[GBERMIC] Final Exam Reviewer

Which of the following best describes the core purpose of corporate governance?

To provide a framework for a company to achieve its objectives while balancing the interests of its stakeholders.

Which of the following is considered a key principle of good corporate governance?

Accountability

The Sarbanes-Oxley Act (SOX) was enacted in the United States primarily to:

Improve the accuracy and reliability of financial reporting and restore investor confidence

According to stakeholder theory, who is considered a 'stakeholder' in a corporation?

Any individual or group that can affect or is affected by the achievement of the corporation's objectives

Which of the following is a common criticism of stakeholder theory?

It can lead to managerial inaction due to competing stakeholder demands

Which of the following is a common criticism of stockholder theory?

It can lead to a focus on short-term profits at the expense of long-term sustainability

A company's decision to invest a portion of its profits into community development projects, even if it does not directly increase short-term financial returns, is a practice most consistent with:

Stakeholder theory

A term that connotes actions of corporate managers intended to increase short-term profits only

Short-termism

A system of direction, feedback, and control using regulations, performance standards, and ethical guidelines to hold the board and senior management accountable for ensuring ethical behavior

Corporate Governance

A situation that exists when the corporate managers of the corporation use their authority for their own benefit and not for the benefit of the “principal” or owners.

Agent Problem

Which of the following is not a benefit of good corporate governance?

Guaranteed long-term profitability

A process, effected by an organization's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives.

Internal Control

Involve exchanges of resources, services, or obligations between parties with a pre-existing connection or common interest, such as a parent company and its subsidiary

Related Party Transaction

A. business entity or corporation either fully owned or partially controlled by another company, known as the parent company

Subsidiaries

What is the primary role of a non-executive director on a corporate board?

To oversee the company's strategy and provide independent oversight of management

Process of Risk Management

Identifying, Assessing, Mitigating and Monitoring

Key Features of Internal Control

Well-defined Procedures, Reliable Information Systems, Safeguarding of Assets, Control Activities, and Monitoring

Who are considered related parties?

Directors and Executives, Family Members, Significant Shareholders, Affiliates and Subsidiaries, and Joint Ventures and Partnerships

Preventive Control

Designed to stop errors or irregularities from occurring in the first place (e.g., segregation of duties, authorization procedures).

Detective Control

Aim to identify when something has gone wrong, usually after it has occurred (e.g., reconciliations, internal audits).

Corrective Control

Actions taken to fix problems once they have been identified (e.g., correcting journal entries, disciplinary actions).

Identify if the scenario is:

a. Illegal and unethical

b. Unethical but not illegal

c. Illegal but ethical

Intentionally manipulating a company's financial statements (e.g., recording fictitious transactions, overstating revenues, or understating liabilities) to deceive investors, creditors, and regulators.

a. Illegal and unethical

Identify if the scenario is:

a. Illegal and unethical

b. Unethical but not illegal

c. Illegal but ethical

Civil Disobedience Against Regulatory Obstacles. Setting Up a Roadblock to Stop Environmental Harm.

c. Illegal but ethical

Identify if the scenario is:

a. Illegal and unethical

b. Unethical but not illegal

c. Illegal but ethical

Conflict of interest arises when an officer or employee of the employing organization take advantage of his position to improperly obtain an unjust advantage over the interest of the employing organization

a. Illegal and unethical

Identify if the scenario is:

a. Illegal and unethical

b. Unethical but not illegal

c. Illegal but ethical

Using legal accounting rules and timing maneuvers to make a company's financial performance look better than it is, especially right before a reporting period, without crossing the line into outright fraud.

b. Unethical but not illegal

Identify if the scenario is:

a. Illegal and unethical

b. Unethical but not illegal

c. Illegal but ethical

Disposing of hazardous waste or pollutants into water, air, or land in a manner that violates environmental permits or laws.

a. Illegal and unethical

Identify if the scenario is:

a. Illegal and unethical

b. Unethical but not illegal

c. Illegal but ethical

Nepotism and Favoritism: Hiring, promoting, or giving preferential treatment to relatives or friends over more qualified candidates

b. Unethical but not illegal

Identify if the scenario is:

a. Illegal and unethical

b. Unethical but not illegal

c. Illegal but ethical

Embezzlement/Theft: Diverting company funds, assets, or resources into personal accounts or for personal use without authorization.

a. Illegal and unethical

Identify if the scenario is:

a. Illegal and unethical

b. Unethical but not illegal

c. Illegal but ethical

Firing Older Employees (Ageism in Hiring/Promoting)

a. Illegal and unethical

Identify if the scenario is:

a. Illegal and unethical

b. Unethical but not illegal

c. Illegal but ethical

Overriding Intellectual Property (IP) for Public Health: During a global pandemic, a manufacturer ignores a pharmaceutical patent and illegally produces an affordable generic version of a life-saving drug to supply impoverished nations.

c. Illegal but ethical

Identify if the scenario is:

a. Illegal and unethical

b. Unethical but not illegal

c. Illegal but ethical

Bribery and Kickbacks: Offering or accepting money, gifts, or favors to influence a business decision, secure a contract, or obtain preferential treatment.

a. Illegal and unethical

Identify if the situation is:

A. Preventive Control

B. Detective Control

C. Corrective Control

Restricted Access: Using locks, security guards, access cards, or biometric systems to limit entry to sensitive areas like data centers, inventory warehouses, or cash vaults to authorized personnel only

A. Preventive Control

Identify if the situation is:

A. Preventive Control

B. Detective Control

C. Corrective Control

Following an internal audit finding, the company revises its cash handling policy to require two employees to verify cash counts.

C. Corrective Control

Identify if the situation is:

A. Preventive Control

B. Detective Control

C. Corrective Control

An independent team physically counts inventory (or cash, or fixed assets) and compares the count to the recorded balance in the accounting system.

B. Detective Control

Identify if the situation is:

A. Preventive Control

B. Detective Control

C. Corrective Control

Requiring all external visitors to sign in, wear badges, and be escorted while on company premises.

A. Preventive Control

Identify if the situation is:

A. Preventive Control

B. Detective Control

C. Corrective Control

Making adjusting entries in the financial statements

C. Corrective Control

An employee reporting an employer's illegal or unethical actions to an outside party, such as government agencies or the media, is known as:

Whistleblowing

Which scenario best illustrates a conflict of interest?

A manager accepting a small gift from a vendor after awarding them a contract

What is insider trading?

Trading stock based on non-public, material information

Deals between two parties who have a pre-existing connection, such as a family relationship, common interest, or control over each other, and they require full disclosure in financial statements.

Related Party Transaction

Hiding the product defect and posing a threat to the safety of customers are examples of unethical acts in what department?

Product and operation

One of the concerns of this stakeholder is product warranty,

Customers

U.S. federal law enacted in response to major corporate and accounting scandals (like Enron and WorldCom) to protect investors by improving the accuracy and reliability of corporate financial disclosures

Sarbanes-Oxley Act

The level of risk that the company can accept in pursuit of its objectives

Risk Appetite

Which of the following best describes the core purpose of corporate governance?

To provide a framework for a company to achieve its objectives while balancing the interests of its stakeholders

Who are the four people in the company that is involved in the risk management process?

Board of Directors, Internal Auditors, Management, and Other Personnel

The steps in risk management process

Setting of business objectives, identify the risks, assess the risks, respond to the assessed risks, implement the risk response, and monitor the risk management process

The term “ethics”

This is derived from the Greek word “ethos”, which pertains to values, norms and beliefs that determine how people behave in everyday life.

Ethics

These are belief systems and actions that guide people on how to live their lives as they relate to other people around them. It deals with truthfulness, justice, moral duties, and obligations.

Corporate Social Responsibility (CSR)

This is concerned with the responsibilities and obligations of businesses to people, communities, and the society around them.

Business Ethics

This is the application of ethical principles and standards in a business environment. It is a broad discipline that attempts to address improper attitudes and actions that could be detrimental to the company. These improper actions necessarily include fraudulent acts on the part of corporate officers and employees