EG M3 - Parts B - E Module Quiz - KnowledgEquity

3/7/24, 9:57 PM EG M3 – Parts B – E Module Quiz - KnowledgEquity
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MODULE 1
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MODULE 3
PART A: CORPORATIONS
EG M3 – PART A MODULE QUIZ
PART B: CORPORATE GOVERNANCE
PART C: INTERNATIONAL PERSPECTIVES
PART D: PRINCIPLES & CODES
PART E: NON-CORPORATES & GOVERNANCE
EG M3 – PARTS B – E MODULE QUIZ
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MODULE 4
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EG M3 – Parts B – E Module Quiz

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EG M3 – Parts B – E Module Quiz
YOU SCORED 4 OUT OF A POSSIBLE 10 [40%]
Question 1 Marks: 0
Which of the following is not a key factor driving the need for better corporate
governance?
Answer Options
You answered D. The correct answer is C
USER SELECTION CORRECT ANSWER
A The growth in shareholder activism
B The requirement to access lower cost debt and equity finance
C Higher levels of individual taxation dissuading potential shareholders
Increasing competition making high levels of performance harder to

D
achieve
Answer Explanation
C is the correct answer because it is not a driver of the need for better corporate
governance. Higher taxation is a government initiative, not the result of company
actions or performance.
A, B and D are all described in the study guide as key factors driving the need for
better corporate governance.
Module: 3 > Part: C > 3.7 Global Push For Improved Governance
> Page: 166-169
Question 2 Marks: 1
Which one of the following regarding corporate governance is correct?
Answer Options
You answered A. The correct answer is A
A Good corporate governance might reduce efficiency
B Good corporate governance can result in excessive risk-taking.
Corporate governance often results in prompt and effective decision-

C
making.
The aim of corporate governance is to protect the interests of

D
shareholders and the local economies.
Answer Explanation
A is correct because having very stringent corporate governance policies can

sometimes mean that there are too many steps and processes to follow before
final decisions are made. This causes decisions to take longer to be resolved and
can thus reduce efficiency.
Excessive risk taking is incorrect as this is more likely to result from poor
governance.
Prompt and effective decision-making is incorrect because having very stringent

corporate governance policies can sometimes mean that there are too many
steps and processes to follow before final decisions are made. This causes
decisions to take longer to be resolved and can thus temper growth.
The aim of corporate governance is broader than just protecting the interests of
shareholders and the local economy, so this is incorrect, because it also
considers other stakeholders and the international economy.
Module: 3 > Part: B > 3.5 Importance of governance > Page:
146-147
Question 3 Marks: 0
Which of the following is not a characteristic of the market-based system?
Answer Options
You answered D. The correct answer is A
Bonds and loans are the most important source of finance in this
A
system of corporate governance.
Dispersed investors require reliable and adequate information flows

B
in order to make informed investment decisions.
Regulation is intended to ensure relatively complete information for

C investors and to prevent privileged groups of shareholders sharing
information only among themselves.
Bank finance has tended to be short-term, and banks have tended to

maintain arm’s length relationships with corporate clients. Equity
D
finance has been more important as a means of developing
companies.
Answer Explanation
A is the correct answer as it is not a characteristic of the market-based system.
Debt finance is not the main source of finance. Rather it comes from
shareholders who typically contribute capital in the form of equity — and equity
finance is the most important long-term financing mechanism in market-based
(outsider) systems.
B is incorrect because the market-based system of corporate governance

involves numerous, independent investors requiring sufficient reliable information
flow for informed decision making.
C is incorrect because regulation in a market-based system of corporate

governance is intended to ensure that information is equally dispersed between
all shareholders and not concentrated within privileged groups.
D is incorrect because equity finance is considered important for developing

companies. Bank finance is less central, because it tends to be short term and
maintains arm's length relationships with corporate clients (Nestor & Thompson
2000, p. 7).
Module: 3 > Part: C > 3.8 Alternative international approaches

to governance > Market-based systems > Page: 170-171
Question 4 Marks: 1
Which one of the following statements regarding institutional shareholders is
correct?
Answer Options
You answered D. The correct answer is D
These shareholders have extensive power to monitor the activities of

A
the company.
Many large institutional shareholders only invest in a limited number

B
of companies.
Most recently, institutional shareholders have been shown to become

C
less engaged with the companies they invest in.
In the past, institutional shareholders preferred to exert their power

