Chapter 10 - Corporate governance

Question 1

What is the Uk Corporate Governance Code?

Answer 1

Code of practice that follows a corporate perspective on corporate goverance

Question 2

Is compliance with the UK Corporate Governance Code a legal requirement?

Answer 2

No

Question 3

What does the London Stock Exchange Listing Rules require premium listed companies to do?

Answer 3

Apply Code’s main principles
Include statement of compliance in annual reports

Question 4

Do companies with a premium listing on the LSE have to comply with the code?

Answer 4

Yes

Departures from compliance may be justified under specific circumstances

Question 5

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

Answer 5

Board leadership and company purpose
Division of responsibilities
Composition, succession and evaluation
Audi, risk and internal control
Remuneration

Question 6

What does board leadership and overall company purpose focus on?

Answer 6

Overall role of board, specifically importance of setting overall purpose, values and business strategy

Question 7

What are provisions?

Answer 7

Premium listed companies must either comply with the provisions or explain why not

Question 8

What do divisions of responsibilities focus on?

Answer 8

How board should be organised
Roles of the chair, executive and NEDs

Question 9

What does composition, succession and evaluation focus on?

Answer 9

Work of the nominations committee to appoint new directors

Question 10

What does audit, risk and control focus on?

Answer 10

Support integrity of financial statements by ensuring organisations have formal and transparent policies and procedures in place to allow effective internal and external audit

Question 10

What does remuneration focus on?

Answer 10

Work of the remuneration committee to develop policy on remuneration of executive directors and how it should be set

Question 10

What is the purpose of an external audit?

Answer 10

Issue an opinion in an audit report whether financial statements produced give a true and fair view of financial performance and financial position

Question 11

What do the audit committee give an opinion on?

Answer 11

Whether:
Financial statements are materially free from fraud and error.
Directors’ remuneration report is fairly stated
Company has complied with the UK Corporate Governance Code

Question 12

Is the external auditor responsible for detecting fraud and error?

Answer 12

No

Responsibility lies with directors and management

Question 13

What is an internal audit?

Answer 13

Semi independent part of the company that monitors effective operation of its internal control and risk management systems

Question 14

What is the purpose of an internal audit?

Answer 14

Advising management on improving internal controls
Ensuring that assets are being safeguarded
Ensuring that operations are conducted effectively, efficiently and economically in accordance with the company’s policies
Ensuring that laws and regulations are complied with
Ensuring that records and reports are reliable and accurate
Helping management to detect or deter fraud
Helping management to identify savings and opportunities

Question 15

What are the responsibilities of a NED?

Answer 15

Appointing and removing executive directors
Holding executive directors to account for their performance

Question 16

How long can a NED be considered independent after employment finished?

Answer 16

Employment finished at least 5 years ago

Question 17

What are the principles for the level and make-up of directors’ remuneration

Answer 17

Only basic salary should be pensionable
Directors should not be rewarded for poor
performance

Question 18

What is stated about annual and half-yearly financial statements?

Answer 18

The board should state whether it considers it is appropriate to adopt the going concern basis of accounting.

Question 19

In a small premium listed company, what is the min number of directors required for the audit committee?

Answer 19

2

For larger companies minimum is 3

Question 20

Under Uk Corporate Governance, what do members of an audit committee need to be?

Answer 20

Independent non-executive directors with at least 1 who has recent and relevant financial experience

Question 21

Under the requirements of the UK Corporate Governance Code, who is responsible for monitoring a company’s risk management and internal control systems?

Answer 21

Entire board of directors

Question 22

Who is responsible for appointing external (statutory) auditors?

Answer 22

Board of directors

Question 23

What % of the board of directors of a premium listed company should be independent NEDs?

Answer 23

50% or over

Question 24

In a listed company, who decides on the appointment of suitably qualified, independent external (statutory) auditors?

Answer 24

Shareholders

Question 25

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?

Answer 25

Audit committee

Question 26

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?

Answer 26

Audit committee