Solutions Manual – Corporate Governance, Business Ethics, Risk Management and Internal Control

CHAPTER 2

CORPORATE GOVERNANCE REPSONSIBILITIES

AND ACCOUNTABILITIES

Answer to Questions

1. NO. Good governance is important not only to large listed public

companies but to small and medium-size businesses as well. In fact,
SMEs need to apply the characteristics of good governance for two
important reasons, namely
a. to maximize the income on the limited resources they have
b. to steer the company to become a more efficient and effective
organization that can spur its growth

2. NO. Good governance is based on principles underpinned by consensus

and developed continuously on notions of good practice. Principles and
approaches should be tailored to specific needs of an organization at a
given point in time.

3. The essence of any system of good governance is to allow the board and
management freedom to steer their organization forward and to exercise
that freedom whether a framework of effective accountability.

4. The board of directors derives its authority from the shareholders who
elect the members during the annual shareholders meeting. Governance
starts with the shareholders delegating responsibilities to an elected
board of directors to management and in turn to operating units.

5. The board of directors is accountable to all the stakeholders of the

company. Stakeholders include shareholders, regulators, external
auditors, creditors and the society in general.

6. The shareholders want accountability on

a. Financial performance
b. Financial transparency
c. Stewardship
d. Quality of internal control
e. Proper composition of the board and the nature of its activities

2-1
 7. From a financial perspective, management’s responsibility includes
a. Choosing the accounting principles that will best portray the
economic substance of company transaction
b. Implement good internal control system
c. Ensure that the financial statements contain accurate and complete
disclosure

8. The shareholders elect the board of directors, approve major initiatives

from the board such as annual reports on management compensation and
issuance or repurchase f ordinary equity shares.

9. The board of directors serves as the major representation of the

shareholders. It ensures that the organization is managed according to its
charter and that there is proper accountability.

10. Specific activities of the board of directors include the following:

a. Overall operation
b. Performance
c. Compliance and legal conformance

Details of the above activities are found on pages 19 and 20.

Answer to Multiple Choice Questions

1. B 4. B
2. D 5. D
3. B