CPA CFE Strategy and Governance 6

Question 1

What is the primary purpose of an enterprise risk management (ERM) framework?

Accepted Answer

To provide a structured approach for identifying, assessing, managing, and monitoring risks across the entire organization

Answer

ERM provides a comprehensive framework for managing risks holistically across the organization rather than in silos. It helps align risk management with strategy, improves decision-making, enhances organizational resilience, and creates a risk-aware culture.

Question 2

In strategic management, what does 'first-mover advantage' refer to?

Accepted Answer

The competitive benefits gained by being the first to enter a market or introduce an innovation

Answer

First-mover advantage refers to the benefits of being the pioneer in a market, including establishing brand recognition, securing key resources, setting industry standards, building customer loyalty, and creating switching costs before competitors enter.

Question 3

What is the purpose of the compensation committee in corporate governance?

Accepted Answer

To design and oversee executive compensation programs that align management interests with shareholder value creation

Answer

The compensation committee, composed of independent directors, designs and oversees executive compensation policies to attract and retain talent while aligning management incentives with long-term shareholder value. It reviews pay-for-performance linkages and ensures compensation is reasonable.

Question 4

A company is evaluating a potential acquisition. What is due diligence in this context?

Accepted Answer

A comprehensive investigation and analysis of the target company's financials, operations, legal matters, and risks before completing the transaction

Answer

Due diligence is the thorough investigation of a target company conducted before completing an acquisition. It covers financial performance, legal obligations, tax positions, operational capabilities, cultural fit, contingent liabilities, and strategic synergies to identify risks and validate the transaction value.

Question 5

What is the significance of the 'comply or explain' approach in Canadian corporate governance?

Accepted Answer

Companies must either comply with governance guidelines or explain why they have not, providing transparency to stakeholders

Answer

The 'comply or explain' approach, common in Canadian governance (NP 58-201), allows companies flexibility to deviate from best practice guidelines as long as they disclose the non-compliance and provide a clear explanation of their alternative approach, enabling stakeholders to make informed assessments.

CPA CFE Practice Test

CPA CFE Practice Test

CPA CFE Strategy and Governance 6