corporate governance and ethics Flashcards
What is Corporate Governance?
The internal systems by which organisations are directed & controlled.
What does the UK Corporate Governance Code require from listed companies?
Listed companies must comply & produce a corporate governance report as part of their annual reports or explain/disclose if not followed.
What is the first principle of the UK Corporate Governance Code?
Leadership
What is the key aim of an effective board according to the Leadership principle?
Aiming at the long-term sustenance of the business thereby creating value for the shareholders.
What is required for the composition of the board?
An appropriate combination of Executive Directors (EDs) & Non-Executive Directors (NEDs) so that no one group dominates the other.
What is the segregation of duties between the Chairman and the CEO?
Chairman & CEO cannot be a single person as too much power is afforded to a single person
What does the Effectiveness principle emphasize for board members?
A combination of skills, experience & knowledge.
What should the appointment to the board be?
A formal, rigorous & transparent procedure.
How often should all directors submit for re-election?
Annually subject to continued satisfactory performance.
What is the focus of the Accountability principle?
The board should present a balanced & understandable assessment of the company’s position & prospects.
What should remuneration be linked to according to the Remuneration principle?
Performance; not linked to profits.
this is so that it does not compromise the principles of objectvity and independence of the NEDs
How should the board communicate with shareholders?
As a whole rather than a single individual.
difference between Executive Directors (EDs) and non excecutive directors (ED)
Full time employees receiving salary
involved in day-to-day operations.
board provides
entrepreneurial leadership and ensures
that effective controls are in place to
manage risk
difference between Executive Directors (EDs) and non excecutive directors (NED)
Independent, part time employees receiving fixed fees based on experience & time commitment.
provide constructive challenge, strategic guidance, offer specialist advice & hold management to
account.
What is the role of the Chair (Chairman/Chairperson)?
Leads the board and ensures it operates in the best interest of the company & its stakeholders.
Facilitates constructive board relations & the effective contribution of the NEDs
.
- Ensure directors receive accurate, timely & clear information.
What is the primary objective of the Nomination committee?
Board recruitment & succession planning.
What should the Remuneration committee comprise of?
Minimum of three members, majority being NEDs.
Primary objective is to define the remuneration policies & practices.
What is a requirement for the Audit committee composition?
Minimum three NEDs, with at least one having financial experience.
what is the function of the audit comitee
what is the function of the audit comitee
7 functions
- To review internal controls & risk management systems.
- To monitor & review effectiveness of internal audit dept as they report to Audit
committee. - To monitor arrangements safeguarding the privacy of the whistleblowers.
- To recommend appointment, reappointment & removal of external auditor.
- To approve remuneration & engagement terms of external auditor.
- To review & monitor independence & objectivity of external auditor.
- To monitor financial statements.
What is one advantage of having an audit committee?
Increased confidence in the credibility & objectivity of financial reports.
What is a disadvantage of having an audit committee?
Difficulty selecting suitable candidates to form the committee.
According to ISA 260, what matters should auditors communicate to TCWG?
Significant difficulties encountered during the audit, significant accounting adjustments, significant deficiencies in the internal control system.
Who is TCWG?
Person with responsibility for overseeing the strategic direction of the entity & obligations related to accountability.
Fill in the blank: The board should communicate with investors through _______.
AGMs
True or False: NEDs can work for rival companies.
True
What does the Company Secretary ensure?
That the policies, processes, information, time & resources needed in order to function effectively & efficiently.
