Chapter 17 Self-test questions

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. Which of the following describe information asymmetry problems and which describe agency problems?

Directors act in their own best interests.

Information asymmetry problem Information asymmetry problem Agency problem Agency problem

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Shareholders' knowledge of their company is limited to the information they receive from the directors.

Information asymmetry problem Agency problem Agency problem Information asymmetry problem

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Directors avoid investments that will pay off in the long-term.

Information asymmetry problem Agency problem Information asymmetry problem Agency problem

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Directors control the information they present to shareholders.

Information asymmetry problem Agency problem Information asymmetry problem Agency problem

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. Which of the following describe the roles of the non-executive directors in implementing corporate governance within organizations? Please select all that apply.

To provide objective and independent oversight and advisory functions on boards of directors. correct incorrect

To challenge executive directors constructively and provide strategic guidance. correct incorrect

To meet as a body to discuss company affairs and appraise the executive directors' performance. correct incorrect

To undertake executive management functions and be closely involved in the day-to-day operational management of the business. correct incorrect

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. ______________ is the system by which companies are directed and controlled

Your response

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. Stakeholder theory requires directors and managers to balance the interests of all those with a stake or interest in a business and not to favour the interests of one group over another.

True correct incorrect

False correct incorrect

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. The integrity of the financial reporting process and the integrity of the financial statements are assured by: Please select all that apply.

Communicating with investors at the annual general meeting. correct incorrect

External audit of the financial statements. correct incorrect

The corporate governance code requirement that "the board should present a fair, balanced and understandable assessment of the company's position and prospects". correct incorrect

The audit committee's review of the company's internal financial controls. correct incorrect

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. Our Common Future (the Brundtland report) presented by the World Council on Environment and Development in 1987 defines sustainable development as that which 'meets the needs of the future without compromising the ability of present generations to meet their own needs'.

True correct incorrect

False correct incorrect

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. A successful company is led by an effective and entrepreneurial board, whose role is to promote the long-term ____________ success of the company.

Your response

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. Which one of the following does not describe sustainability or sustainability reporting?

Sustainability looks to the long-term, so this fits in well with shareholders' long-term investment horizons. correct incorrect

Sustainability recognizes companies' wider duty of care to the public and the planet by reporting on the stewardship of all the resources entrusted to them. correct incorrect

A sustainable approach focuses stewardship reporting solely on the shareholders. correct incorrect

A sustainability approach to production encourages companies to reduce waste and find more cost effective ways in which to produce goods. correct incorrect

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. Which of the following describe features of external audit and which describe features of internal audit?

Proactive and forward looking

External audit External audit Internal audit External audit Internal audit Internal audit

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Completely independent of the audited entity

External audit Internal audit Internal audit Internal audit External audit External audit

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Wide ranging remit covering all aspects of an entity's operations and activities

External audit Internal audit External audit Internal audit External audit Internal audit

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Appointed by the board of directors

Internal audit External audit External audit External audit Internal audit Internal audit

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Reports on the truth and fairness of the financial statements

Internal audit Internal audit External audit External audit External audit Internal audit

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Appointed by shareholders

Internal audit Internal audit Internal audit External audit External audit External audit

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. Which one of the following would you not expect to find in a corporate social responsibility report?

The effect of the company and its products upon the natural environment. correct incorrect

Employee welfare and development. correct incorrect

Details of a company's interactions with local communities. correct incorrect

Consideration of the sustainability of the current dividend level. correct incorrect

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. There are five fundamental principles of ethics for professional accountants. With which ethical principle do you associate each of the following phrases?

Avoid any actions which might bring discredit upon the accounting profession.

Professional competence and due care Objectivity Confidentiality Professional behaviour Integrity

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Must not allow their independent judgement to be compromised.

Confidentiality Objectivity Professional competence and due care Professional behaviour Integrity

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Must be straightforward and honest in all their professional and business dealings and relationships.

Integrity Professional behaviour Confidentiality Objectivity Professional competence and due care

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Must keep their professional knowledge and skills up to date

Professional behaviour Professional competence and due care Integrity Objectivity Confidentiality

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All information acquired in the course of their professional work must not be disclosed to other parties.

Professional behaviour Integrity Confidentiality Professional competence and due care Objectivity

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. Half the board, including the chair, should be non-executive directors whom the board considers to be independent.

True correct incorrect

False correct incorrect

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. Which of the following are required to enable the board of directors to be effective in fulfilling their duties? Please select all that apply.

Accurate, timely and clear information. correct incorrect

A fair, balanced and understandable assessment of the company's position and prospects. correct incorrect

Policies, processes and resources. correct incorrect

Time. correct incorrect

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. The roles of chair and chief executive should not be exercised by the same individual.

True correct incorrect

False correct incorrect

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. Which of the following roles are undertaken by non-executive directors? Please select all that apply.

Chair correct incorrect

Nomination committee members correct incorrect

Chief executive correct incorrect

Remuneration committee members correct incorrect