Deck 4: Fundamental Concepts of Corporate Governance

Question 1

The classic court decision that relates to a director's duty to avoid a conflict of interest is:

A)Aberdeen Railway Co v.Blaikie Bros.
B)Whitehouse v.Carlton Hotels Ltd.
C)Woodgate v.Davis.
D)ASIC v.Rich & Ors.

Answer 1

A

Question 2

Which is the major theory shaping the corporate governance debate?

A)Stakeholder theory
B)Class hegemony theory
C)Team production theory
D)Agency theory

Answer 2

D

Question 3

Non-executive company directors are categorised into:

A)grey directors and alternate directors.
B)experienced directors and independent directors.
C)employee directors and non-employee directors.
D)independent directors and grey directors.

Answer 3

D

Question 4

The key regulators of Australian business include which of the following?

A)Financial Accounting Standards Board
B)Australian Competition and Consumer Commission
C)Securities and Exchange Commission
D)Environmental Protection Agency

Question 5

A grey director is:

A)a director over the age of 65.
B)a non-executive director who is independent.
C)a non-executive director who is not independent.
D)an alternate director who attends select meetings only.

Question 6

The theory that argues that the real power in corporate governance lies with management who can take advantage of shareholder weakness to pursue self-interest is referred to as:

A)stakeholder theory.
B)management self-interest theory.
C)managerial hegemony theory.
D)shareholder hegemony theory.

Question 7

Which of the following was not one of the corporate governance deficiencies that contributed to the collapse of ABC Learning Centres Ltd?

A)A dominant CEO.
B)Poor board processes.
C)Failure of the board to understand the company's strategy.
D)Failure of the board to increase the CEO's remuneration.

Question 8

Stakeholder theory focuses:

A)more on providing value to the company's shareholders.
B)less on providing value to all of the company's stakeholders.
C)more on providing value to all of the company's stakeholders.
D)more on providing value to the company's directors.

Question 9

According to the definition of an officer in the Corporations Act,which of the following parties could be considered to be an officer of an Australian company?
I A liquidator
II A senior manager
III A trustee
IV A receiver

A)I and IV
B)I,II and III
C)II,III and IV
D)I,II,III and IV

Question 10

Executive directors generally have which of the following two roles in a company?

A)As an independent director and senior manager.
B)As a senior manager and internal auditor.
C)As a senior manager and a director.
D)As a grey director and senior manager.

Question 11

If a company director allows a company to trade while insolvent,the director will:

A)become personally liable for the company's debts incurred before the company became insolvent.
B)not be personally liable for any of the company's debts.
C)become personally liable for the company's debts incurred after the point of insolvency is reached.
D)normally be paid a bonus after the end of the financial year.

Question 12

Which of the following is not a warning signal that should raise concern with directors and officers in relation to the solvency of the company?

A)Inability to raise further equity capital.
B)Creditors payment times shortening.
C)COD terms from suppliers.
D)Postdated cheques.

Question 13

Which of the following is not an example of a hard regulation?

A)Corporations Act.
B)Trade Practices Act.
C)ASX Listing Rules.
D)Accounting standards issued by the Australian Accounting Standards Board.

Question 14

Which of the following statements do not apply to hard regulation?

A)Hard regulation is also known as black-letter law.
B)Hard regulation comprises legally binding obligations.
C)The Corporations Act is an example of hard regulation.
D)Voluntary industry codes of conduct are a form of hard regulation.

Question 15

The ASX Corporate Governance Principles and Recommendations:

A)are mandatory for all listed entities.
B)are applied on an 'if-not,why-not' basis.
C)do not require entities to disclose whether or not they have complied with the principles and recommendations.
D)follow the requirements in the US Sarbanes-Oxley Act.

Question 16

The court decision that places a greater responsibility on the role of the chairman is:

A)Aberdeen Railway Co v.Blaikie Bros.
B)Whitehouse v.Carlton Hotels Ltd.
C)ASIC v.Adler.
D)ASIC v.Rich & Ors.

Question 17

The ASX Corporate Governance Principles and Recommendations are an example of:

A)black-letter law.
B)soft regulation.
C)a voluntary industry code of conduct.
D)hybrid regulation.

Question 18

Which of the following statements is correct in relation to Australia's corporate governance system?

A)It is an example of a hybrid system.
B)It is an example of an agency dominated Anglo-American system.
C)It follows the German approach.
D)It is an example of a stakeholder dominated system.

Question 19

According to the ASX Corporate Governance Council,corporate governance influences all but which of the following?

A)How risk is monitored and assessed.
B)How the company determines the issue price of its shares.
C)How performance is optimised.
D)How the objectives of the company are set and achieved.

Question 20

According to the ASX Corporate Governance Council's independence test,which of the following is an example of an interest,position association or relationship that might cause doubts as to a director's independence? If the director:

A)is a substantial shareholder of the company.
B)has been a director of the company for more than 9 years.
C)has a material contractual relationship with the company.
D)all of the options are correct.

Question 21

Agency theory focuses on providing value to all the company's stakeholders as a whole on the basis that this will benefit society as a whole.

