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Casestudy M92 > Chapter 4 > Flashcards

Chapter 4 Flashcards

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1
Q

What is the primary purpose of the corporate governance framework?
A) To ensure accountability, fairness, and transparency in a company’s relationship with stakeholders
B) To maximize profits for shareholders
C) To regulate employee performance
D) To establish marketing strategies

A

Correct Answer: A

Explanation: Corporate governance ensures accountability, fairness, and transparency in company interactions with stakeholders (financiers, customers, employees, government, etc.).

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2
Q

Which legislation is central to the corporate governance framework in the UK?

A) The Companies Act 2006
B) The Financial Services Act 2012
C) The Data Protection Act 2018
D) The Employment Rights Act 1996

A

Correct Answer: A

Explanation: The Companies Act 2006 is a foundational law guiding corporate governance in the UK.

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3
Q

Which organization is responsible for the UK Corporate Governance Code?

A) The Financial Reporting Council (FRC)
B) The Financial Conduct Authority (FCA)
C) The London Stock Exchange (LSE)
D) The Bank of England

A

Correct Answer: A

Explanation: The Financial Reporting Council (FRC) oversees the UK Corporate Governance Code, which sets corporate governance principles for LSE-listed companies.

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4
Q

What is the role of the UK Listing Rules in corporate governance?

A) To regulate companies listed on the London Stock Exchange (LSE)
B) To provide ethical guidelines for directors
C) To establish financial reporting standards
D) To manage stakeholder relationships

A

Correct Answer: A

Explanation: The UK Listing Rules, overseen by the Financial Conduct Authority (FCA), regulate LSE-listed companies.

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5
Q

What is considered best practice for companies not listed on the LSE in the UK?

A) Adopting equivalent approaches to corporate governance as those listed on the LSE
B) Following the Financial Services Act 2012
C) Implementing the Data Protection Act 2018
D) Developing their own unique governance framework

A

Correct Answer: A

Explanation: The UK Corporate Governance Code is regarded as best practice, even for non-LSE-listed companies.

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6
Q

What was the first full corporate governance code in the UK?

A) The Cadbury Report
B) The Combined Code
C) The Companies Act 2006 D) The UK Corporate Governance Code

A

Correct Answer: A

Explanation: The Cadbury Report (1992) was the first full corporate governance code, introduced to address corporate failures and improve transparency.

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7
Q

Which organization is responsible for the UK Corporate Governance Code?

A) The Financial Reporting Council (FRC)
B) The Financial Conduct Authority (FCA)
C) The London Stock Exchange (LSE)
D) The Bank of England

A

Correct Answer: A

Explanation: The Financial Reporting Council (FRC) oversees the UK Corporate Governance Code, promoting transparency and integrity in business.

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8
Q

What is the primary role of the Board according to the 2024 Code?

A) To promote the long-term sustainable success of the company
B) To maximize short-term profits
C) To manage day-to-day operations
D) To oversee marketing strategies

A

Correct Answer: A

Explanation: The Board’s primary role is to promote the company’s long-term sustainable success, benefiting shareholders and wider society.

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9
Q

What does the term “going concern” mean in accounting?

A) A company that is planning to cease operations B) A company that has declared bankruptcy
C) A company that has the resources to continue operating indefinitely
D) A company that is undergoing liquidation

A

Correct Answer: C

Explanation: “Going concern” refers to a company that has the resources needed to continue operating indefinitely unless evidence suggests otherwise.

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10
Q

What should companies identify regarding their ability to trade as a going concern?

A) Their marketing strategies B) Any material uncertainties C) Their employee satisfaction levels
D) Their profit margins

A

Correct Answer: B

Explanation: Companies should identify any material uncertainties that could affect their ability to trade as a going concern.

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11
Q

What should companies assess and explain in relation to risk management?

A) Their financial statements B) Their employee performance
C) Their marketing strategies D) Their principal risks and how they are being managed

A

Correct Answer: D

Explanation: Companies should assess their principal risks and explain how they are being managed to ensure effective risk management.

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12
Q

How often should companies monitor their risk management and internal control systems?
A) Every quarter
B) Every two years
C) At least annually
D) Every six months

A

Correct Answer: C

Explanation: Companies should monitor their risk management and internal control systems at least annually to ensure they remain effective.

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13
Q

Is compliance with the Corporate Governance Code a legal requirement?

A) Yes, it is mandatory under UK law
B) No, but it is part of the Stock Exchange Listing Rules C) Yes, but only for private companies
D) No, it is entirely voluntary

A

Correct Answer: B

Explanation: Compliance with the Corporate Governance Code is not a legal requirement, but it is part of the Stock Exchange Listing Rules.

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14
Q

Where must companies state their compliance with the Corporate Governance Code?

A) In their annual report
B) In their marketing materials
C) In their quarterly financial statements
D) In their employee handbook

A

Correct Answer: A

Explanation: Companies are required to state their compliance with the Corporate Governance Code in their annual report.

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15
Q

What must companies do if they are not fully compliant with the Corporate Governance Code?

A) Ignore the non-compliance B) Provide an explanation detailing where they are not compliant and why
C) Submit a formal apology to the Stock Exchange
D) Resign from the Stock Exchange

A

Correct Answer: B

Explanation: Companies must explain in their annual report where they are not compliant with the Code and provide reasons for the non-compliance.

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16
Q

Which regulatory framework includes the Corporate Governance Code?

A) The Companies Act 2006 B) The Stock Exchange Listing Rules
C) The Financial Conduct Authority Regulations
D) The UK Tax Code

A

Correct Answer: B

Explanation: The Corporate Governance Code is included as part of the Stock Exchange Listing Rules.

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17
Q

Where must companies state their compliance with the Corporate Governance Code?

A) In their annual report
B) In their marketing materials
C) In their quarterly financial statements
D) In their employee handbook

A

Correct Answer: A

Explanation: Companies are required to state their compliance with the Corporate Governance Code in their annual report.

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18
Q

Which organization issued an updated version of the Turnbull Report in 2005?

A) The Financial Conduct Authority (FCA)
B) The London Stock Exchange (LSE)
C) The Financial Reporting Council (FRC)
D) The Bank of England

A

Correct Answer: C

Explanation: In October 2005, the Financial Reporting Council (FRC) issued an updated version of the Turnbull Report titled ‘Internal control: guidance for directors on the combined code.’

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19
Q

What was the title of the updated guidance issued by the FRC in 2005?

A) ‘Guidance on Risk Management, Internal Control and Related Financial and Business Reporting’
B) ‘Internal control: guidance for directors on the combined code’
C) ‘Corporate Governance Code Guidance’
D) ‘Turnbull Report: Revised Edition’

A

Correct Answer: B

Explanation: The updated guidance issued by the FRC in 2005 was titled ‘Internal control: guidance for directors on the combined code.’

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20
Q

To which companies does the UK Corporate Governance Code primarily apply?

A) Non-listed companies only B) Companies listed on the London Stock Exchange
C) Mutual insurers exclusively D) All UK companies

A

Correct Answer: B

Explanation: The UK Corporate Governance Code applies to companies listed on the London Stock Exchange, although many non-listed companies also follow the Code.

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21
Q

What does the AFM Annotated Corporate Governance Code for Mutual Insurers adapt the role of shareholders to?

A) Members
B) Stakeholders
C) Employees D) Directors

A

Correct Answer: A

Explanation: The AFM Annotated Corporate Governance Code for Mutual Insurers adapts the role of shareholders to members, reflecting the structure of mutual insurers.

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22
Q

What type of directors does the Metropolitan Police Friendly Society appoint?

A) Financial auditors as directors
B) Retired police officers as non-executive directors
C) Shareholders as directors D) Current police officers as executive directors

A

Correct Answer: B

Explanation: The Metropolitan Police Friendly Society appoints certain non-executive directors who are retired police officers to represent the interests of its members.

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23
Q

When did the FRC publish the updated Audit Committees and the External Audit: Minimum Standard?

A) 2014
B) 2023
C) 2005
D) 2018

A

Correct Answer: B

Explanation: The FRC published the updated Audit Committees and the External Audit: Minimum Standard in 2023.

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24
Q

What is the current compliance basis for the Minimum Standard?

A) Comply or explain
B) Mandatory compliance ,
C) Voluntary compliance
D) No compliance required

A

Correct Answer: A

Explanation: The Minimum Standard currently operates on a comply or explain basis until the Audit, Reporting and Governance Authority (ARGA) is created with the power to mandate compliance.

