CHAPTER 3

REVIEW QUESTIONS

2. Yes, it sometimes create a conflict. Every firm’s goal is to maximize the wealth of the
shareholders. When the time comes that the management is confronted with the usual firm
challenges such as the return is less than what is expected, they fear about their goal. They
may think of ways to raise the value of the shareholders even if it’s not the actual result of their
operations. Hence, they resort to fraudulent and unnecessary conduct. Moreover, in the subject
of customers and employee safety, environment and general good of society are unnecessary
to be ignored. However, sometimes, they are disregarded.

However, I do not mean to say that maximizing the value of equity shares is always
accompanied by unethical or illegal behavior. In fact, the firm’s goal can be achieved through
ethical and legal means, yet it is not always easy.

For example, the firm established and began their factory operations, to be utilized as
one of the assets of the firm in producing their high-demand products and as one of the
investing decisions of the company in order to maximize the returns for the investors, the
factory may emit air pollutants, such as greenhouse gases, which bring the people and the
environment into concern. The firm may have maximize the wealth of the shareholders, yet
consequently bringing other subjects into harm.

5. In schools, a class would be unorganized and the students’ motive to learn won’t be
achieved in the absence of an advisor or someone else who could regulate the behavior of the
class. Likewise to the case of effective corporate governance, which is one of the grounds that
affect the profit-making motive of the firm. It directs and control the firm. This relates to the
way the top managers operate and interface with stakeholders. It has been made easier to
activist shareholders to change the way things are done within firm. Thus, corporate
governance is necessary for firms to efficiently operate. Otherwise, the firm could experience
depression when it comes to their profit-making, corruption of management and a stained
corporate image. Moreover, since this ensures the safeguard of all the interests of the
shareholders, this could create conflicts of interests among these parties in lacking.

6. As the term suggests, internal auditors work within a firm as company employee while
external auditors work for an outside audit firm or independent of the firm they are auditing.
Internal auditors examine issues related to the firm’s practices and risks and take a holistic view
of the firm’s governance, risk and control system. They ensure to provide reviews which are of
independence and free from bias process of system. They help the firm to improve their
organizational value. On the other hand, external auditors examine the firm’s accounting
systems and comment on whether financial statements fairly represent the firm’s financial
position. In other words, accuracy of business accounts and their financial condition, or at some
points, the compliance with laws and regulations, are their primary concern.

7. A controller supervises other accountants and oversee the preparation of financial

reports. They monitor internal controls to lessen the risk and create value within the firm. Also,
they take part in analyzing financial data and preparing budgets and in charge of tax
compliance and ensure that deadlines and regulations are strictly followed. In other words,
controller is the head accountant of the company.

On the other hand, treasurer’s role is to protect the company’s value and finances from
financial risks. Their primary responsibility is to obtain investment capital, obtain loans and
credit from outside sources, invest the funds and manage cash flows. In other words, they are
primarily responsible to the firm’s capital expenditure and financial planning and is concerned
with managing the firm’s cash and credit.

MULTIPLE CHOICE
1. A
2. A
3. C
4. D
5. B
6. D