Ch07 tb rankin

Testbankto accompany

Contemporary Issues in Accounting

Michaela Rankin, Patricia Stanton, Susan McGowan, Matthew Tilling, Kimberly

Ferlauto & Carol Tilt

Prepared byMatt Tilling

© John Wiley & Sons Australia, Ltd 2012

Chapter 7 Corporate governance


Multiple Choice Questions

1. Which of the following problems has contributed to the growth in corporate governance over the past decades?

a. Managers using the resources of the company to benefit themselvesb. Corporations taking actions shareholders consider undesirablec. Corporations misleading shareholders to avoid consequences*d. All of the above

Correct answer: d Learning Objective 7.1 ~ Explain the interest in corporate governance.

2. Which of the following examples is NOT advantage of good corporate governance?

a. Expanding the company’s shareholder baseb. Reducing perceived risks to investors*c. Increasing the cost of capitald. Increased market confidence

Correct answer: c Learning Objective 7.1 ~ Explain the interest in corporate governance.

3. Corporate governance is:

a. A coherent system of concepts that underlie financial reportingb. A term referring to management’s choosing to voluntarily disclose

non-compulsory information in annual reports*c. The system by which corporations are directed and controlled.d. A set of broad principles that provide the basis for guiding actions or decisions

Correct answer: c Learning Objective 7.2 ~ Explain what corporate governance is and why good corporate governance systems are needed.

© John Wiley & Sons Australia, Ltd 2012 7.2

Testbank to accompany Contemporary Issues in Accounting

4. According to the ‘Anglo-Saxon’ model whose interest should be the focus of corporate governance?

a. Employees*b. Shareholdersc. Communityd. Environment

Correct answer: b Learning Objective 7.2 ~ Explain what corporate governance is and why good corporate governance systems are needed.

5. Which of these costs is NOT associated with an agency relationship between managers and shareholders?

a. Monitoring Cost*b. Taxation Lossc. Bonding Costd. Residual Loss

Correct answer: b Learning Objective 7.3 ~ Discuss the relationship between positive accounting theory and corporate governance.

6. The OECD Principles of Corporate Governance link manages’ remuneration to shareholder interest to address which agency problem?

a. Risk aversionb. Dividend retentionc. Horizon problem*d. All of the above

Correct answer: d Learning Objective 7.3 ~ Discuss the relationship between positive accounting theory and corporate governance.



7. Which of the following is NOT an example of corporate governance practice?

a. Codes of conduct for directorsb. Requirements that most board directors be independentc. Formation of a nominating committee to identify potential new directors*d. None of the above, i.e. they are all examples of corporate governance

Correct answer: d Learning Objective 7.4 ~ Discuss the key areas involved in corporate governance.

8. Which of the following is NOT one of the ASX’s Principles of Corporate Governance?

*a. The majority of directors should be executiveb. Promote ethical and responsible decision makingc. Establish an audit committeed. Ensure level and composition of remuneration is sufficient and reasonable

Correct answer: a Learning Objective 7.4 ~ Discuss the key areas involved in corporate governance.

9. Which of the following is NOT an example of good corporate governance in relation to shareholders?

a. Treat all shareholders equallyb. Have rules that allow shareholders to call extraordinary meetings*c. Provide shareholders with all information made available to directorsd. All of the above

Correct answer: c Learning Objective 7.4 ~ Discuss the key areas involved in corporate governance.

10. To ensure shareholders are sufficiently informed good governance practices include:

a. Prepare regular reportsb. Have annual reports auditedc. Detail related party transactions*d. All of the above

Correct answer: d Learning Objective 7.4 ~ Discuss the key areas involved in corporate governance.



11. Which of the following is NOT a requirement of the Sarbanes-Oxley Act:

a. No loans by company to directors *b. The use of checklistsc. Audit partner rotation every 5 yearsd. The disclosure of whether there is a code of ethics for senior financial officers

Correct answer: b Learning Objective 7.5 ~ Explain and evaluate the alternative approaches to corporate governance.

12. An advantage of a principles-based approach to corporate governance is that:

*a. It places a higher level of duty on directors to determine which corporate governance practices are required

b. It requires a corporation to prepare an annual report and provide them to shareholders

c. It bans loans to directorsd. All of the options are correct

Correct answer: a Learning Objective 7.5 ~ Explain and evaluate the alternative approaches to corporate governance.

13. Which of the following is NOT a significant influence on actual corporate governance practice?

a. The nature of the requirementsb. The environment in which the entity operatesc. The commitment of management*d. None of the above, they are all significant

Correct answer: d Learning Objective 7.5 ~ Explain and evaluate the alternative approaches to corporate governance.



14. Which of the following were examples of risk management deficiencies that lead to the GFC:i. risk being monitored at the individual level rather than the entity level.ii. information about risks not reaching the board.iii. the organisational culture of ‘pursuing growth in profits’iv. remuneration packages for high risk activities v. alerting shareholders to a potential investment with a high return

a. i, ii, iii, vb. ii, iii, iv, v*c. i, ii, iii, ivd. i, ii., iii., iv., v.

Correct answer: c Learning Objective 7.6 ~ Discuss recent developments and issues in corporate governance.

15. What element of executive remuneration has been argued to have contributed to the global financial crisis?

a. Share options*b. Bonuses on the basis of short-term profitsc. Bonuses on non-financial key performance indicatorsd. High fixed salary components

Correct answer: b Learning Objective 7.6 ~ Discuss recent developments and issues in corporate governance.

16. The Dodd-Frank Wall Street Reform and Consumer Protection act includes provisions that require:

a. Executive compensation to be submitted for shareholder approval via a non-binding vote

b. Increased disclosure about the nature of compensation packages and payments related to financial performance

c. That compensation can be rescinded if it was paid based on inaccurate financial statements

*d. All of the above

Correct answer: d Learning Objective 7.6 ~ Discuss recent developments and issues in corporate governance.



17. What is one of the ways that accounting is used to direct and control the manager of a corporation?

*a. Linking of a mangers performance to a bonus that depends on accounting profitb. Making decisions based on the accounting information regardless of managerial

input.c. Threatening to tell shareholders a mangers income if a manager makes a ‘poor

financial’ decision.d. Using income smoothing to assure a manager that they can invest in a low risk

investment.

Correct answer: a Learning Objective 7.7 ~ Explain the role and impact of accounting in and on corporate governance.

18. In what ways can accounting cause financial reporting problems?i. disclosure can lead to constraining of the behaviour of a managerii. accounting information may lead a manager to making a different approach to a company’s original financial approachiii. there is a drive or desire to meet share market expectations based on these accounting resultsiv. the manipulation of earnings to meet market expectations

a. i, ii*b. iii, ivc. i, ii, iiid. iv, iii, ii, i

Correct answer: b Learning Objective 7.7 ~ Explain the role and impact of accounting in and on corporate governance.

19. When it comes to corporate governance many commentators have argued the most important factor is:

a. Strong accounting systemsb. Harsh legal penalties*c. Personal ethicsd. Codes of practice

Correct answer: c Learning Objective 7.8 ~ Discuss and analyse the role of ethics in corporate governance.



20. Which of the following statements is most correct?

a. Corporate governance is only relevant to listed entitiesb. Corporate governance is only relevant to developed economies c. Corporate governance not relevant to family entities*d. Corporate governance is relevant to most companies globally.

Correct answer: d Learning Objective 7.9 ~ Discuss international perspectives and developments in corporate governance.


Ch07 tb rankin

Economy & Finance

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