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Corporate Governance Business Ethics Risk Management
and Internal Control Ch 1 2
Accountancy (STI College)
Studocu is not sponsored or endorsed by any college or university
Corporate Governance Business Ethics Risk Management
and Internal Control Ch 1 2
Accountancy (STI College)
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2. Corporate Governance, Business Ethics, Risk Management and Internal Control
CHAPTER 1
REVIEW QUESTIONS
1. What does governance mean?
Governance is a process wherein the people as a society wield power,
authority and influence and enact policies and decisions concerning public life
and social upliftment. It may be undertaken by the government of a country, by
a market or by a network -- over a social system. It can be used in different
aspects such as corporate governance, international governance, national and
local governance. Hence, Governance pertains to the process of decision
making and the process by which decisions are implemented or not through
the exercise of power or authority by leaders of the country and/ or
organizations.
2. Explain whether the following statement is true or false. “Governance
is exercised only by the government of the country”
False. The scope of Governance is not limited to the government of the
country. Governance is a broad term that can be used in different contexts
such as corporate governance, international governance, national and local
governance. Moreover, Governance comprises 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.
3. Explain how governance can be used in the following contexts and
give appropriate examples:
A. National Governance
National Governance is widely understood as the principal unit of
contemporary political order throughout the world or society the state.
The systems of political and economic power which shape
fundamental dimensions of our world are not fixed, but changing, with
significant transitions underway. Further, It is responsible for
maintaining internal and external security and stability.We take for
example Philippine National Government as a separate government
to other countries national government.
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3. B. Local Governance
Local Governance is defined technically as the administration of the
local affairs of a city, town, or other district by its inhabitants. This context
governs a special unit in a particular business or country, and gives the
right and actual capability of local government bodies to regulate and
govern a considerate portion of public affairs, acting within the law at their
own responsibility and for the benefit of local community. For example,
the LGU’s or Local Government Unit in which they are responsible for the
municipal/city affairs.
C. Corporate Governance
Corporate Governance adheres to a system of rules, practices and
processes by which business corporations are directed and controlled. It
basically involves balancing the interests of a company’s shareholders,
management, customers, suppliers, financiers, government and the
community. In addition, it also facilitates effective, entrepreneurial and
prudent management that can deliver long-term success of the company
just like how the big corporation in the Philippines governs their company
to achieve fair and equitable treatment of shareholders, enable to assess
their behavior, increase shareholders wealth and give transparency and
full disclosure.
D. International Governance
The concept of International Governance refers to the pattern of rule
found at the global level. It is also addressed as global governance or
world governance. Further, is a movement towards political cooperation
among transnational actors, aimed at negotiating responses to problems
that affect more than one country or region. International Monetary Fund,
World Bank, United Nations Children's Fund, etc are examples of how
international governance works.
4. Explain briefly the eight (8) characteristics of good governance.
1.Participation
All men and women should have a voice in decision-making, either
directly or through legitimate intermediate institutions that represent their
interests. Such broad participation is built on freedom of association and
speech, as well as capacities to participate constructively.
2.Rule of law
Legal frameworks should be fair and enforced impartially, particularly
the laws on human rights.
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4. 3.Transparency
Transparency is built on the free flow of information. Processes,
institutions and information are directly accessible to those concerned
with them, and enough information is provided to understand and monitor
them.
4.Responsiveness
Institutions and processes try to serve all stakeholders.
5.Consensus orientation
Good governance mediates differing interests to reach a broad
consensus on what is in the best interests of the group and, where
possible, on policies and procedures.
6.Equity
All men and women have opportunities to improve or maintain their
well-being.
7.Effectiveness and efficiency
Processes and institutions produce results that meet needs while
making the best use of resources.
8.Accountability
Decision-makers in government, the private sector and civil society
organizations are accountable to the public, as well as to institutional
stakeholders. This accountability differs depending on the organizations
and whether the decision is internal or external to an organization.
5. Transparency and accountability are synonymous. Explain whether
the statement is correct or not.
The term transparency and accountability are often used interchangeably. To
provide clarification, Transparency denotes that the information is freely
available and directly accessible to those who will be affected by such
decisions and enforcement. Meanwhile, Accountability pertains to who is
responsible by the decision made by governing body. Hence, there is a
complex relationship between because transparency is considered as a
pre-requisite of accountability as well; they have become synonymous.
6. Explain whether the following statement is true or false.
“Responsiveness usually results to effectiveness and efficiency”
True. Responsiveness will usually result to effectiveness and efficiency
because when you’re responsive on a certain thing, it will get you to where you
need to be and connotes effectiveness and efficiency in work.
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5. 7. Define corporate governance
Corporate Governance is defined as system of rules, practices, and
processes by which a firm is directed and controlled. Corporate governance
essentially involves balancing the interests of a company's many stakeholders,
such as shareholders, senior management executives, customers, suppliers,
financiers, the government, and the community. It encompasses practically
every sphere of management, from action plans and internal controls to
performance measurement and corporate disclosure. In simple words,
Corporate governance is the structure of rules, practices, and processes used
to direct and manage a company.
8. What does corporate governance structure involve?
Corporations can have many different structures, but the most typical
structure consists of the shareholders, board of directors, officers and the
employees. The structure of corporate governance determines the distribution
of rights and responsibilities between the different parties in the organization
and sets the decision-making rules and procedures. It is usually up to the
management board to decide how the company will develop.
9. State the purpose of corporate governance
The purpose of corporate governance is to have the company’s vision
aligned with their goals and objective. Further, it will facilitate effective
entrepreneurial and prudent management that can deliver long-term success
of the company.Apart from this, 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.
Moreover, it will help build an environment of trust, transparency and
accountability necessary for fostering long-term investment, financial stability
and business integrity, thereby supporting stronger growth and more inclusive
societies.
10.Explain the basic objectives of corporate governance.
The concept of basic objectives of corporate governance are: (1) Fair and
Equitable Treatment of Shareholders, (2)Self-Assessment,(3) Increase
Shareholders’ Wealth, and (4)Transparency and Full Disclosure.
Fair and Equitable Treatment of Shareholders - the structure of governance
must observe integrity and fairness in treating the shareholders.All
stakeholders should be treated equally whether you are major/minor
shareholder.
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6. Self-Assessment - pertains on how a corporation evaluate and assess their
performance and behavior before they are scrutinized by regulatory agencies.
Increase Shareholders’ Wealth - the long-term success of the company’s
shareholder should be protected with aiming to increase their wealth. This only
reflects the positive perception that good corporate governance induces
potential investor to decide to invest in a company.
Transparency and Full Disclosure - having this as objective, shareholders will
not doubt company’s capability into accounts because a good corporate
governance ensure a higher degree of transparency in an organization by
encouraging full disclosure of transaction of the company.
11.Explain the three basic principles of effective corporate governance.
The three basic principles of effective corporate governance includes the
following:
Transparency - this is where the question “ is the board telling us what is
going on?” arise. This principle must address the safeguard integrity in financial
reporting, and meets the information need in investment communities.
Accountability - this is a concept of responsibility on who should be
accountable on decisions made for the organization. This principle must clarify
each role and that of management.
Corporate Control - the notion here are whether the board is doing the right
thing or not, and have the board built long-term sustainable growth in
shareholders value for the corporation.
These three basic principle makes up a corporate government good and
effective.
Multiple Choice Answers:
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 investment
communities?
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7. c) Can an outsider meaningfully analyse the firm’s actions and
performance?
d) Has the board built long-term sustainable growth in shareholder’s
value for the corporation?
2. The basic principle of “accountability” for effective governance answers the
following questions positively, 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 board membership ensure an
appropriate range and risk of expensive 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 communication strategy to promote
affective communication with shareholders
c) Bu 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 eternal 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
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8. 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 2
REVIEW QUESTIONS
1. “Small business enterprises do not need good governance.” Do you
agree? Explain.
I disagree. Good Governance doesn’t discriminate. It doesn’t denote that
a small enterprise do not need good governance because there are no rules
about it. In fact, both SME’s and large listed companies need good
governance in order to operate smoothly. Whether in small or large
enterprises, there is a need to for control in staff/workers, and proper
accountability.Hence, good governance is needed for small business
enterprises to progress and improve.
2. Does the good governance require absolute rules that must be
adopted by organization?
No, It doesn’t have. Clearly, there are no absolute rules which must be
adopted by all organization to have good governance. To quote, “ There is no
simple universal formula for good governance”. Because, the concept of good
governance encourages organization to give appropriate attention to the
principles and adopt approaches which are tailored to the specific needs of an
organization at a given point in time.
3. What is the essence of any system of corporate governance?
The essence of any system of 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.
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9. 4. Where does the board of directors derives its authority?
The Board of Directors, an elective position, derive their authority and
power from the shareholders. Shareholders meticulously select and elect
board of directors to ensure the organization’s long-term viability as they
oversee the implementation of a certain corporate strategy.
5. To whom is the board of directors accountable?
Board of Directors are accountable to shareholders for the company’s
operation and ensuring an effective system of internal controls exists and
overseeing the risk management framework. Further, they must satisfy 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.
Conversely, the accountabilities does not limit to shareholder. Companies
also have responsibilities to other stakeholders. Stakeholders can anyone
who is influenced, whether directly or indirectly, by the actions of a company.
For example, the pension plans of their employees when they retire.
6. On what aspects do shareholders demand accountability from the
board of directors?
Shareholders demand accountability as to how well the resources that
have been entrusted to management and the board have been used.
Consequently, the owners/shareholders want accountability in different
aspects such as: (1) Financial Performance, (2) Financial Transparency - clear
with full disclosure, (3) Stewardship - on how well the company protects and
manages the resources, (4) Quality of internal control, and (5) Composition of
the board of directors and the nature of its activities, on how well the
management implement an incentive system that are aligned with the
shareholders’ best interests.
7. What is management’s responsibility from the board of directors?
The management has a responsibility to provide financial report, and in
some cases, reports on internal control effectiveness. Management has
always had the primary responsibility for the accuracy and completeness of an
organization’s financial statements. Further, from a financial reporting
perspective, management has responsibility on which accounting principle
best portray the economic substance of company transactions, implement a
system of internal control and ensures financial statements accuracy and full
disclosure.
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10. 8. Describe the broad role of the shareholders in a corporation.
The broad role of shareholders in a corporation is to provide an effective
oversight through election of board members, approval of major initiatives
such as buying or selling stock, annual reports on management compensation,
from the board.
9. Describe the broad role of the Board of Directors.
The board of directors, broad role, is that they are the major representative
of stockholders to ensure that the organization is run according to the
organization’s charter and that there is proper accountability.
10.What are the specific activities of the board of directors?
The specific activities of board of directors are as follows:
1. Overall Operation
a) Establishing the organization’s vision, mission, values and
ethical standards.
b) Delegating an appropriate level of authority to management.
c) Demonstrating leadership.
d) Assuming responsibility for the business relationship with
CEO including his or her appointment, succession, performance
remuneration and dismissal.
e) Overseeing aspects of the employment of the management
team including management remuneration, performance and
succession planning.
f) Recommending auditors and new directors to shareholders.
g) Ensuring effective communication with shareholders other
stakeholders.
h) Crisis management.
i) Appointment of the CFO and corporate secretary.
2. Performance
a) Ensuring the organization’s long term viability and anhancing
the financial position.
b) Formulating and overseeing implementation of corporate
strategy.
c) Approving the plan, budget and corporate policies.
d) Agreeing key performance indicators (KPIs)
e) Monitoring/ assessing assessment, performance of the
organization, the board itself, management and major projects.
f) Overseeing the risk management framework and monitoring
business risks
g) Monitoring developments in the industry and the operating
environment.
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11. h) Oversight of the organization, including its control and
accountability systems.
i) Approving and monitoring the progress of major capital
expenditure, capital management and acquisitions and divestitures.
3. Compliance/ Legal Conformance
a) Understanding and protecting the organization’s financial
position.
b) Requiring and monitoring legal and regulatory compliance
including compliance with accounting standards, unfair trading
legislation, occupational health and safety and environmental
standards.
c) Approving annual financial reports, annual reports and other
public documents/sensitive reports.
d) Ensuring an effective system of internal controls exists and is
operating as expected.
Multiple Choice Answers:
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 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 of companies for compliance with company policies an
laws, audits efficiency of operations and periodic evaluation and tests
control?
a) External auditors
b) Internal auditors
c) Commission of audit
d) Chief accountant
5. An independent director is expected to.
a) Apply experience and skills in the corporations best interest
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12. b) Asset 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
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