M 1.1 Corporate Governance Flashcards
- Which of the following is not generally a power of the board of directors of a corporation?
a. Selecting officers
b. Declaring dividends
c. Determining management compensation
d. Amending the Articles of Incorporation
d. Amending the Articles of Incorporation
Because generally only the shareholders have the power to amend the Articles of Incorpation
- Which of the following is not true concerning corporations?
a. Directors owe a fiduciary duty to the corporation
b. All shareholders owe a fiduciary duty to the corporation
c. officers owe a fiduciary duty to the corporation.
d. Directors who act in good faith may use the business judgment rule as a defense
b. All shareholders owe a fiduciary duty to the corporation
Because shareholders do not owe a fiduciary duty to the corporation.
- A Corporate stockholder is entitled to which of the following rights?
a. Elect officers
b. Receive annual dividends
c. Approve dissolution
d. Prevent corporate borrowing
c. Approve dissolution
Shareholders have the rights to vote on the dissolution of the corporation. stockholders also have the right to elect the director of the corporation, who in turn elect the officers.
shareholders do not have the right to receive dividends unless they are declared by the board.
shareholders are not necessary involved in the management of the corporation and cannot prevent corporate borrowing.
- Which of the following best identifies the reason that effective corporate governance is important?
a. The separation of ownership from management.
b. The goal of profit maximization
c. Excess management compensation
d. Lack of oversight by boards of directors.
a. The separation of ownership from management.
because the separation of ownership and management creates an agency problem in that management may not act in the best interest of the shareholder.
- Which of the following forms of compensation would most likely align management’s behavior with the interests of the shareholders?
a. a fixed salary
b. A salary plus a bonus based on current period net income
c. A salary plus stock options that cannot be exercised for 10 years.
d. A salary plus stock
c. A salary plus stock options that cannot be exercised for 10 years.
Because stock options that cannot be exercised for 10 years provide an incentive to manage the firm to maximize long-term stock value.
- which of the following does not act as an external corporate governance mechanism?
a. External auditors
b. The SEC
c. Credit analysts
d. Independent boards of directors
d. Independent boards of directors.
because directors are internal corporate governance mechanisms regardless of whether or not they are independent.
- Which of the following is not a statutory requirement regarding the committees of the board of directors of publicly held corporations registered with the SEC?
a. All members of the compensation committee must be independent.
b. At least one member of the compensation committee must be a “compensation expert.”
c. All members of the audit committee must be independent.
d. At least one member f the audit committee must be a “financial expert.”
b. At least one member of the compensation committee must be a “compensation expert.”
because there is no requirement to have a compensation expert on the compensation committee.
- An important corporate governance mechanism is the internal audit function. For good corporate governance, the chief internal audit executive should have direct communication to the audit committee and report to
a. the CFO
b. the CEO
c. the controller
d. the external auditors
b. the CEO
- In setting priorities for internal audit activities, the chief audit executive should
a. use a risk-based approach
b. use management’s priorities
c. use an approach that cycles audit areas each year.
d. use a random approach to more likely detect fraud.
a. use a risk-based approach
because a risk-based approach is required.
- According to the International standards for the professional practice of internal auditing
a. all internal audit seniors must be Certified Internal Auditors
b. The internal auditors must establish and maintain a system to monitor the disposition of audit results
c. Internal auditors must be assigned to assist the external auditors
d. Internal auditors must not have a financial interest in the company
b. the internal auditors must establish and maintain a system to monitor the disposition of audit results
because it is a requirement of the standards.
- Which of the following is not a section of the Institute of Internal Auditors’ International Standards for the Professional Practice of Internal Auditing?
a. Performance Standards
b. Independence Standards
c. Implementation Standards
d. Attribute Standards.
b. Independence Standards.
because independence standards are not a section of the IIA standards.
