CH 2

Corporate Governance, Business Ethics, Risk Management and Internal Control
CHAPTER 2
REVIEW QUESTIONS
1. “Small business enterprises do not need good governance.” Do you

agree? Explain.
I disagree. Good Governance doesn’t discriminate. It doesn’t denote that

a small enterprise do not need good governance because there are no rules
about it. In fact, both SME’s and large listed companies need good
governance in order to operate smoothly. Whether in small or large
enterprises, there is a need to for control in staff/workers, and proper
accountability.Hence, good governance is needed for small business
enterprises to progress and improve.
2. Does the good governance require absolute rules that must be

adopted by organization?
No, It doesn’t have. Clearly, there are no absolute rules which must be
adopted by all organization to have good governance. To quote, “ There is no
simple universal formula for good governance”. Because, the concept of good
governance encourages organization to give appropriate attention to the
principles and adopt approaches which are tailored to the specific needs of an
organization at a given point in time.
3. What is the essence of any system of corporate governance?
The essence of any system of corporate governance is to allow the board

and management the freedom to drive their organization forward and to
exercise that freedom within a framework of effective accountability.
4. Where does the board of directors derives its authority?
The Board of Directors, an elective position, derive their authority and

power from the shareholders. Shareholders meticulously select and elect
board of directors to ensure the organization’s long-term viability as they
oversee the implementation of a certain corporate strategy.
5. To whom is the board of directors accountable?

Board of Directors are accountable to shareholders for the company’s
operation and ensuring an effective system of internal controls exists and
overseeing the risk management framework. Further, they must satisfy in
accordance with management objectives and maximization of shareholders'
benefit within the framework of sound business ethics whilst taking into
account the benefits of all stakeholder groups.
Conversely, the accountabilities does not limit to shareholder. Companies

also have responsibilities to other stakeholders. Stakeholders can anyone
who is influenced, whether directly or indirectly, by the actions of a company.
For example, the pension plans of their employees when they retire.
6. On what aspects do shareholders demand accountability from the

board of directors?
Shareholders demand accountability as to how well the resources that

have been entrusted to management and the board have been used.
Consequently, the owners/shareholders want accountability in different
aspects such as: (1) Financial Performance, (2) Financial Transparency - clear
with full disclosure, (3) Stewardship - on how well the company protects and
manages the resources, (4) Quality of internal control, and (5) Composition of
the board of directors and the nature of its activities, on how well the
management implement an incentive system that are aligned with the
shareholders’ best interests.
7. What is management’s responsibility from the board of directors?
The management has a responsibility to provide financial report, and in

some cases, reports on internal control effectiveness. Management has
always had the primary responsibility for the accuracy and completeness of an
organization’s financial statements. Further, from a financial reporting
perspective, management has responsibility on which accounting principle
best portray the economic substance of company transactions, implement a
system of internal control and ensures financial statements accuracy and full
disclosure.
8. Describe the broad role of the shareholders in a corporation.
The broad role of shareholders in a corporation is to provide an effective

oversight through election of board members, approval of major initiatives
such as buying or selling stock, annual reports on management compensation,
from the board.
9. Describe the broad role of the Board of Directors.
The board of directors, broad role, is that they are the major representative
of stockholders to ensure that the organization is run according to the
organization’s charter and that there is proper accountability.
10. What are the specific activities of the board of directors?
The specific activities of board of directors are as follows:
1. Overall Operation
a) Establishing the organization’s vision, mission, values and
ethical standards.
b) Delegating an appropriate level of authority to management.
c) Demonstrating leadership.
d) Assuming responsibility for the business relationship with
CEO including his or her appointment, succession, performance
remuneration and dismissal.
e) Overseeing aspects of the employment of the management
team including management remuneration, performance and
succession planning.
f) Recommending auditors and new directors to shareholders.
g) Ensuring effective communication with shareholders other
stakeholders.
h) Crisis management.
i) Appointment of the CFO and corporate secretary.
2. Performance
a) Ensuring the organization’s long term viability and anhancing
the financial position.
b) Formulating and overseeing implementation of corporate
strategy.
c) Approving the plan, budget and corporate policies.
d) Agreeing key performance indicators (KPIs)
e) Monitoring/ assessing assessment, performance of the
organization, the board itself, management and major projects.
f) Overseeing the risk management framework and monitoring
business risks
g) Monitoring developments in the industry and the operating
environment.
h) Oversight of the organization, including its control and
accountability systems.
i) Approving and monitoring the progress of major capital
expenditure, capital management and acquisitions and divestitures.
3. Compliance/ Legal Conformance
a) Understanding and protecting the organization’s financial
position.
b) Requiring and monitoring legal and regulatory compliance
including compliance with accounting standards, unfair trading
legislation, occupational health and safety and environmental
standards.
c) Approving annual financial reports, annual reports and other
public documents/sensitive reports.
d) Ensuring an effective system of internal controls exists and is
operating as expected.
Multiple Choice Answers:

1. Approving annual financial reports and other public documents are specific
responsibilities of.
a) Management
b) Board of Directors
c) Shareholders
d) Employees
2. Providing oversight the internal and external audit function, the process of
preparing the annual financial statements and public reports on internal
control are the responsibility of.
a) Board of Directors
b) Chief executive officer
c) Chief financial officer
d) Audit committee of the board of directors
3. Who is responsible for ensuring the accuracy, timeliness of public reporting
of financial and other information for public companies?
a) External auditors
b) Securities and exchange commission
c) Shareholders
d) Board of Accountancy
4. Who performs audit of companies for compliance with company policies an
laws, audits efficiency of operations and periodic evaluation and tests
control?
a) External auditors
b) Internal auditors
c) Commission of audit
d) Chief accountant
5. An independent director is expected to.
a) Apply experience and skills in the corporations best interest
b) Asset management to keep performance objectives at the top of its
agenda
c) Respect the collective, cabinet nature of the board’s decision
d) Act as conduit between the board and the organization

CH 2

Uploaded by

Copyright:

Available Formats

CH 2

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

CH 2

Uploaded by

Copyright:

Available Formats

Corporate Governance, Business Ethics, Risk Management and Internal Control

1. “Small business enterprises do not need good governance.” Do you

I disagree. Good Governance doesn’t discriminate. It doesn’t denote that

2. Does the good governance require absolute rules that must be

3. What is the essence of any system of corporate governance?

The essence of any system of corporate governance is to allow the board

4. Where does the board of directors derives its authority?

The Board of Directors, an elective position, derive their authority and

5. To whom is the board of directors accountable?

Conversely, the accountabilities does not limit to shareholder. Companies

6. On what aspects do shareholders demand accountability from the

Shareholders demand accountability as to how well the resources that

7. What is management’s responsibility from the board of directors?

The management has a responsibility to provide financial report, and in

8. Describe the broad role of the shareholders in a corporation.

The broad role of shareholders in a corporation is to provide an effective

10. What are the specific activities of the board of directors?

The specific activities of board of directors are as follows:

Multiple Choice Answers:

You might also like