ACCA - Association of Chartered Certified Accountants Corporate Governance and Ethics Questions and Answers

Question 1

A company's management team is awarded significant bonuses based on achieving high short-term revenue growth. To meet their targets, they approve several high-risk projects that boost immediate sales but have uncertain long-term profitability and could damage the company's reputation. This situation is a classic example of which concept in corporate governance?

Accepted Answer

The agency problem

Answer

The agency problem arises from the conflict of interest between a company's principals (shareholders, who desire long-term value) and their agents (management). In this scenario, the bonus structure incentivises management to act in their own short-term interest, potentially at the expense of the shareholders' long-term interests.

Question 2

According to the principles of good corporate governance, what is the primary responsibility of the nominations committee?

Accepted Answer

Leading the process for board appointments and ensuring a balanced and effective board.

Answer

The primary role of the nominations committee is to lead the process for board appointments, undertake succession planning, and regularly review the structure, size, and composition (including skills, knowledge, and diversity) of the board to ensure it remains effective.

Question 3

An accountant discovers a new product has a minor defect that is not dangerous but will be very costly to recall. The accountant's manager argues against the recall, stating, 'The cost of the recall will harm our profits, potentially leading to job losses and a drop in shareholder value. The negative impact on these large groups far outweighs the minor inconvenience to a few customers.' The manager's argument is most closely aligned with which ethical perspective?

Accepted Answer

Utilitarianism

Answer

Utilitarianism is a consequentialist theory that judges an action's morality based on its ability to produce the greatest good for the greatest number of people. The manager is weighing the consequences for different groups (employees, shareholders vs. customers) and concluding that the action causing the least overall harm is the most ethical choice.

Question 4

Many corporate governance codes, including the UK Corporate Governance Code, operate on a 'comply or explain' basis. What is the fundamental principle behind this approach?

Accepted Answer

To allow companies flexibility to depart from the code's provisions if they provide a transparent and robust justification to their shareholders.

Answer

The 'comply or explain' approach acknowledges that a 'one-size-fits-all' model is not always appropriate. It allows a company to not comply with a specific provision, provided it explains its reasoning to shareholders, who can then assess if the justification is acceptable. This promotes transparency and tailored governance rather than rigid, mandatory rules.

Question 5

Which of the following statements best describes the primary difference between the shareholder view and the stakeholder view of corporate purpose?

Accepted Answer

The shareholder view prioritises the interests of the company's owners, while the stakeholder view considers the interests of a wider group including employees, customers, and society.

Answer

The core distinction is the group whose interests the company is run to serve. The shareholder theory posits that a company's main duty is to maximize wealth for its owners (shareholders). In contrast, the stakeholder theory argues that a company should balance the interests of all groups affected by its actions, such as employees, customers, suppliers, and the community.

ACCA - Association of Chartered Certified Accountants Practice Test

ACCA - Association of Chartered Certified Accountants Practice Test

ACCA - Association of Chartered Certified Accountants Corporate Governance and Ethics Questions and Answers