D by selling their shareholding if they were dissatisfied with how a
company was being managed and directed.
Answer Explanation
D is correct because "In the past, institutional shareholders demonstrated little

interest in influencing the companies they invested in, employing strategies of
portfolio diversification and indexation.
However, more recently, there has been evidence of institutional shareholders

becoming more actively engaged" and "This means that, rather than just selling
their shares when they are unhappy with the management or board, they are
using a range of strategies — such as private meetings, voting against
resolutions, and applying public pressure using the media."
The other options are incorrect because:
- Institutional shareholders have power in terms of their voting rights but they do
not have power to monitor the activities of the company.
-Many institutional shareholders have become so large that they need to invest in
a large number of companies to spread their risk.
-Institutional shareholders recently tend to become more actively engaged and to

use a range of strategies to influence the company, including applying public
pressure using the media.
Module: 3 > Part: C > 3.8 Alternative international approaches

to governance > Market-based systems > Page: 169-176
Question 5 Marks: 0
In terms of the ASX Principles, which of the following regarding the composition
of the nomination committee of a listed company is most correct?
Answer Options
You answered C. The correct answer is B
A A minimum of three members chaired by an executive director.
A minimum of three members, the majority of whom are independent

B
directors, and chaired by an independent director.
A maximum of three members of whom most are independent

C
directors.
A minimum of one independent director who also chairs the

D
committee.
Answer Explanation
B is correct because it is based on Recommendation 2.1.
Recommendation 2.1 of the ASX Principles and Recommendations states:
The board of a listed entity should have a nomination committee which:
(1) has at least three members, a majority of whom are independent directors;
and
(2) is chaired by an independent director.'
Module: 3 > Part: D > 3.11 ASX Corporate Governance Council's

Principles and Recommendations > The ASX principles and
recommendations > Page: 189
Question 6 Marks: 1
ABC Ltd is a mining company listed on the Australia stock exchange. It has an
audit committee comprising four members. Two members are independent non-
executive directors with engineering and mining qualifications.
The nomination committee is currently looking to appoint an additional member

to the audit committee.
In terms of the ASX principles, which of the following would Most likely be the
best candidate for appointment?
Answer Options
You answered A. The correct answer is A
A An independent non-executive director with a qualification in finance.
B An executive director with a qualification in accounting.
A non-independent non-executive director with qualifications in

C
accounting and auditing.
A non-executive director who was previously the CFO of ABC Ltd a

D
year ago.
Answer Explanation
A is correct because it is based on Recommendation 4.1.
Recommendation 4.1 of the ASX Principles and Recommendations states:
The board of a listed entity should have an audit committee which:
(1) has at least three members, all of whom are non-executive directors and a
majority of whom are independent directors.'
The requirement is to have a majority of independent non-executive directors.
Currently only two of the four members are independent non-executive and so
this requirement is not satisfied.
An additional independent non-executive director needs to be appointed to make

it a majority of independent non-executive directors. Therefore, option A is
correct as it is the only one that is independent non-executive director.

Principles and Recommendations > Page: 187-195
Question 7 Marks: 0
Consider the following recommendations: – a minimum of three members; –
chaired by an independent director; – a majority of independent directors; – can
comprise executive directors.
In terms of the ASX Principles, which one of the following lists best describes all
the committees this relates to?
Answer Options
You answered B. The correct answer is D
A The nomination and risk committees.
B The audit and remuneration committees.
C The remuneration, audit, risk and nomination committees.
The remuneration, risk and nomination committees but not the audit
D
committee.
Answer Explanation
D is correct because based on ASX Principles and Recommendations 2.1(a),

4.1(a), 7.1(a) and 8.1(a).
According to Recommendation 4.1, the audit committee should not have any
executive directors.
While best practice suggests that executive directors should not be on the
remuneration committee, it is important to note that this question is focused on
the ASX Principles, which do not specifically prohibit executive directors from
this committee.

Principles and Recommendations > Page: 187-195
Question 8 Marks: 0
Which of the following descriptions about different types of directors and their
independence is not a valid description?
Answer Options
You answered D. The correct answer is A
A Independent executive director
B Independent non-executive director
C Non-independent executive director
D Non-independent non-executive director
Answer Explanation
A is correct because this is not a valid description. Independent executive

director is incorrect because all independent directors must be non-executive
directors. Executive means that they are employed in the organisation and thus
by definition can never be independent.
All of the other options are correct descriptions of types of directors

(independent non-executive, non-independent executive, non-independent non-
executive).
Module: 3 > Part: D > 3.2 Directors and other officers > Page:
126-135
Question 9 Marks: 0
Which of the following is an important concern in the OECD’s G20/OECD
Principles of Corporate Governance?
Answer Options
You answered A. The correct answer is C
A Directors’ rights
B Regulators’ rights
C Shareholders’ rights
D Triple bottom line accounting
Answer Explanation
C is correct because the OECD in its Principles of Corporate Governance has

concentrated on the duties of the board to the shareholders and stakeholders.
The OECD Principles specify six core principles and the second focuses
specifically on the rights of shareholders.
1. Ensuring the basis for an effective corporate governance framework
2. The rights and equitable treatment of shareholders and key ownership

functions
3. Institutional investors, stock markets, and other intermediaries
4. The role of stakeholders in corporate governance
5. Disclosure and transparency
6. The responsibilities of the board.
A, B and D are incorrect as none of these items are identified in the six core
principles above.
Module: 3 > Part: D > 3.9 G20/OECD principles of corporate

governance > Page: 178-185
Question 10 Marks: 1
Which one of the following relates to the concept of stewardship as described by
the Australia Public Sector Commission (APSC)?
Answer Options
You answered B. The correct answer is B
Having clear roles and responsibilities and clear procedures for

A
making decisions and exercising power.
Using every opportunity to enhance the value of the public assets

B
and institutions that have been entrusted to care.
Being answerable for decisions and having meaningful mechanisms

C
in place to ensure the agency adheres to all applicable standards.
Ensuring the best use of resources to further the aims of the

D organisation, with a commitment to evidence-based strategies for
improvement.
Answer Explanation
B is correct as outlined by the APSC 2007 guidance document outlining 6

principles that set down the core values for public sector employees.
Stewardship is focused on enhancing value of public assets and institutions.
A is incorrect as this describes the principle of transparency/openness.
C is incorrect as this describes the principle of accountability.
D is incorrect as this describes the principle of efficiency.

Module: 3 > Part: E > 3.14 Public sector enterprises > Guidance
for Public Sector Governance > Page: 200-204
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3/7/24, 9:57 PM EG M3 – Parts B – E Module Quiz - KnowledgEquity

Ethics & Governance

SEARCH KNOWLEDGE BASE

ASK THE EXPERT

SUBJECT OVERVIEW AND FAQS

EG M3 – PART A MODULE QUIZ

PART B: CORPORATE GOVERNANCE

PART C: INTERNATIONAL PERSPECTIVES

PART D: PRINCIPLES & CODES

PART E: NON-CORPORATES & GOVERNANCE

EG M3 – PARTS B – E MODULE QUIZ

QUICK FIRE QUIZ (M1 - M3)

MODULE 4 PARTS B & C [AVAILABLE 8 MARCH]

MODULE 5 [AVAILABLE 15 MARCH]

QUICK FIRE QUIZ (M4 - M5)

EG M3 – Parts B – E Module Quiz

EG M3 – Parts B – E Module Quiz

YOU SCORED 4 OUT OF A POSSIBLE 10 [40%]

USER SELECTION CORRECT ANSWER

A The growth in shareholder activism

B The requirement to access lower cost debt and equity finance

C Higher levels of individual taxation dissuading potential shareholders

Increasing competition making high levels of performance harder to

A Good corporate governance might reduce efficiency

B Good corporate governance can result in excessive risk-taking.

Corporate governance often results in prompt and effective decision-

The aim of corporate governance is to protect the interests of

A is correct because having very stringent corporate governance policies can

Prompt and effective decision-making is incorrect because having very stringent

Dispersed investors require reliable and adequate information flows

Regulation is intended to ensure relatively complete information for

Bank finance has tended to be short-term, and banks have tended to

A is the correct answer as it is not a characteristic of the market-based system.

B is incorrect because the market-based system of corporate governance

C is incorrect because regulation in a market-based system of corporate

D is incorrect because equity finance is considered important for developing

Module: 3 > Part: C > 3.8 Alternative international approaches

These shareholders have extensive power to monitor the activities of

Many large institutional shareholders only invest in a limited number

Most recently, institutional shareholders have been shown to become

In the past, institutional shareholders preferred to exert their power

D is correct because "In the past, institutional shareholders demonstrated little

However, more recently, there has been evidence of institutional shareholders

The other options are incorrect because:

-Institutional shareholders recently tend to become more actively engaged and to

Module: 3 > Part: C > 3.8 Alternative international approaches

USER SELECTION CORRECT ANSWER

A A minimum of three members chaired by an executive director.

A minimum of three members, the majority of whom are independent

A maximum of three members of whom most are independent

A minimum of one independent director who also chairs the

B is correct because it is based on Recommendation 2.1.

Recommendation 2.1 of the ASX Principles and Recommendations states:

The board of a listed entity should have a nomination committee which:

(2) is chaired by an independent director.'

Module: 3 > Part: D > 3.11 ASX Corporate Governance Council's

The nomination committee is currently looking to appoint an additional member

A An independent non-executive director with a qualification in finance.

B An executive director with a qualification in accounting.

A non-independent non-executive director with qualifications in

A non-executive director who was previously the CFO of ABC Ltd a

A is correct because it is based on Recommendation 4.1.

Recommendation 4.1 of the ASX Principles and Recommendations states: