Module 2 Corporate Governance

Question 1

What is corporate governance?

Answer 1

The system by which companies are directed and controlled

Question 2

What is corporate governance?

Answer 2

The system by which companies are directed and controlled

Question 3

What is agency risk?

Answer 3

Agency risk is that directors’ self interest deviates from that of the shareholders

Question 4

What is agency cost?

Answer 4

The cost of reducing agency risk (External auditor fees)

Question 5

What is the UK corporate governance code

Answer 5

Board leadership and company purpose
Division of responsibilities
Composition, succession, evaluation
Audit, Risk, Internal control
Remuneration

Question 6

What is the requirement for audit committee compositon?

Answer 6

Non executive directors only, minimum of 3

Question 7

What is the requirement for nomination committee compositon?

Answer 7

Majority of Non executive directors

Question 8

What is the requirement for remuneration committee compositon?

Answer 8

Non executive directors only, minimum of 3

Question 9

What companies need to comply with “comply or explain”?

Answer 9

Entities with a premium listing on the London Stock Exchange

Question 10

Companies listed on the LSE need to include what as part of their annual report?

Answer 10

They must include a corporate governance section, this is a two part statement.

Narrative statement - describe how the company has applied the principles of the code

Compliance statement - They must state whether they complied with all principles, must explain why if they have not

Question 11

What is agency risk?

Answer 11

Agency risk is that directors’ self interest deviates from that of the shareholders

Question 12

What is agency cost?

Answer 12

The cost of reducing agency risk (External auditor fees)

Question 13

What is the UK corporate governance code

Answer 13

Board leadership and company purpose
Division of responsibilities
Composition, succession, evaluation
Audit, Risk, Internal control
Remuneration

Question 14

What is the requirement for audit committee compositon?

Answer 14

Non executive directors only, minimum of 3

Question 15

What is the requirement for nomination committee compositon?

Answer 15

Majority of Non executive directors

Question 16

What is the requirement for remuneration committee compositon?

Answer 16

Non executive directors only, minimum of 3

Question 17

What companies need to comply with “comply or explain”?

Answer 17

Entities with a premium listing on the London Stock Exchange

Question 18

Companies listed on the LSE need to include what as part of their annual report?

Answer 18

They must include a corporate governance section, this is a two part statement.

Narrative statement - describe how the company has applied the principles of the code

Compliance statement - They must state whether they complied with all principles, must explain why if they have not

Question 19

Who is impacted by the Sarbanes Oxley Act 2002 (SOX)?

Answer 19

Companies across the world that are:

Registered with the SEC in the US

Included in the consolidated accounts of a company which is registered with the SEC, even if they are not domiciled in the US

Non US publicaly traded companies operating in the US

Question 20

What are the additional requirements of SOX?

Answer 20

Annual report certification - Reports must be certified by both the CFO and the CEO

A section 404 report - Requires management to state their responsiblity for establishing internal cotnrol structures, to make assessment of the effectiveness of internal control, every audit report to attest to the assessment made by management.

Audit commitee - Must preapprove all audit/non audit services subject to de minimis