Chapter 10

Question 1

Jacob has just been appointed as a Non-executive Director of Pulsemania plc, a premium listed
company. A consultant told him that under the UK Corporate Governance Code he has the following
responsibilities as a non-executive director.
Responsibility 1: Appointing and removing executive directors
Responsibility 2: Reporting on the performance of the company
Responsibility 3: Holding executive directors to account for their performance
Responsibility 4: Developing and implementing internal controls
Which of the points listed by the consultant correctly identify Jacob’s responsibilities as a nonexecutive director?
Requirement
A 1 and 2
B 2 and 3
C 1 and 3
D 2 and 4

Answer 1

B

Question 2

The chair of Raygold plc, a premium listed company, is considering which of the company’s nonexecutive directors can be classified as independent. Even if a non-executive director has worked as
an employee for the company in the past, they may still be classified as independent if the period of
employment finished at least:
A two years ago
B three years ago
C four years ago
D five years ago

Answer 2

D

Question 3

The UK Corporate Governance Code contains principles for the level and make-up of directors’
remuneration. A consultant has listed the following as being among these principles.
Principle 1: Only basic salary should be pensionable
Principle 2: Directors should not be rewarded for poor performance
Principle 3: Obtain the auditor’s approval of the remuneration set
Which of the points listed by the consultant correctly reflect the principles and provisions of the UK
Corporate Governance Code?

Answer 3

A

Auditors are not required to approve the directors’ numeration, though they should ensure that there is appropriate disclosure in the financial statements

Question 4

The board of directors of Kempton plc, a premium listed company, is considering the membership of
its remuneration committee. In this regard, which statement is true?
A The chair of the board must be one of the members of the remuneration committee.
B The chair of the board may be both a member and chair of the remuneration committee.
C The chair of the board may be a member but cannot chair the remuneration committee.
D The chair of the board cannot be a member of the remuneration committee.

Answer 4

C

the chair of the board can be a member of the remuneration committee IF they were appointed independently BUT cannot chair the remuneration committee

Question 5

Which statement about the requirements of the UK Corporate Governance Code is true?
A Non-executive directors of premium listed companies, once appointed, only need to be
submitted for re-election every three years.
B In annual and half-yearly financial statements, the board should state whether it considers it is
appropriate to adopt the going concern basis of accounting.
C Directors’ notice or service contracts should not exceed three years.
D The annual report should state the company’s business model but its strategy for delivering the
objectives of the company may remain confidential.

Answer 5

B

NEDs + EDs = annual re-election

Notice periods should not exceed 1 year

Question 6

Flange plc is a small premium listed company. As a minimum, how many directors are required for its
audit committee?
A One
Two B
C Three
D Four

Answer 6

2

small = Co outside the FTSE 30

Question 7

Flange plc is a large premium listed company. As a minimum, how many directors are required for its
audit committee?
A One
B Two
C Three
D Four

Answer 7

C

Question 8

Merton plc is a small premium listed company. As a consequence, the company:
A must comply with all the requirements of the UK Corporate Governance Code
B is governed by other corporate governance regulations than the UK Corporate Governance
Code
C can be flexible in how it applies the UK Corporate Governance Code
D is not affected by the requirements of the UK Corporate Governance Code

Answer 8

A

Question 9

According to the UK Corporate Governance Code, a company should seek to improve corporate
governance by ensuring that:
A the chair and chief executive are the same individual in order to avoid confusion over who has
responsibility for running the company
B the chair and chief executive are different individuals in order to prevent one person having too
much power within the company
C the chair and chief executive are different individuals in case one dies or becomes incapacitated
by ill health
D the company chairman does not take up outside directorships

Answer 9

B

Question 10

Jumpers plc has just obtained a premium listing on the London Stock Exchange. A consultant has
made the following two statements about the company and the UK Corporate Governance Code.
Statement (1): As Jumpers plc has a premium listing, the Listing Rules mean that the Code applies so
the company must never depart from any of its requirements.
Statement (2): If Jumpers plc had joined the FTSE 100, compliance with the Code would be a
statutory requirement.
Identify whether each statement is true or false.
Requirement
A Statement (1) true; Statement (2) false
B Statement (1) false; Statement (2) false
C Statement (1) true; Statement (2) true
D Statement (1) false; Statement (2) true

Answer 10

B

Code applies to all premium listed Co - expected to comply with the main principles, but do not have to comply with all the provisions provided non-compliance is explained : apply or explain

No stat requirement that states particular Co must apply the Code

Question 11

Merton plc is a small premium listed company. As a consequence, the company:
A must comply with all the requirements of the UK Corporate Governance Code
B is governed by other corporate governance regulations than the UK Corporate Governance
Code
C can be flexible in how it applies the UK Corporate Governance Code
D is not affected by the requirements of the UK Corporate Governance Code

Answer 11

C

Question 12

1 In relation to the fundamental accounting principles directors are expected to report in the
company’s annual financial statements on:
A the going concern status of the company
B the materiality of specific company transactions
C the accruals approach to accounting in the company
D the consistency of treatment of particular items or transactions by the company

