CFE Corporate Governance 4 — Questions and Answers
Question 1: A whistleblower who reports securities law violations to the SEC may be entitled to a financial award under:
- The False Claims Act
- Dodd-Frank Wall Street Reform and Consumer Protection Act (Correct answer)
- Sarbanes-Oxley Act Section 806
- The Foreign Corrupt Practices Act
Correct answer: Dodd-Frank Wall Street Reform and Consumer Protection Act
Dodd-Frank established the SEC's whistleblower program, providing awards of 10–30% of sanctions exceeding $1 million to eligible tipsters.
Question 2: The three-lines-of-defense model assigns internal audit to which line?
- First line
- Second line
- Third line (Correct answer)
- External line
Correct answer: Third line
The third line of defense is internal audit, which provides independent assurance over the effectiveness of governance, risk management, and controls.
Question 3: Which of the following scenarios most directly represents a failure of the duty of care by a corporate director?
- Voting against a merger the director personally dislikes
- Approving a major acquisition without reviewing any financial analysis (Correct answer)
- Disclosing a conflict of interest before a board vote
- Resigning from the board after a strategic disagreement
Correct answer: Approving a major acquisition without reviewing any financial analysis
The duty of care requires directors to make decisions based on adequate information; approving a major transaction without review clearly breaches this duty.
Question 4: Which governance structure is characterized by a supervisory board overseeing a separate management board, common in Germany and the Netherlands?
- Unitary board structure
- Two-tier board structure (Correct answer)
- Advisory board structure
- Committee-led board structure
Correct answer: Two-tier board structure
The two-tier (dual) board structure separates strategic oversight (supervisory board) from executive management (management board), common in continental Europe.
Question 5: An audit committee charter should specify all of the following EXCEPT:
- Committee composition and independence requirements
- Authority to engage outside advisors
- Daily operational responsibilities of the CFO (Correct answer)
- Procedures for handling complaints about accounting matters
Correct answer: Daily operational responsibilities of the CFO
The CFO's daily operational duties are a management responsibility and are not governed by the audit committee charter.
Question 6: Environmental, Social, and Governance (ESG) reporting is most directly associated with which stakeholder concern?
- Short-term earnings maximization for equity traders
- Broader corporate accountability to multiple stakeholder groups (Correct answer)
- Reducing the external audit fee
- Limiting board diversity requirements
Correct answer: Broader corporate accountability to multiple stakeholder groups
ESG reporting reflects a company's accountability to investors, employees, communities, and regulators — not just short-term shareholders.
Question 7: Which of the following is a RED FLAG suggesting that a board may be ineffective at fraud prevention?
- Regular board turnover of independent directors
- Dominant CEO who also chairs the board with no lead independent director (Correct answer)
- Active and well-resourced audit committee
- Robust anonymous hotline with board-level reporting
Correct answer: Dominant CEO who also chairs the board with no lead independent director
A dominant CEO who also controls the board removes a critical check on executive authority, significantly increasing fraud risk.
CFE Corporate Governance 4
A whistleblower who reports securities law violations to the SEC may be entitled to a financial award under: