ACCA Corporate Governance and Ethics 2 — Questions and Answers
Question 1: Under the UK Corporate Governance Code, what is the recommended minimum proportion of independent non-executive directors for a premium-listed company (excluding the chair)?
- One-quarter
- One-third
- Half (Correct answer)
- Two-thirds
Correct answer: Half
The UK Corporate Governance Code recommends that at least half the board, excluding the chair, should be independent non-executive directors.
Question 2: Which ethical theory holds that an action is morally right if it produces the greatest good for the greatest number?
- Deontology
- Virtue ethics
- Utilitarianism (Correct answer)
- Rights-based ethics
Correct answer: Utilitarianism
Utilitarianism, associated with Bentham and Mill, judges actions by their consequences and seeks to maximize overall welfare.
Question 3: In agency theory, the 'agency problem' primarily arises because:
- Directors own too many shares
- Shareholders have unlimited liability
- Agents may act in their own interests rather than those of principals (Correct answer)
- Regulators impose excessive constraints on management
Correct answer: Agents may act in their own interests rather than those of principals
The agency problem occurs when agents (managers) pursue personal goals that diverge from the interests of principals (shareholders).
Question 4: Which committee is specifically responsible for overseeing a company's financial reporting and internal controls under best-practice governance?
- Nomination committee
- Remuneration committee
- Audit committee (Correct answer)
- Risk committee
Correct answer: Audit committee
The audit committee oversees financial reporting integrity, internal controls, and the relationship with external auditors.
Question 5: A professional accountant discovers their manager has misstated inventory figures. According to ACCA's Code of Ethics, the FIRST action the accountant should take is:
- Resign immediately
- Report to the external auditor
- Raise the issue internally through appropriate channels (Correct answer)
- Report to the securities regulator
Correct answer: Raise the issue internally through appropriate channels
ACCA's Code of Ethics requires accountants to first attempt to resolve ethical conflicts internally before escalating externally.
Question 6: The 'comply or explain' principle in corporate governance means that:
- Companies must comply with all provisions or face legal penalties
- Companies must comply with statutory requirements or explain deviations to shareholders
- Listed companies must follow the Code or publicly explain why they have not (Correct answer)
- Auditors must comply with auditing standards or explain any departures
Correct answer: Listed companies must follow the Code or publicly explain why they have not
Under 'comply or explain,' listed companies either follow the Code's provisions or give a reasoned explanation for non-compliance in their annual report.
Question 7: Which of the following best describes a 'stakeholder' in the context of corporate governance?
- Only individuals who hold equity shares in a company
- Any party that has a financial interest in the company's profitability
- Any individual or group that can affect or is affected by the organization's activities (Correct answer)
- Employees and customers only
Correct answer: Any individual or group that can affect or is affected by the organization's activities
A stakeholder is any individual or group that can affect or be affected by the organization, including shareholders, employees, customers, suppliers, and communities.
ACCA Corporate Governance and Ethics 2
Under the UK Corporate Governance Code, what is the recommended minimum proportion of independent non-executive directors for a premium-listed company (excluding the chair)?