Chapter 3 - Governance

Question 1

What are stakeholders and do they include?

Answer 1

Stakeholders are persons or entities who are affected by the activities of the entity. Among others, these include (1) shareholders, (2) employees, (3) suppliers, (4) customers, (5) neighbors of the entity’s facilities, and (6) government regulators

Question 2

What are the goals of corporate governance?

Answer 2

Governance practices may use various legal forms, structures, strategies, and procedures. They ensure that the organization (1) complies with society’s legal and regulatory rules; (2) satisfies the generally accepted business norms, ethical principles, and social expectations of society; (3) provides overall benefit to society and enhances the interests of the specific stakeholders in both the long- and short-term; and (4) reports fully and truthfully to its stakeholders, including the public, to ensure accountability for its decisions, actions, and performances.

Question 3

With respect to Governance, senior management determines:

Answer 3

(1) where specific risks are to be managed, (2) who will be risk owners (managers responsible for specific day-to-day risks), and (3) how specific risks will be managed.

Question 4

What is the internal auditor’s responsibility for evaluating ethics-related activities?

Answer 4

The internal audit activity must evaluate the design, implementation, and effectiveness of the organizations ethics-related objectives, programs, and activities.

Question 5

What is the internal audit activities role in best practice governance activities?

Answer 5

The internal audit activity reports significant audit issues, supports the board in enterprise-wide risk assessment, and conducts follow-up and reports on management’s response to external audits as part of its best practice governance activities.

Question 6

Corporate Social Responsibility (CSR) business activities generally include

Answer 6

(1) establishing and communicating policies and procedures; (2) setting objectives, performance goals, and strategies; (3) communicating and integrating CSR principles and controls into the business decision making processes; (4) monitoring, evaluating results, and benchmarking; (5) engaging stakeholders; (6) auditing; and (7) external and internal reporting of results.

Question 7

What are CSR controls?

Answer 7

CSR controls are actions taken to manage Corporate Social Responsibility risks. Thus, an organization considers CSR risks before projects are approved and communicates and integrates CSR principles and controls into the business decision-making processes.

Question 8

What are the board of directors responsible for?

Answer 8

(1) selecting and removing officers; (2) making decisions about capital structure; (3) adding, amending, or repealing bylaws; (4) initiating fundamental changes; (5) declaring and distributing dividends; (6) setting management compensation; (7) coordinating audit activities; and (8) evaluating and managing risk.

Question 9

The major components of governance include:

Answer 9

A) Strategic direction determines (1) the business model, (2) overall objectives, (3) the risk appetite, and (4) the limits of organizational conduct. B) The elements of oversight are (1) the board’s responsibilities to stakeholders, (2) the risk management activities of senior management and the board, and (3) internal and external assurance activities.

Question 10

The internal audit activity must assess and make appropriate recommendations to improve the organization’s governance processes for:

Answer 10

• Making strategic and operational decisions;
• Overseeing risk management and control;
• Promoting appropriate ethics and values within the organization;
• Ensuring effective organizational performance management and accountability;
• Communicating risk and control information to appropriate areas of the organization; and
• Coordinating the activities of, and communicating information among, the board, external and internal auditors, other assurance providers, and management (Perf. Std. 2110).

Question 11

When assessing governance, the internal auditor should consider the following:e

Answer 11

• Audits of specific processes,
• Governance issues arising from audits not focused on governance,
• The results of other assurance providers’ work, and
• Other information such as adverse incidents indicating an opportunity to improve governance

Question 12

The Global Reporting Initiative (GRI) has developed a sustainability reporting framework that

Answer 12

Provides specific guidance on measuring CSR performance against predefined criteria.

Question 13

An organizations codes of conduct and vision statements should state

Answer 13

• The organization’s values and objectives;
• The behavior expected; and
• The strategies for maintaining a culture consistent with legal, ethical, and societal responsibilities.

Question 14

Who is responsible for implementing procedures?

Answer 14

Implementation is a management function.

Question 15

The IIA Glossary defines governance as:

Answer 15

the combination of processes and structures implemented by the board to inform, direct, manage, and monitor the activities of the organization toward the achievement of its objectives. Organizational performance is measured by achieving objectives.

Question 16

Corporate Social Responsibility (CSR) is defined as

Answer 16

Corporate Social Responsibility is the willingness of an organization to incorporate social and environmental considerations in its decision making and be accountable for the impacts of its decisions and activities on society and the environment.

Question 17

How can using ISO 14000 benefit an organization?

Answer 17

(1) decrease the cost of waste management; (2) provide savings in consumption of energy and materials; (3) lower distribution costs; and (4) improve corporate image among regulators, customers, and the public.

Question 18

When planning an assessment of governance the CAE should consider the following:

Answer 18

• An audit should address controls in governance processes that are designed to prevent or detect events that could have a negative effect on the organization;
• Controls within governance processes often are significant in managing multiple risks; and,
• If other audits assess controls in governance processes, the auditor should consider relying on their results.

Question 19

Alternative CSR strategies include:

Answer 19

• Reaction: Organization denies responsibility and tries to maintain status quo
• Defense: Organization uses legal action or public relations efforts to avoid additional responsibilities
• Accommodation: Organization assumes additional responsibilities only when pressured.
• Proaction: Organization take the initiative in implementing a CSR program that serves as an example for the industry.

Question 20

he design and practice of effective governance vary with

Answer 20

• The size, complexity, and life-cycle maturity of the organization;
• The organization’s stakeholder structure; and
• Legal and cultural requirements.

Question 21

Which of the following are duties of risk committees?

Answer 21

• Identifies key risks,
• Connects them to risk management processes,
• Delegates them to risk owners, and
• Considers whether tolerance levels delegated to risk owners are consistent with the organization’s risk appetite.

Question 22

Strategic direction determines:

Answer 22

1) The business model
2) overall objective
3) the risk appetite
4) the limits of organizational conduct

Question 23

The board is defined by The IIA as

Answer 23

the highest governing body responsible for directing or overseeing the activities and management of the organization. It ordinarily includes an independent group of directors (e.g., a board of directors, a supervisory board, or a board of governors or trustees). If such a group does not exist, the board may be the head of the organization. The term also may refer to an audit committee to which the governing body has delegated certain functions. Thus, the board is the source of overall direction to, and the authority of, management. It also has the ultimate responsibility for oversight.

Question 24

Strategic direction determines

Answer 24

(1) the business model, (2) overall objectives, (3) the risk appetite, and (4) the limits of organizational conduct.

Question 25

The elements of oversight are

Answer 25

(1) the risk management activities of senior management and the board and (2) internal and external assurance activities.