ACCA AS Ethics and Corporate Governance 1 — Questions and Answers
Question 1: According to the IESBA Code of Ethics, which of the following is NOT one of the five fundamental principles of professional ethics?
- Integrity
- Objectivity
- Profitability (Correct answer)
- Professional behaviour
Correct answer: Profitability
The five fundamental principles are integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour — profitability is not included.
Question 2: The agency problem in corporate governance refers to which of the following situations?
- Government interference in corporate decision-making
- Conflicts arising from the separation of ownership and control between shareholders and directors (Correct answer)
- Disputes between shareholders and creditors over asset priority
- Tax avoidance strategies employed by company directors
Correct answer: Conflicts arising from the separation of ownership and control between shareholders and directors
The agency problem occurs because directors (agents) may pursue their own interests rather than those of shareholders (principals) due to the separation of ownership and control.
Question 3: Which UK corporate governance report first introduced the 'comply or explain' approach to governance codes?
- The Greenbury Report (1995)
- The Hampel Report (1998)
- The Cadbury Report (1992) (Correct answer)
- The Higgs Report (2003)
Correct answer: The Cadbury Report (1992)
The Cadbury Report (1992) introduced the 'comply or explain' principle, which forms the foundation of the UK Corporate Governance Code.
Question 4: Which of the following best describes a unitary board structure?
- A board divided into a supervisory board and a separate management board
- A single board containing both executive and non-executive directors (Correct answer)
- A board composed entirely of independent non-executive directors
- A board that operates without a formal chairperson
Correct answer: A single board containing both executive and non-executive directors
A unitary board, as used in the UK, is a single board that includes both executive directors who manage the company and non-executive directors who provide oversight.
Question 5: Under the UK Corporate Governance Code, what is the recommended minimum proportion of independent non-executive directors on a FTSE 350 company board (excluding the chair)?
- One-third of the board
- At least half of the board (Correct answer)
- Two-thirds of the board
- Three-quarters of the board
Correct answer: At least half of the board
The UK Corporate Governance Code recommends that at least half the board, excluding the chair, of a FTSE 350 company should comprise independent non-executive directors.
Question 6: Which ethical framework judges the morality of an action solely based on its outcomes or consequences?
- Deontological ethics
- Virtue ethics
- Consequentialism (Correct answer)
- Rights-based ethics
Correct answer: Consequentialism
Consequentialism determines the rightness or wrongness of actions based on their outcomes; utilitarianism, which seeks the greatest good for the greatest number, is its most common form.
Question 7: The concept of 'enlightened shareholder value' embedded in the UK Companies Act 2006 (s172) requires directors to:
- Maximise short-term shareholder returns above all other considerations
- Promote the long-term success of the company for shareholders while having regard to wider stakeholder interests (Correct answer)
- Allow shareholders to vote on all significant management decisions
- Restrict dividend payments in order to preserve corporate capital
Correct answer: Promote the long-term success of the company for shareholders while having regard to wider stakeholder interests
Section 172 of the Companies Act 2006 requires directors to act in the way most likely to promote the company's long-term success for its members, while having regard to employees, suppliers, community, and the environment.
ACCA AS Ethics and Corporate Governance 1
According to the IESBA Code of Ethics, which of the following is NOT one of the five fundamental principles of professional ethics?