ACCA Corporate Governance and Ethics 3 — Questions and Answers
Question 1: The Sarbanes-Oxley Act (SOX) Section 302 requires:
- External auditors to certify internal controls
- CEOs and CFOs to personally certify the accuracy of financial reports (Correct answer)
- Audit committees to be entirely independent
- Companies to rotate external auditors every five years
Correct answer: CEOs and CFOs to personally certify the accuracy of financial reports
SOX Section 302 requires the CEO and CFO to personally certify the accuracy and completeness of financial reports filed with the SEC.
Question 2: In Kohlberg's model of moral development, an individual operating at the 'post-conventional' level makes ethical decisions based on:
- Avoiding punishment
- Following societal rules and laws
- Universal ethical principles and personal conscience (Correct answer)
- Peer group acceptance
Correct answer: Universal ethical principles and personal conscience
At the post-conventional level, moral reasoning is guided by universal ethical principles that may even supersede established laws.
Question 3: Which governance model is characterized by a two-tier board structure with a supervisory board and a management board?
- Anglo-American model
- German/Continental European model (Correct answer)
- Japanese keiretsu model
- Unitary board model
Correct answer: German/Continental European model
The German/Continental European model uses a two-tier structure: a supervisory board that oversees the management board responsible for day-to-day operations.
Question 4: A director is said to have a 'fiduciary duty' to a company. This duty primarily means the director must:
- Maximize short-term profits for shareholders
- Act in good faith in the best interests of the company (Correct answer)
- Follow all instructions given by the CEO
- Ensure the company pays minimum taxes legally possible
Correct answer: Act in good faith in the best interests of the company
A fiduciary duty requires directors to act honestly, in good faith, and in the best interests of the company as a whole.
Question 5: Which of the following is a PRIMARY role of the nomination committee?
- Setting executive pay and bonus structures
- Reviewing internal audit reports
- Identifying and recommending candidates for board appointments (Correct answer)
- Approving the company's annual budget
Correct answer: Identifying and recommending candidates for board appointments
The nomination committee leads the process for board appointments, ensuring the board has the right balance of skills, experience, and diversity.
Question 6: The concept of 'enlightened shareholder value' (as reflected in the UK Companies Act 2006, s.172) requires directors to:
- Maximize dividends paid to shareholders each quarter
- Consider stakeholder interests as part of promoting long-term shareholder success (Correct answer)
- Give equal weight to all stakeholder groups including employees and communities
- Prioritize creditor interests over shareholder interests
Correct answer: Consider stakeholder interests as part of promoting long-term shareholder success
Section 172 requires directors to act in good faith to promote the company's success for shareholders while having regard to other stakeholders and long-term consequences.
Question 7: An auditor who owns shares in a client company faces which type of threat to independence?
- Advocacy threat
- Familiarity threat
- Self-interest threat (Correct answer)
- Intimidation threat
Correct answer: Self-interest threat
Owning a financial interest in a client creates a self-interest threat, as the auditor has a personal financial stake in the client's reported results.
ACCA Corporate Governance and Ethics 3
The Sarbanes-Oxley Act (SOX) Section 302 requires: