative characteristics?

Answer 13

• Caparability
• Verifiability
• Timeliness
• Understandability