CIMA Business Ethics and Corporate Governance 2 — Questions and Answers
Question 1: In the context of corporate governance, what does the term 'agency problem' refer to?
- Conflict of interest between principals (shareholders) and agents (managers) (Correct answer)
- The difficulty of finding qualified board members
- Legal issues arising from using agents in business transactions
- The cost of hiring external auditors
Correct answer: Conflict of interest between principals (shareholders) and agents (managers)
The agency problem refers to the conflict of interest that arises when managers (agents) may not act in the best interests of shareholders (principals).
Question 2: Which element of the CIMA ethical decision-making framework asks 'Is it fair to all parties concerned?'
- The Transparency test
- The Effects test
- The Fairness test (Correct answer)
- The Stakeholder test
Correct answer: The Fairness test
The Fairness test in CIMA's ethical decision-making framework asks whether the decision is fair to all parties concerned.
Question 3: Under UK Corporate Governance Code principles, how often should all directors of FTSE 350 companies stand for re-election?
- Every year (Correct answer)
- Every two years
- Every three years
- Every five years
Correct answer: Every year
Under the UK Corporate Governance Code, directors of FTSE 350 companies should stand for annual re-election by shareholders.
Question 4: Which type of audit focuses on whether an organization is achieving its objectives efficiently and effectively?
- Financial audit
- Compliance audit
- Value for money audit (Correct answer)
- Systems audit
Correct answer: Value for money audit
A value for money (VFM) audit assesses the economy, efficiency, and effectiveness with which an organization achieves its objectives.
Question 5: What is the main purpose of a whistleblowing policy in an organization?
- To encourage employees to report suspected wrongdoing without fear of retaliation (Correct answer)
- To monitor employee communications for compliance
- To investigate all financial transactions above a threshold
- To provide a channel for customer complaints
Correct answer: To encourage employees to report suspected wrongdoing without fear of retaliation
A whistleblowing policy provides a safe channel for employees to report suspected wrongdoing, protecting them from retaliation.
Question 6: CIMA's Integrated Reporting framework (<IR>) requires organizations to report on how they create value. Which of the following is NOT one of the six capitals in <IR>?
- Financial capital
- Social and relationship capital
- Reputational capital (Correct answer)
- Natural capital
Correct answer: Reputational capital
Reputational capital is not one of the six capitals in the Integrated Reporting framework; the six are financial, manufactured, intellectual, human, social/relationship, and natural capital.
CIMA Business Ethics and Corporate Governance 2
In the context of corporate governance, what does the term 'agency problem' refer to?