Answer 12

C

Question 13

Hilditch plc is currently creating a list of potential members of its audit committee. Under the UK
Corporate Governance Code, the list must comprise only:
A independent non-executive directors who all have recent and relevant financial experience
B independent non-executive directors with at least one who has recent and relevant financial
experience
C non-executive directors with recent and relevant financial experience
D executive directors with at least one who has recent and relevant financial experience

Answer 13

B

Question 14

Under the requirements of the UK Corporate Governance Code, who is responsible for monitoring a
company’s risk management and internal control systems?
A The executive directors only
B The non-executive directors only
C The entire board of directors
D The audit committee

Answer 14

C

Question 15

According to the UK Corporate Governance Code, which of the following is responsible for making
recommendations in regard to the appointment, reappointment and removal of the external
auditors?
A The nomination committee
B The remuneration committee
C The audit committee
D The non-executive directors

Answer 15

C

Question 16

Megan is a full-time Executive Director of Rifkind plc, a premium listed company. She does not
currently hold any non-executive directorships in any other companies. The executive directors of
Carnforth plc, another premium listed company, have asked Megan to become a non-executive director of Carnforth plc in addition to her existing role with Rifkind plc. The guidance provided by
the UK Corporate Governance Code means that:
A Megan will be allowed to accept the offer
B Megan will not be allowed to accept the offer
C Megan will only be allowed to accept the offer if she buys shares in both companies
D Megan will only be allowed to accept the offer if the non-executive directors of both companies
agree

Answer 16

A

as a full-time director, Megan is permitted to take on one NED

Question 17

Sheila is a non-executive director Forton plc, a premium listed company. According to the UK
Corporate Governance Code, which of the following statements about her remuneration is correct?
A Her remuneration should reflect her expertise
B Sheila should decide her remuneration in conjunction with the remuneration committee
C Her remuneration should reflect her time commitment and responsibilities
D Her remuneration is negotiated with the remuneration committee and may include performance
related elements and share options

Answer 17

C

Question 18

With regard to the board of directors of a premium listed company (excluding the chairman), the UK
Corporate Governance Code requires that the proportion who are independent non-executive
directors should be:
A between 10% and 24%
B between 25% and 39%
C between 40% and 49%
D 50% or over

Answer 18

D

Question 19

Cheshunt plc is considering the re-appointment of its external (statutory) auditors. Which of the
following is responsible for appointing the external auditors?
A The nomination committee
B The remuneration committee
C The board of directors
D The audit committee

Answer 19

C

the audit committee makes recommendations to the board re auditor appointment, however reappointment is the responsibility of the board

Question 20

Fox plc, a premium listed company, has engaged its external (statutory) auditors to provide the
company with consultancy services. Which entity would usually be expected to examine the
implications of this engagement?
A The board of directors
B The remuneration committee
C The audit committee
D The non-executive directors

Answer 20

C

one of the specific R+R of the audit committee is the development + implementation of policy on engaging the external auditor to supply non-audit services

Question 21

Sumatra plc operates its own internal audit function. It chooses not to make use of an external
supplier for these services. It is therefore vital that the company has arrangements to ensure that
there is no compromise of the:
A independence of the internal auditors
B integrity of information security systems
C stewardship of directors
D rigour of financial reporting processes

Answer 21

A

Question 22

Vidal is the Chief Executive of Plainton plc, a premium listed company. His fellow directors want him
to replace the company’s existing Chair, who is due to retire shortly. They also want him to stay as
Chief Executive for the first year of his chairship, while a new Chief Executive is sought.
The guidance in the UK Corporate Governance Code recommends that:
Requirement
A Vidal should assume both roles concurrently subject to consultation with major shareholders
B Vidal should not assume both roles concurrently nor go on to be the company’s Chair
C Vidal can assume both roles concurrently subject to the board setting out their reasons at the
time of appointment and in the next annual report
D Vidal can only assume both roles concurrently if the non-executive directors of the company
agree

Answer 22

B

role of CEO + chair should not be exercised by the same individual

the CEO should not go on to be the chair of the same Co

Question 23

Shona has just been appointed as a Director of Impala plc. Following her appointment, she will be
subject to election by shareholders:
A at the first AGM after her appointment and then at intervals of no more than three years after that
B at the first AGM after her appointment and then at intervals of no more than two years after that
C only at the first AGM after her appointment
D at every AGM

Answer 23

D

Question 24

Zyntec plc is a listed company that has recently had an external audit. As well as whether the financial
statements give a ‘true and fair view’ of the company’s performance and financial position, which of
the following will the external auditors have reported on?
A The experience and ability of the chief finance officer
B Whether the staff in the finance function are compliant with CPD requirements
C The company’s compliance with the UK Corporate Governance Code
D The standard of the work performed by the internal audit function

Answer 24

C

Question 25

The ability to meet the needs of the present without compromising the ability of future generations
to meet their own needs is best described as:
A corporate responsibility
B sustainability
C business ethics
D natural capital

Answer 25

B

Question 26

Sustainability is about the long-term use of both tangible and intangible resources. Green plc
manufactures customised furniture for customers from recycled materials.
Requirement
Which two of the following represent intangible resources of Green plc?
A The design expertise of its employees
B Stationery supplies to the factory office
C Recycled timber received from suppliers
D Its reputation in the community
E Its head office premises

Answer 26

A D