CHAPTER 1

Question 1

The primary stakeholders are
A. Customers
B. Shareholders
C. Lenders
D. Employee union

Answer 1

B. Shareholders

Question 2

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 students

Answer 2

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

Question 3

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.

Answer 3

D. All of the above.

Question 4

The internal audit function is least effective when the department:
A. Is non-independent.
B. Is competent.
C. Is objective.
D. Exhibits integrity.

Answer 4

A. Is non-independent.

Question 5

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

Answer 5

A. Shareholder theory.

Question 6

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

Answer 6

C. Ethical behavior

Question 7

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

Answer 7

C. Does not have any other relationships with the company other than his or her directorship.

Question 8

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

Answer 8

D. All of the above

Question 9

The first step in the auditing process should be to secure the commitment of:
A. employees.
B. top executives and directors.
C. stockholders.
D. customers

Answer 9

B. top executives and directors

Question 10

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 agents and directors.

Answer 10

B. Agents act in the best interest of the principal.

Question 11

Where in the annual report would you expect to find mandatory social and environmental reporting?
A. The financial statements and the chairman’s report.
B. Notes to the financial statements and directors’ report.
C. Corporate governance information and the auditor’s report.
D. The Directors’ declaration and the Chief Executive Officer’s report

Answer 11

B. Notes to the financial statements and directors’ report.

Question 12

Which of the following descriptions applicable to different types of directors and their independence is incorrect?
A. Independent executive director.
B. Independent non-executive director.
C. Non-independent executive director.
D. Non-independent non-executive director

Answer 12

A. Independent executive director.

Question 13

Which of the following is not an example of a duty or responsibility of directors?
A. Having a conflict of interest but declaring it to the board of
B. continuing to transact with creditors when the company’s liabilities exceed the assets.
C. Researching and asking questions relating to the company’s operations so as to be informed.
D. Choosing to personally carry out instructions from the board rather than requesting subordinates to do so.

Answer 13

B. continuing to transact with creditors when the company’s liabilities exceed the assets.

Question 14

Which of the following is not one the underlying principles of the corporate governance Combined Code of Practice?
A. Openness
B. Integrity
C. Accountability
D. Acceptability

Answer 14

D. Acceptability

Question 15

A ________ is a problem, situation, or opportunity requiring an individual, group, or organization to
choose among several actions that must be evaluated as right or wrong.
A. crisis
B. ethical issue
c. indictment
d. fraud

Answer 15

B. ethical issue

Question 16

A stakeholder orientation includes all of the following activities except:
A. generating data about stakeholder groups.
B. assessing the firm’s effects on stakeholder groups. mole
C. distributing stakeholder information throughout the firm.
D. minimizing the influence of stakeholder information on the firm.

Answer 16

D. minimizing the influence of stakeholder information on the firm.

Question 17

JOY Ltd is a mining company listed on the American stock exchange. It has an audit committee comprising four members. Two members are independent non-executive directors with engineering and mining qualifications. The nomination committee is currently looking to appoint an additional member to the audit committee. In terms of the existing principles, which of the following would most likely be the best candidate for appointment?
A. An independent non-executive director with a qualification in finance.
B. An executive director with a qualification in accounting.
C. A non-independent non-executive director with qualifications in accounting and auditing.
D. A non-executive director who was previously the CFO of JOY Ltd a year ago.

Answer 17

A. An independent non-executive director with a qualification in finance.

Question 18

An organization’s obligation to act to protect and improve society’s welfare as well as its own interests is referred to as
A. organizational social responsibility.
B. organizational social responsiveness.
C. corporate obligation.
D. business ethics.

Answer 18

A. organizational social responsibility.

Question 19

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 results in prompt and effective decision-making
D. The aim of corporate governance is to protect the interests of shareholders and the local economies.

Answer 19

C. Corporate governance often results in prompt and effective decision-making

Question 20

Code of conduct and code of ethics
A. are formal statements that describe what an organization expects of its employees.
B. become necessary only after a company has been in legal trouble.
C. are designed for top executives and managers, not regular employees.
D. rarely become an effective component of the ethics and compliance program.

Answer 20

A. are formal statements that describe what an organization expects of its employees.

Question 21

Consider the following recommendations:
- a minimum of three members
- chaired by an independent director
- a majority of independent directors
- can comprise executive directors
In terms of the CG Principles, the above requirements relate to the composition of which committees?
A. The nomination and risk committees.
B. The audit and remuneration committees.
C. The remuneration, audit, risk and nomination committees.
D. The remuneration, risk and nomination committees but not the audit committee.

Answer 21

D. The remuneration, risk and nomination committees but not the audit committee.

Question 22

In terms of the CG Principles, which of the following regarding the composition of the nomination committee of a listed company is most correct?
a. A minimum of three members chaired by an executive director.
B. A majority of independent directors chaired by an independent director.
C. A majority of three members of whom most are independent directors. D. A minimum of one independent director who also chairs the committee.

Answer 22

B. A majority of independent directors chaired by an independent director

Question 23

Most companies begin the process of establishing organizational ethics programs by developing:
A. ethics training programs.
B. code of conduct.
C. ethics enforcement mechanisms.
D. hidden agendas.

Answer 23

B. code of conduct.

Question 24

Stakeholders are considered more important to an organization when:
A. they can make use of their power on the organization.
B. they do not emphasize the urgency of their issues.
C. their issues are not legitimate.
D. they can express themselves articulately.

Answer 24

A. they can make use of their power on the organization.

Question 25

The four types of social responsibility include:
A. legal, philanthropic, economic, and ethical.
B. ethical, moral, social, and economic.
C. philanthropic, justice, economic, and ethical.
D. legal, moral, ethical, and economic.

Answer 25

A. legal, philanthropic, economic, and ethical.

Question 26

To be successful, business ethics training programs need to:
A. focus on personal opinions of employees.
B. be limited to upper executives.
C. educate employees on formal ethical frameworks and models of ethical decision making.
D. promote the use of emotions in making tough ethical decisions.

Answer 26

C. educate employees on formal ethical frameworks and models of ethical decision making.

Question 27

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 agents and directors.

Answer 27

B. Agents act in the best interest of the principal.

Question 28

Which of the following is NOT one of the primary elements of a strong organizational compliance program?
A. A written code of conduct
B. An ethics officer
C. Significant financial expenditures
D. A formal ethics training program

Answer 28

C. Significant financial expenditures

Question 29

Related-party transactions may consist of
A. Managers becoming entrenched.
B. Tunnelling and transfer pricing.
C. Transactions between shareholders of the same political persuasion.
D. None of the above.

Answer 29

B. Tunnelling and transfer pricing.

Question 30

The following are the principles of IIA’s Code of Ethics except:
A. Integrity
B. Confidentiality
C. Professional Competence and Due Care
D. Objectivity

Answer 30

C. Professional Competence and Due Care