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2023 M92 Business and Finance > Chapter 4 - Main Aspects Of Corporate Governance > Flashcards

Chapter 4 - Main Aspects Of Corporate Governance Flashcards

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1
Q

The two most important elements of corporate governance are?

A

Transparency and accountability

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2
Q

The five areas of the UK corporate governance code are…

A
  • leadership
  • effectiveness
  • accountability
  • remuneration
  • relations with shareholders
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3
Q

What are the other 2 areas of the UK corporate governance code?

A
  • going concern, risk management and internal control

- comply or explain

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4
Q

Under the UK corporate governance code, with regards to risk management and internal control, companies should?

A
  • identify any material uncertainties in their ability to trade as a going concern
  • asses their principal risks and explain how they are being managed
  • state whether they are able to continue in operation and meet their liabilities
  • monitor their risk management and internal control systems at least annually
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5
Q

With regards to the comply or explains section of the UK corporate governance code, what does this mean?

A

Compliance with the code is not a legal requirement, but it is part of the London stock exchange listing rules. Companies are required to state in their annual report whether they are in compliance with the code, or if not fully compliant to derail, explain where they are not complaint and the reason for this.

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6
Q

The turnbull guidance sets out…

A

Best practice for internal control for UK listed companies, and assists them in applying the section of the UK corporate governance code that deals with internal control.

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7
Q

In September 2014, the FRC published a revised guidance of the turnbull guidance called…

A

Guidance on risk management, internal control and related financial and business reporting (the risk guidance)

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8
Q

What is the purpose of the FRC guidance on audit committees?

A

Assist company boards when implementing the sections of the UK corporate governance code. Dealing with the audit committees and to assist directors serving on audit committees in carrying out their role.

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9
Q

The main roles and responsibilities of the audit committee include:

A
  • Monitoring the integrity of the company’s financial statements
  • reviewing the company’s internal financial controls
  • making recommendations to the board, for it to be put to shareholders for their approval in the general meeting, in relation to the appointment of the external auditor And to improve the remuneration and terms of engagement of the external auditor
  • reviewing and mo irony the external auditors independence and objectivity and the effectiveness of the audit process
  • developing and implementing policy on the engagement of the stern all auditor to supply non audit services, taking into account relevant ethical guidance regarding the provision of non audit services by the external audit firm.
  • to report to the board, identifying any matters where it considers that action or improvement is needed, and making recommendations as the steps to be taken.
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10
Q

The FRC’s guidance on board effectiveness relates primarily to leadership and effectiveness of the board. The institute of chartered secretaries and administrators developed guidance on the FRC’s behalf and it deals with the following topics:

A
  • role of the board and directors
  • board support and role of the company secretary
  • descion making
  • board composition and succession planning
  • evaluating the performance of the board and directors
  • audit, risk and remuneration
  • relations with shareholders
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11
Q

In the USA a different approach is taken, companies with a listing on the stock exchange in the USA are required to comply with the requirements of the…

A

Sarbanes-oxley act 2002

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12
Q

Listed companies have to abide by which rules…

A

The listing rules

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13
Q

The main legislation covering limited companies is…

A

The companies act 2006

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14
Q

Companies house keeps the public records of companies registered in Great Britain. It lists its three statutory functions as to:

A
  • Incorporate and dissolve limited companies
  • examine and store company information delivered under the companies act and related legislation and
  • make this information available to the public
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15
Q

If a company is to issue shares to the public it must register as a
Public company and comply with certain additional rules such as having allotted share capital of…

A

£50,000

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16
Q

The registration documents for companies house set out…

A
  • company’s name
  • whether the company is a private or public company
  • whether the liability of the members of the company is to be limited and if so whether it is to be limited by shares or guarantee
  • the situation of the company’s registered office, I.e whether it is in England and Wales, Wales Scotland or norther Ireland.
  • address of the registered office, which must be the same as the situation of the registered office
  • the statement of proposes officers and
  • the proposes articles of association

If the company is to be limited by shares the document must also include a statement of capital and the initial share holdings

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17
Q

As part of statutory reporting requirements, a confirmation statement is required. What does this contain?

A

A range of information including the company’s registered office address. The principal business activities. Details of the the directors, company secretary, shareholders and the company’s share capital.

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18
Q

Every company must deliver a confirmation statement to companies house at least…

A

Once every 12 months.

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19
Q

The companies act requires that every company must keep accounting records which are sufficient to show and explain the company’s transactions and as such to:

A
  • disclose with reasonable accuracy at any time the financial position of the company at that time and
  • enable the directors to ensure that any accounts required to be prepared comply with the requirements of the act
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20
Q

By law, a company’s annual accounts must give a….

A

True and fair view of its economic state

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21
Q

For most companies, the annual accounts will include…

A
  • income statement
  • a balance sheet signed by a director
  • a directors report signed by a director or the company secretary

The entire set of required documents is sometimes grouped together and called the annual report and financial statements.

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22
Q

The directors of a quoted company must prepare a ????? ?????? Which must be approved by the board of directors and signed by a director or the secretary of the company.

A

Directors remuneration report

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23
Q

Corporate governance is commonly referred to as?

A

A system by which organisations are directed and controlled.

24
Q

All companies have to keep accounting records and all limited companies must send their accounts to…

A

Companies house

25
Q

How long do both private companies and public companies each have to file their accounts with companies house?

A

Private companies have within nine months of the year end and public companies must file within six months.

26
Q

The companies act 2006 requires all public companies have…

A

A company secretary

27
Q

The company secretary should give notice of the annual general meeting. This includes providing company members and the company’s auditors with ?? Days of written notice of an annual general meeting and ?? Days if notice of a meeting other than an annual general meeting or of a meeting to pass a special resolution.

A

21 days for annual general meeting and 14 days for meeting other than annual general meeting

28
Q

Periodically, the effectiveness of review control processes will be discussed with the risk management team and any agreed improvements to the process are then implemented. This review by the risk management is the what line of defence?

A

Second

29
Q

The ???? Line of defence is enacted when the internal audit team carries out checks to see that the agreed processes are being operated in practice.

A

Third line of defence

30
Q

In regards to risk mangement controls, give some examples of controls for the underwriting department:

A
  • limits of authority to individual underwriters
  • second review of quotations by senior underwriters
  • regular review of pricing schedules
  • monitoring of aggregation (or risk accumulation) practices
31
Q

What falls under the risk category, strategic risks?

A

Senior management consider matters such as takeover bids, new lines of business, opening branches in new locations including overseas and the distribution policy.

A balanced view of the risks when going into new ventures will ensure that the descion is well informed and potential negative outcomes are anticipated and managed.

32
Q

What falls under the risk category, insurance and reserving?

A

Potential for the loss ratio to be higher that which was assumed, adequacy of pricing I.e premiums. Also think of claims, having enough adequate reserves and all the risks associated with for example like liability claims and the other issues around accurately reserving, as this can threaten the solvency of the business.

33
Q

What falls under the risk category, investment/market?

A

Includes losses due to the reduction in value of investments or returns that are below the planned level. Causes of these losses may be specific to the insurers investment portfolio or a more general market wide downturn.

34
Q

What falls under the risk category, credit?

A

Risks relating to premium payments by clients and also for reinsurance recoveries. Losses due to non payment are likely to be minimal because in most personal lines insurances payment is required before cover commences, and for commercial policies insurers are able to give notice of cancellation of premiums that are not paid.

Insurers have the risk though that as brokers hold their premiums, should the broker go bankrupt the insurer will lose money.

There is also the risk that as an insurance company pays direct first their claims and then seeks recover from reinsurers, the reinsurer could get into financial problems before reinsurance claim is paid, so the insurer might not be able to recover money from the reinsurer.

35
Q

What falls under the risk category, operational?

A

Scope of operational risks is very wide and in effect sweeps up all the risks that are not included in other categories. The risks include property damage to the insurers offices and equipment, fraud by employees, beach or regulatory rules, injury or illness to staff or visitors, IT interruptions or security failures.

36
Q

What falls under the risk category, group?

