Bachelor of Science in Accountancy

AE18 – Governance, Business Ethics, Risk Management & Internal Control

BSA 2-1
Module 1: Corporate Governance
July 2021
CHAPTER QUIZ
Assessment Questions:
1. What does governance means?
-The term "governance" refers to the process through which people in society use power,
authority, and influence in order to implement laws and decisions that affect public life and social
upliftment. It includes both the process of making decisions and the process of implementing those
decisions into action.

2. Explain whether the following statement is true or false. “Governance is exercised only by the
government of a country”.
-This statement is false because governance represents more than just the country's government.
In the module stated governance is all the processes of governing – whether undertaken by the
government of a country, by a market or by a network – over a social system and whether through the
laws, norms, power or language of an organized society., which means governance can be used in
non-political organizations such as schools, hospitals, and businesses, among others. Governance
working beyond the government; it also helps businesses for resulting in better outcomes.

3. Explain how governance can be used in the following contexts and give appropriate examples:
a) National Governance – Governance can be utilized at the national level to manage and
administer each of a country's regions or states. For example, each region provides a specific
product or service (due to climate, tradition, erosion levels, and other factors), and knowing that
the government can identify which regions are lacking a certain commodity and where to obtain
it is beneficial.
b) Local Governance – Governance is relevant, and it can be employed at the local level by
constantly monitoring the community. Through governance, anyone could simply monitor the
people in the community and create initiatives for certain groups or other ideas to improve
people's public lives.
c) Corporate Governance – According to The Chartered Governance Institute, corporate
governance is the system of rules, practices and processes by which a company is directed and
controlled. It identifies who has power and accountability, and who makes decisions. Corporate
governance involves policies to communicate with, involve and protect shareholders.
d) International Governance – According to ScienceDirect, international governance encompasses
activity at the international, transnational, and regional levels, and refers to activities in the public
and private sectors that transcend national boundaries. The United Nations, the International
Criminal Court, the World Bank, etc. are examples of global governance institutions.
4. Explain briefly the eight (8) basic characteristics of good governance.
1) Participation – All men and women, whether directly or through lawful intermediary institutions
that represent their interests, should be able to voice their own opinions.
2) Rule by law – Good governance requires a legal framework that is enforced impartially,
particularly when it comes to human rights laws.
3) Transparency – The public should have access to information that is intelligible and monitored.
It also entails the availability of free media and information.
4) Responsiveness – Institutions and processes try to serve all stakeholders.
5) Consensus Oriented – Good governance brings disparate interests together to establish a wide
agreement on what is best for the organization and, when possible, on policies and procedures.
6) Equity and Inclusiveness – People should have opportunities to improve or maintain their well-
being.
7) Effectiveness and Efficiency – Processes and institutions should be able to produce results that
are in line with the community's needs.
8) Accountability – Decision-makers in government, the private sector and civil society
organizations are accountable to the public, as well as to institutional stakeholders. Good
governance aims towards betterment of people.

5. Explain whether the statement is correct or not. “Transparency and accountability are synonymous.”
-This is an incorrect statement, although the terms transparency and accountability is connected
to each other. Transparency, defined as the attribute of being plainly observable, entails
communication and accountability. Accountability is part of transparency. On the other hand,
accountability is the state of being accountable, which implies that one is answerable for something or
is compelled to answer to someone, such as an authority. Without transparency, accountability cannot
be achieved.
6. Explain whether the statement is correct or not. “Responsiveness usually results to effectiveness and
efficiency”.
-This statement is incorrect because while you may be able to respond to requests, this does not
always imply that you will meet the necessary number or quality. It is still contingent upon how well
you do and make an attempt to complete your task, not only on your responsiveness.

7. Define Corporate Governance.

 Corporate governance is a system of rules, policies, and practices that dictate how a company’s
board and directors manages and oversees the operation of a company.

8. What does corporate governance structure involve?

 The corporate governance structure specifies the distribution of rights and responsibilities among
different participants in the corporation, such as the board, managers, shareholders, and other
stakeholders, and spells out the rules and procedures for making decisions on corporate affairs.

9. State the purpose of corporate governance.

 The purpose of corporate governance is to facilitate effective, entrepreneurial and prudent
management that can deliver long-term success of the company.
10. Explain the basic objectives of corporate governance.
 Fair and equitable treatment of shareholders All shareholders deserve equitable treatment and
this equity is safeguarded by good governance structure in any organization. Self-assessment
Corporate governance enable firms to assess their behavior and actions before they are
scrutinized by regulatory agencies. Increase shareholders’ wealth Other corporate governance’s
main objective is to protect the long-term interest of the shareholders. Transparency and full
disclosure Good corporate governance aims at ensuring a higher degree of transparency in an
organization by encouraging full disclosure of transaction in the company accounts.

11. Explain the three basic principles of effective corporate governance.

 Accountability implies that acts have consequences. Shareholders know that performance will be
monitored when corporate governance includes the idea of accountability. They understand that
good performance is rewarded, whereas bad performance is not. Most importantly, they
understand that misbehavior will not be allowed. Accountability is impossible to achieve without
transparency. After all, shareholders can only hold corporate directors accountable if they know
what is going on at the companies they own.

Multiple Choice Questions:

1. The basic principle of “transparency and full disclosure” for effective corporate governance responds
positively to the following questions except.
a. Does the board of directors safeguard integrity in financial reporting?
b. Does the board meet the information needs of investments communities?
c. Can an outsider meaningfully analyze the firm’s actions and performance?
d. Has the board built long-term sustainable growth in shareholders’ value for the corporation?

