ACCA SP Corporate Governance 1 — Questions and Answers
Question 1: According to the UK Corporate Governance Code, what approach must listed companies take if they do not comply with a specific provision?
- They must obtain shareholder approval for non-compliance
- They must explain their reasons for non-compliance (Correct answer)
- They must apply for an exemption from the FRC
- They must implement the provision within 12 months
Correct answer: They must explain their reasons for non-compliance
The UK Corporate Governance Code operates on a 'comply or explain' basis, requiring companies to either comply with provisions or publicly explain why they have not.
Question 2: Which theory identifies the conflict of interest that arises when managers may prioritise their own interests over those of shareholders?
- Stewardship theory
- Stakeholder theory
- Agency theory (Correct answer)
- Transaction cost theory
Correct answer: Agency theory
Agency theory specifically addresses the principal-agent relationship, where agents (managers) may not always act in the best interests of principals (shareholders).
Question 3: Under the UK Corporate Governance Code, after how many years of service is a non-executive director generally no longer considered independent?
- 6 years
- 9 years (Correct answer)
- 12 years
- 15 years
Correct answer: 9 years
The UK Corporate Governance Code states that non-executive directors who have served for more than nine years should no longer be considered independent without specific justification.
Question 4: Which board committee is primarily responsible for reviewing the company's financial reporting processes and the effectiveness of internal controls?
- Nomination committee
- Remuneration committee
- Audit committee (Correct answer)
- Risk committee
Correct answer: Audit committee
The audit committee oversees internal and external audit functions, financial reporting integrity, and the effectiveness of the company's internal control systems.
Question 5: In a unitary board structure, which of the following best describes the board's composition?
- Executive directors only, with a separate supervisory board providing oversight
- Both executive and non-executive directors serving on a single board (Correct answer)
- Non-executive directors only, with a separate management board for executives
- Independent directors elected solely by minority shareholders
Correct answer: Both executive and non-executive directors serving on a single board
A unitary board structure combines both executive and non-executive directors on a single board, which is the standard model in UK corporate governance.
Question 6: Which UK code sets out responsibilities for institutional investors to monitor and engage with their investee companies to promote long-term value?
- The Companies Act 2006
- The UK Stewardship Code (Correct answer)
- The Listing Rules
- The OECD Principles of Corporate Governance
Correct answer: The UK Stewardship Code
The UK Stewardship Code sets out responsibilities for institutional investors to actively monitor, engage with, and report on their investee companies.
Question 7: According to the UK Corporate Governance Code, why should the roles of Chief Executive Officer and Chairman not be held by the same individual?
- To reduce the total salary cost to the company
- To maintain appropriate separation of management and governance leadership (Correct answer)
- To comply with EU corporate law directives
- To ensure at least two people attend board meetings
Correct answer: To maintain appropriate separation of management and governance leadership
Separating the CEO and Chairman roles prevents excessive concentration of power, maintaining a balance between running the business and overseeing the board.
ACCA SP Corporate Governance 1
According to the UK Corporate Governance Code, what approach must listed companies take if they do not comply with a specific provision?