A

Risks within this ceremony emerge when a firm is part of a wider group. For example, a company could rely on its parent company for solvency capital, technical support and centralised services such as actuarial. If the strategy at the centre should change (such as the redistribution of capital) then the company may not be able to fulfil its business aims. (Sort of think of maybe like AXA not helping fund bluefin, in a sort of way)

37
Q

An important part of strategy and business planning is for the senior management to decide on the risks it wishes to seek. This is called…

A

Risk appetite

38
Q

A typical risk appetite statement for an insurance company may be…

A

We have an appetite to take on insurance risk and investment risk in pursuit of our business objectives, subject to the limitations stated in the business plan.

39
Q

It is important to remember that risk reduction or control measures rarely eliminate all levels of risk - there is often a ?????? Risk that the company must bear.

A

Residual.

40
Q

Note that in some cases, it is valid to state that the firm has zero tolerances for losses, knowing…

A

That there is a chance that some might occur.

41
Q

If a company says, we have no tolerance for claims reserves to fall short of payments by more than 5%, this is an example of which type of risk?

A

Insurance and reserving

42
Q

If a company says, we have a tolerance for credit losses up to 1% of premium income and up to 3% of reinsurance recoverable, this is what type of risk?

A

Credit

43
Q

If a company says the following, what types of risk are these?

  • we have zero tolerance for injuries to staff
  • we have no tolerance for IT interruptions exceeding 30 minutes
  • we have zero tolerance for theft by employees
  • we have no tolerance for property damage exceeding £5,000 in costs
A

Operational risks

44
Q

Under the companies act 2006 and subsequent regulations, companies are required to have an external audit undertaken by an approved entity and for a report to shareholders to be published in the UK. Only companies with the following are required to have a full statutory audit by a registered auditor:

A
  • a turnover exceeding £6.5m
  • net assets exceeding £3.26m or
  • more than 50 employees
45
Q

The statutory external audit report must state clearly whether in the auditors opinion the annual accounts…

A
  • give a true and fair view, for a balance sheet at the end of the year, for the profit and loss account for the financial year, and in the case of group accounts of the state of affairs as the end of the financial year etc
  • have been properly prepared in accordance with the relevant financial reporting framework and
  • have been prepared in accordance with the requirements of this act ( and where applicable, article 4 of the IAS regulation )
46
Q

The chief internal auditor usually has direct reporting line to…

A

The audit committee

47
Q

Internal audits can assist the directors with the implementation of good corporate govnerance by for example:

A
  • maintaining a sound system of internal control by reviewing how a company identities and manages risk
  • reviewing board reports to ensure that they present a balanced and understandable view point
  • ensuring the directors are up to date with new accounting and auditing issues, e.g intensifying accounting standards
  • communicating with the external auditors and ensuring a unified approach to work
  • ensuring that the board received the correct communications and information required from the external auditors
48
Q

Sometimes data is collected on an inconsistent basis and a ???? ??????? Is undertaken to bring….

A

Data cleansing is taken to bring each line of data into a standard format.

49
Q

The misuse of confidential information by making investment decisions using information that should be confidential is called…

A

Insider dealing or insider trading

50
Q

Compliance with the DPA is overseen by an independent government authority, the …

A

Information commissioners office

51
Q

What are the 8 data protection act principles?

A
  1. Fairly and lawfully processed
  2. Processed for specific purposes
  3. Adequate, relevant and not excessive
  4. Accurate and where necessary, kept up to date.
  5. Kept no longer than is necessary
  6. Processed in line with the rights of the individual
  7. Kept secure
  8. Transferred to countries outside the EEA only when the information is adequately protected.
52
Q

Personal data is data which…

A

Relates to a living individual who can be identified from that information, or fro, that data and other information in the possession of the data controller which is likely to come into their possession. These include any expression of opinion about the individual and by the intentions of the data controller in respect of that individual.

53
Q

Sensitive personal data includes information relating to…

A

Racial ethnic origin, political opinions, religious beliefs, trade union membership, health, sexual orientation and criminal convictions. Under the act the processing of such data is subject to much stricter conditions.

54
Q

Data subject is…

A

Any living individual who is the subject of personal data

55
Q

Data subject access is…

A

Is the right of an individual to access personal data relating to them which is held by a data controller.

2023 M92 Business and Finance (10 decks)

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