Chapter 6: Corporate Governance

Question 1

What are the key points of SOX?

Answer 1

Auditor independence – restricted in the additional services they can provide to an audit client

Audit committee – must have
Internal control report

Accuracy of financial statements – vouched for by CEO and CFO

Increased financial disclosures – detail off balance sheet financing

Restrictions on dealing

Audit partner – senior partner must be changed every 5 years

Question 2

What are the arguments for a rules-based approach?

Answer 2

Organization’s Perspective:
Clarity in what the entity must do
Standardization for all companies, fairer approach
Binding requirements, rules must be complied with

Wider Stakeholder Perspective:
Standardization across all companies, level playing field
Sanction, is criminal and a greater deterrent
Greater confidence in regulatory compliance

Question 3

What are the arguments against a rules-based approach?

Answer 3

Organization’s Perspective:
Exploitation of loopholes
Underlying belief
Flexibility is lost
Checklist approach, can lead to inefficient practices

Wider Stakeholder Perspective:
Regulation overload
Legal costs for new legislation, limits
Box-ticking rather than compliance

Question 4

What are the provisions of the UK Corporate Governance Code?

Answer 4

• Leadership
• Effectiveness
• Accountability
• Remuneration
• Relations with Shareholders

Question 5

What are the OECD Principles?

Answer 5

• Ensuring the basis for an effective corporate governance framework
• The rights and equitable treatment of shareholders and key ownership functions
• Institutional investors, stock markets and other intermediaries
• The role of stakeholders in corporate governance
• Disclosure and transparency
• The responsibilities of the board