KATRINA GRACE C.

ANAPADA
Bachelor of Science in Accountancy
AE 18 – Governance, Business Ethics, Risk Management & Internal Control
BSA 2-1
Module 1: Corporate Governance
July 22, 2021

CHAPTER QUIZ
Assessment Questions:
1. What does governance mean?
Governance is a system and processes of making decisions, exercise by country leaders or
organizations. Governance influences how an organization’s objective is set and achieved, how risk is
monitored and addressed, and how performance is optimized.

2. Explain whether the following statement is true or false. “Governance is exercised only by
the government of a country”.
The statement is false. Governance can be exercise by both government and organization.
Governance can be used in corporate, international, national, and local governance because these
entities can also make decisions and implement it through their power or authority.

3. Explain how governance can be used in the following contexts and give appropriate
examples:

a. National Governance – Focuses on the pursuit of sociopolitical and socioeconomic order of a

country in order to do these a good governance is required to maintains internal and external security
and stability. Through good governance national government are able to established national laws and
enforce them, an example is formulation of environmental laws and its implementation.

b. Local Governance – Through local governance local leader and authority can initiate a
community’s economic planning efforts to build on their official community plan and economic
development strategy.

c. Corporate Governance - Governance is a key to create a system of rules and practices that
determines how a company operates and how t it aligns the interest of all its stakeholders. An
example is when formulating strategic planning, decision making and managing risk.

d. International Governance - It is the global level of governance where a movement towards

political cooperation among transnational actors, aimed at negotiating responses to problems that
affects more than one state or region.

4. Explain briefly the eight (8) basic characteristics of good governance.

Good governance is measure by factors namely participation which requires that all people, men
and women and particularly those vulnerable, have direct or representative access to system of
government. Rule of law is exemplified by impartial legal system that protects the human rights and
civil liberties of all citizen including minorities. Transparency means that information must be
provided in an understandable and accessible format for those who will be affected by such decisions.
Responsiveness of the entity or intuitions to its stakeholders within reasonable time is a determinant
of a good governance. Consensus oriented means that decisions needs to be made in a manner that
reflects understanding of historical, cultural, and social context of the community. Equity and
inclusiveness is when institutions ensures that members feel that they are included and empowered to
improved their well-being specially the vulnerable individuals. Effectiveness and efficiency are
developed through the sustainable use of resources to meet the needs of society by ensuring that
social investment is carry out and natural resources are maintained. Accountability is important
factor of a good governance, being accountable to the people who will be affected by the decision
mean that being responsible for the actions done.

5. Explain whether the statement is correct or not. “Transparency and accountability are
synonymous.”
The statement is false because transparency and accountability are not synonymous.
Transparency is being able to provide right and understandable information to the people that has
interest or to whom affected by the decisions made by the institution. While accountability is
being liable to the responsibility over the decisions and actions done.

6. Explain whether the statement is correct or not. “Responsiveness usually results to

effectiveness and efficiency”.
The statement is false because responsiveness is being able to respond immediately to the
need of stakeholders and other people involve in the institutions. While effectiveness and
efficiency are done through sustainable use of resources and meeting the need of the society.

7. Define Corporate Governance.

Corporate governance is a process by which corporation govern and to what purpose. It also
identifies who has power and accountability, and who makes decisions for the company, and involves
balancing of shareholders interest over the corporation.

8. 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. In simple terms, the fundamental aim
of corporate governance is to enhance shareholders’ value and protect the interests of other
stakeholders by improving the corporate performance and accountability. It is also about what the
board of directors of a company does, how it sets the values of the business firm.

9. What does corporate governance structure involve?

The most typical structure of corporate governance consists of shareholders, board of directors,
officers and the employees. The structure determines the distribution of rights and responsibilities
between the different parties in the institutions.

10. Explain the basic objectives of corporate governance.

 Fair and Equitable Treatment of Shareholders- under this objective of corporate governance,
shareholders of the entity are treated fairly and equitably safeguarded by a good governance of
the entity.