2. The basic principle of “accountability” for effective corporate governance responds positively to the
following questions except.
a. Does the board recognize and manage risk?
b. Does the board lay solid foundations for management oversight?
c. Does the composition mix of the board membership ensure an appropriate range and risk of expertise
diversity, knowledge added value?
d. Does the board promote objective, ethical and responsible decision making?
3. “Transparency and Full Disclosure” principle advocates the following except
a. Sound disclosure policies and practices
b. Solid foundations for management oversight
c. Meeting the information needs of investment communities
d. Safeguards integrity in financial reporting
4. The rights of shareholders can be effectively upheld through the following measures except
a. By establishing an audit committee
b. By designing and disclosing a communications strategy to promote affective communication with
shareholders
c. By encouraging active participation at general meetings
d. By requiring the external auditor to attend the annual general meeting and to answer questions about
the audit

5. To safeguard integrity in financial reporting the business firm should do the following except
a. Establish an audit committee
b. Request the external auditor to attend the annual general meeting
c. Disclose the functions reserved to the board and those delegated to management
d. Disclose the policy concerning trading in company securities by directors, officers and employees

6. To encourage enhanced performance by the board and management, it is recommended that the
following should be adopted, except
a. Disclosure of the process for performance evaluation of the board, its committees, individual directors
and by executives.
b. A remuneration committee
c. Distinguish between non-executive director’s remuneration from that of executives
d. Establish policies on risks oversight and management

7. The characteristics of good governance where fair legal framework are enforced impartially is
a. Participation
b. Rule of Law
c. Equity
d. Accountability
 CHAPTER QUIZ
Assessment Questions:
1. “Small business enterprises do not need good governance” Do you agree? Explain.
-No, small business enterprises need good governance. It is for the sake of better business; any
firm, no matter how small, must be managed and regulated effectively. Employees must be watched
and motivated, budgets must be well planned, and this results in a more profit-efficient and successful
execution of the plan, as well as high-quality products that serve as a stepping stone to achieving the
business's goals. If a business is effectively governed, it will thrive and function well, and if good
governance is practiced while the business grows, it will be carried over when the business becomes
huge.
2. Does good governance require absolute rules that must be adopted by all organizations?
-Good governance does not require absolute rules; rather, rules are created and should be adhered
to by the organization at all times. It is entirely dependent on the employees. They should do their
best to adhere to the company's rules. Good governance is not determined by what the rules specify,
but by how those who are governed by the rules act.
3. What is the essence of any system of corporate governance?
-The essence of any system of good 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. What does the board of directors derive its authority?
-They are chosen for the role because of the company's need for their skills and knowledge in
making choices on behalf of all shareholders. The Board of Directors is in charge of approving rules
and procedures, as well as considering corporate plans and other matters.
5. To whom is the board of directors accountable?
-According to Krungdhep Sophon Public Company Limited, the Board of Directors is
accountable to shareholders for the company's business operations and corporate governance 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.
6. On what aspects do shareholders demand accountability from the board of directors?
• Financial Performance
• Financial Transparency
• Composition of the board of directors and the nature of activities
• Stewardship
• Quality of Internal Control

7. What is management’s responsibility as far as financial reporting is concerned?

-According to Wiki Accounting, management is responsible for the overall integrity and
objectivity of these financial statements. Management is also supposed to provide the rationale for
 systems of internal control, which is designed to provide reasonable assurance on numerous matters
of importance. The responsibility of the management is a very integral function in the overall
organization, because it invokes a sense of trust and understanding, not only between the auditor and
the management but also between the management and the shareholders. It also ensures that the
financial statement contain accurate and complete disclosure.
8. Describe the broad role of the shareholders in a corporation.
-The shareholders are the financial investors of a company. They are involved in the election of
board members, approval of major initiatives such as buying or selling stocks, annual reports on
management compensation from the board of directors.
9. Describe the broad role of the Board of Directors.
-They are the primary stockholder representative, ensuring that the organization is operated in
accordance with its charter and that adequate accountability is maintained. They make major
decisions that influence nearly every aspect of a business. They are important to the company's
success.
10. What are the specific activities on the board of directors?
Specific activities include among others:
1. Overall Operations
 Establishing the organization’s vision, mission, values and ethical standards.
 Delegating an appropriate level of authority to management.
 Demonstrating leadership.
 Assuming responsibility for the business relationship with CEO including his or her
appointment, succession, performance remuneration and dismissal.
 Overseeing aspects of the employment of the management team including
management remuneration, performance, succession planning.
 Recommending auditors and new directors to shareholders.
 Ensuring effective communication with shareholders and other stakeholders.
 Crisis Management.
 Appointment of the CFO and Corporate Secretary.
2. Performance
 Ensuring the organization’s long term viability and enhancing the financial position.
 Formulating and overseeing implementation of corporate strategy.
 Approving the plan, budget and corporate policies.
 Agreeing key performance indicators (KPIs)
 Monitoring/assessing assessment, performance of the organization, the board itself,
management and major projects.
 Overseeing the risk management framework and monitoring business risks.
 Monitoring developments in the industry and the operating environment.
 Oversight of the organization, including its control and accountability systems.
 Approving and monitoring the progress of major capital expenditure, capital
management and acquisitions and divestitures.
3. Compliance/Legal Conformance
 Understanding and protecting the organization’s financial position.
  Requiring and monitoring legal and regulatory compliance including compliance
with accounting standards, unfair trading legislations, occupational health and safety
and environmental standards.
 Approving annual financial reports, annual reports and other public
documents/sensitive reports.
 Ensuring an effective system of internal controls exists and is operating as expected.
Multiple Choice Questions
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 of 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 companies for compliance with company policies and laws, audits efficiency of
operations and periodic evaluation and tests of controls?
a. External Auditors
b. Internal Auditors
c. Commission on Audit
d. Chief Accountant
5. An independent director is expected to, except.
a. Apply expertise and skills in the corporation’s best interest
b. Assist 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