Question 22

Under the CLERP 9 reforms governing auditors,which of the following statements are correct?
I The top 500 ASX listed companies must have an audit committee.
II Former auditors are prohibited from employment in or directorships of their former clients for a period of 2 years.
III The oversight of auditors has been strengthened by the FRC.
IV Audit partners must rotate off a company's audit after a period of 5 years.

A)I and IV;
B)I,II and III;
C)II,III and IV;
D)I,II,III and IV.

Question 23

Which of the following is not one of the ASX Corporate Governance Council's principles of good corporate governance?

A)Recognise the interests of all stakeholders.
B)Structure the board to add value.
C)Safeguard integrity in financial reporting.
D)Remunerate fairly and responsibly.

Question 24

Stakeholder theory refers to the concept of managers acting as agents of the owners of a business and arises due to the separation of ownership from control.

Question 25

A failed international strategy was one of the major reasons for the collapse of ABC Learning Ltd.

Question 26

One of the key corporate governance deficiencies at ABC Learning Centres Ltd was the fact that there was no one on the board with accounting and financial experience.

Question 27

The Australian corporate governance system is an example of an agency-dominated Anglo-American system which emphasises shareholder value.

Question 28

Under the CLERP 9 reforms governing auditors,former auditors are prohibited from employment in or directorships of their former clients for a period of:

A)3 months.
B)1 year.
C)2 years.
D)5 years.

Question 29

The ASX Corporate Governance Principles and Recommendations are legally enforceable for all listed entities and are an example of hard regulation.

Question 30

Under resource dependence theory,the board of directors exists as a mediating hierarchy between the various factors of production.

Question 31

Listed companies have an obligation to ensure the market is notified of information that a reasonable person would expect to have a material effect on the price or value of the companies' shares.This obligation is known as:

A)information disclosure.
B)continuous disclosure.
C)material disclosure.
D)market disclosure.

Question 32

Which of the following statement is incorrect?

A)Section 299A of the Corporation Act can be used to compel specific environmental and social disclosures.
B)The Carbon Disclosure Project will result in the mandatory introduction of carbon emission reporting.
C)The National Greenhouse and Energy Reporting System is an example of a scheme encouraging the disclosure of aspects of environmental performance.
D)Sustainability involves ensuring that development meets the needs of the present without compromising the ability to meet future needs.

Question 33

How many principles are contained within the ASX Corporate Governance Council's principles of good corporate governance?

A)7
B)8
C)10
D)12

Question 34

Team production theory is a concept that includes elements of both agency theory and stakeholder theory.

Question 35

Which of the following statements is incorrect?

A)Pluralist systems place a greater emphasis on stakeholders.
B)Corporate governance systems can be either Anglo or pluralist systems.
C)The Anglo system dominates in the United States,Australia,Canada and the United Kingdom.
D)Anglo systems tend to have dual board structures.

Question 36

The aims of the Sarbanes-Oxley Act do not include which of the following?

A)Enhancing enforcement tools.
B)Reducing confidence in the accounting profession.
C)Improving disclosure and financial reporting.
D)Improving the 'tone at the top'.

Question 37

Under the CLEPR 9 reforms governing auditors,audit partners of listed companies must rotate off a company's audit after a period of:

A)2 years.
B)3 years.
C)5 years.
D)6 years.

Question 38

Corporate governance deals with the way corporations are managed and governed.

Question 39

The German system of corporate governance represents a hybrid approach to corporate governance and refers to an approach that adopts elements of agency theory and elements of stakeholder theory.

Question 40

Which of the following reforms was introduced in the US Sarbanes-Oxley Act?

A)Increased disclosures for executive remuneration.
B)Whistleblowing protection for all employees and directors.
C)Requirements to rotate audit partners every 3 years.
D)Creation of an entity to oversee auditors.

Question 41

Pluralist systems of corporate governance recognise a broader group of stakeholder interests than agency systems.

Question 42

Continuous disclosure requires companies to notify the ASX of any confidential information that a reasonable person would expect to have a material effect on the price of the securities of that entity.

Question 43

Messrs Williams and Adler were prosecuted for breaches of s.184 of the Corporations Act,and were found to have acted dishonestly and recklessly in the performance of their duties as directors of HIH Insurance Ltd.

Question 44

The Corporations Act definition of a director is very wide and can extend to an external advisor of the company who investigates a company's affairs and makes suggestions as to the running of the company.

Question 45

Under the Corporations Act in order to be a non-executive director of a company you must be independent.

Question 46

The ASX established the ASX Corporate Governance Council following the spate of corporate collapses in Australia early this century.

Question 47

Under the insider trading provisions of the Corporations Act,persons are prohibited from communicating information that is likely to have a material effect on a company's share price to anyone they think will deal in the company's shares.

Question 48

Hard regulations are also referred to as black letter law and result in legally enforceable obligations.

Question 49

The finance function of companies is under increasing pressure to produce meaningful information that can be readily understood by part-time directors.

Question 50

Recent academic studies have found that the presence of 'grey' directors on a company's board consistently impacts negatively on company performance.