Self-assessment- entities need to spend time to critically evaluate their own governance
performance. The self-assessment process can identify issues and enact reforms to improve
performance before they are scrutinized by the regulatory agencies.

Increase Shareholders’ Wealth- management should seek to maximized the present value of the
expected future returns to the owners of the entity. The objective explicitly considers the timing
and the risk of the benefits expected to receive from the stock’s ownership.

Transparency and Full Disclosure- good corporate governance should ensure timely and
accurate full disclosure is made regarding all materials matters concerning the entity including
financial situations.

11. Explain the three basic principles of effective corporate governance

The first principle of corporate governance is the transparency and full disclosure that
embodied a question “Is the board telling us what is going on?”. Transparency should meet the
needed information of the investment communities, safeguard integrity in financial reporting,
make sound disclosure policies and practices. The accountability principle of corporate
governance entails the responsibleness of an entity when it comes to making decisions and
actions. The last principle corporate control is the one that assessed the performance of the
entity including its effectiveness and efficiency in making and implementing decisions and
answers the question “Is the board doing the right thing?”.

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 also need to have good governance in order for them to effectively
manage their business, set and attain goals, minimized risk, and formulate strategies for the
success of the business.

2. Does good governance require absolute rules that must be adopted by all organizations?
No. There are no absolute rules that must be adopted by all organization.

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

A system of corporate governance is important as it drives the entity’s management and board of
directors’ exercise power over the corporation. Without a system of corporate governance entity
will not be able to set and attain objectives, monitor performance, manage risk, and protect
interest of shareholders into the entity.

4. What does the board of directors derive its authority?

The board of directors derive its authority from the shareholders who elected them. Their
authority or power includes approving of plan, budget, and corporate policies.

5. To whom is the board of directors accountable?

Board of directors are accountable to the shareholders. The board of directors are elected by the
shareholders to manage the entity and have oversight of the operation. The responsibility of
securing shareholders interest is delegated to the board of directors.

6. On what aspects do shareholders demand accountability from the board of directors?

• Financial Performance
• Financial Transparency
• Stewardship
• Quality of Internal Control
• Composition of the board of directors and the nature of activities

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

The management has the responsibility to choose which accounting principles best portray the
economic substance of company transactions, implement a system of internal control that assures
completeness and accuracy in financial reporting, and ensure that the financial statements contain
accurate and complete disclosure

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

Shareholders are those that invest in the company. They play a big role in the overall success of
the company. They are the ones that chooses and elects board of directors who ensures that the
company is doing well. They are also the one that approves major initiatives such as buying and
selling stocks, and the annual reports of management compensation from the board.
9. Describe the broad role of the Board of Directors.
The board of directors’ key role in the company is to ensure the company’s prosperity by
collectively directing the company’s affairs, while meeting the appropriate interest of its
shareholders and relevant stakeholders.

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

Specific activities include among others:

1. Overall Operations 2. Performance

 Establishing the organization’s  Ensuring the organization’s long-
vision, mission, values term viability and
and ethical standards. enhancing the financial position.
 Delegating an appropriate level of  Formulating and overseeing
authority to implementation of
management. corporate strategy.
 Demonstrating leadership.  Approving the plan, budget and
 Assuming responsibility for the corporate policies.
business relationship  Agreeing key performance indicators
with CEO including his or her (KPIs)
appointment, succession,  Monitoring/assessing assessment,
performance remuneration and performance of the
dismissal. organization, the board itself,
 Overseeing aspects of the management and major
employment of the projects.
management team including  Overseeing the risk management
management framework and
remuneration, performance, succession monitoring business risks.
planning.  Monitoring developments in the
 Recommending auditors and new industry and the
directors to operating environment.
shareholders.  Oversight of the organization,
 Ensuring effective communication including its control and
with shareholders accountability systems.
and other stakeholders.  Approving and monitoring the
 Crisis Management. progress of major capital
 Appointment of the CFO and expenditure, capital management and
Corporate Secretary. acquisitions and
divestitures.

3. Compliance/Legal Conformance
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