W40-Corporate Governance Flashcards
Q1. 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
Q1 (d) generally only the shareholders have the power to amend the Articles of Incorporation.
Q3. Which of the following is not a right of the shareholder of a corporation?
a. Right to inspect the books and records
b. Right to share in dividends if declared
c. Right to determine the mission of the corporation
d. Right to sue on behalf of the corporation if the officers and directors fail to uphold corporate rights
Q3 (c) the board of directors determines the mission of the corporation.
Q9. The articles of incorporation and bylaws of a corporation serve as a basis for the governance structure of a corporation. Which of the following items are normally included in the bylaws of the corporation as opposed to the articles of incorporation?
a. Purpose of the corporation
b. Number of authorized shares of stock
c. Procedure for electing directors
d. Powers of the corporation
Q9 (c) the procedure for electing directors is normally included in the bylaws. Answers a, b, and d are incorrect because they are normally included in the articles of incorporation
Q10. 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
Q10 (c) stock options that cannot be exercised for 10 years provide an incentive to manage the firm to maximize long-term stock value
Q11. Which of the following forms of compensation would encourage management to take on excessive risk?
a. A fixed salary
b. A salary and bonuses based on current period net income
c. A salary plus stock options that cannot be exercised for 10 years
d. A salary plus restricted stock
Q11 (b) with a bonus based on current period net income, management has an incentive to take on excessive risk to maximize its bonuses
Q15. 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
Q15 (d) directors are internal corporate governance mechanisms regardless of whether or not they are independent.
Q17. 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 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 of the audit committee must be a “financial expert.”
Q17 (b) there is no requirement to have a compensation expert on the compensation committee
Q19. Which of the following is not a requirement of the Wall Street Reform and Consumer Protection (Dodd-Frank) Act for publicly held corporations registered with the SEC?
a. If it is decided that the CEO should also be appointed chairman of the board, the corporation must disclose why this decision was made.
b. The members of the compensation committee of the board must be independent.
c. Shareholders must be allowed a nonbinding vote on officer compensation at least every three years.
d. All members of the audit committee of the board must be financial experts.
Q19. (d) the Act does not require all members of the audit committee to be financial experts.
Q21. 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 chief financial officer
b. The chief executive officer
c. The controller
d. The external auditors
Q21. (b) ideally the chief audit executive should report to the chief executive officer. Answers a and c are incorrect because reporting to financial personnel may compromise the internal auditor’s effectiveness in assessing financial reporting and controls.
Q22. 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
Q22. (a) a risk-based approach is required
Q11. The institute of Internal Auditors’ International Standards for the Professional Practice of Internal Auditing cover what two major types of internal auditing services?
a. Assurance and consulting
b. Financial and operational
c. Compliance and taxation
d. Audit and review
(BEC-W4023)
Q11. (a) the two major types of services include assurance and consulting.
Q12. 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
(BEC-W4024)
Q12. (b) it is a requirement of the standards
Q13. 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
(BEC-W4025)
!13. (b) independence standards are not a section of the IIA standards
Q14. Securities analysts act as one form of monitoring device from a corporate governance standpoint. What is a limitation that is often identified when considering the effectiveness of securities analysts in this regard ?
a. Conflicts of interest
b. Lack of competence
c. Use of only non-financial information for analyses
d. They are employees of the company
(BEC-W4026)
Q14. (a) occasionally the analyst’s firm has a vested interest in the welfare of the company
Q15. Which of the following divisions of the SEC reviews corporate filings?
a. The Office of the Chief Accountant
b. The Division of Enforcement
c. The Division of Corporate Disclosure
d. The Division of Corporate Finance
(BEC-W4027)
Q15. (d) the Division of Corporate Finance reviews filings