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25
What is one responsibility of the Audit Committee under the Minimum Standard? A) Conducting internal audits B) Managing non-audit relationships with audit firms C) Drafting the company’s marketing strategy D) Approving employee promotions
Correct Answer: B Explanation: The Audit Committee is responsible for managing non-audit relationships with audit firms to ensure a fair choice of external auditors.
26
What must the Audit Committee ensure regarding the external auditor? A) That they are appointed for life B) That they are shareholders in the company C) That they have full access to company staff and records D) That they are involved in the company’s marketing strategy
Correct Answer: C Explanation: The Audit Committee must ensure that the external auditor has full access to company staff and records.
27
Which organization developed the Guidance on Board Effectiveness on behalf of the FRC? A) The Audit, Reporting and Governance Authority (ARGA) B) The Institute of Chartered Secretaries and Administrators (ICSA) C) The Financial Conduct Authority (FCA) D) The London Stock Exchange (LSE)
Correct Answer: B Explanation: The Institute of Chartered Secretaries and Administrators (ICSA) developed the Guidance on Board Effectiveness on behalf of the FRC.
28
What is one topic covered in the Guidance on Board Effectiveness? A) Employee satisfaction surveys B) Board leadership and company purpose C) Shareholder dividends D) Marketing strategies
Correct Answer: B Explanation: The Guidance on Board Effectiveness covers topics such as board leadership and company purpose.
29
What does the Guidance on Board Effectiveness encourage Boards to do? A) Measure compliance or provide a rationale for non-compliance B) Avoid engaging with shareholders C) Focus solely on financial performance D) Delegate all responsibilities to external consultants
Correct Answer: A Explanation: The Guidance encourages Boards to measure compliance or provide a considered rationale for any areas of non-compliance.
30
What is the name of Germany's corporate governance code? A) Deutscher Corporate Governance Kodex B) ASX Corporate Governance Principles C) OECD Corporate Governance Initiative D) Sarbanes-Oxley Act
Correct Answer: A Explanation: Germany's corporate governance code is called the Deutscher Corporate Governance Kodex.
31
Which organization in Australia published the Corporate Governance Principles and Recommendations? A) Australian Securities Exchange (ASX) Corporate Governance Council B) Organisation for Economic Co-operation and Development (OECD) C) European Corporate Governance Institute (ECGI) D) Financial Reporting Council (FRC)
Correct Answer: A Explanation: The ASX Corporate Governance Council, which includes the Australian Securities Exchange and other entities, published the Corporate Governance Principles and Recommendations.
32
What is the purpose of the Sarbanes-Oxley Act 2002 (SOX)? A) To protect investors by improving the accuracy and reliability of corporate disclosures B) To regulate marketing strategies for listed companies C) To establish international trade agreements D) To promote employee satisfaction
Correct Answer: A Explanation: The Sarbanes-Oxley Act 2002 (SOX) aims to protect investors by improving the accuracy and reliability of corporate disclosures, addressing corporate scandals like Enron and WorldCom.
33
Front: Which companies are required to comply with SOX? A) Companies listed on the New York Stock Exchange B) All companies worldwide C) Non-listed companies in the USA D) Mutual insurers exclusively
Correct Answer: A Explanation: Companies with a listing on a stock exchange in the USA, such as the New York Stock Exchange, are required to comply with SOX.
34
Who currently administers the UK Listing Rules? A) The Financial Reporting Council (FRC) B) The Financial Conduct Authority (FCA) C) The London Stock Exchange (LSE) D) The Organisation for Economic Co-operation and Development (OECD)
Correct Answer: B Explanation: The UK Listing Rules are currently administered by the Financial Conduct Authority (FCA).
35
What is the term for a company seeking a listing for the first time? A) Rights Issue B) Initial Public Offering (IPO) C) Takeover Bid D) Share Buyback
Correct Answer: B Explanation: A company seeking a listing for the first time is referred to as an Initial Public Offering (IPO).
36
What do the UK Listing Rules require companies to disclose? A) Marketing strategies B) Price sensitive information C) Employee satisfaction surveys D) Dividend policies
Correct Answer: B Explanation: The UK Listing Rules require companies to disclose price sensitive information as part of their ongoing obligations.
37
What is one of the ongoing obligations under the UK Listing Rules? A) Disclosure of new share offers and rights issues B) Conducting internal audits C) Publishing employee performance reviews D) Submitting annual tax returns
Correct Answer: A Explanation: Ongoing obligations under the UK Listing Rules include the disclosure of new share offers, rights issues, and potential or actual takeover bids.
38
What is the aim of aligning the UK Listing Rules with international market standards? A) To reduce competition in the global market B) To ensure investors have the information they need to make decisions C) To eliminate investor protections D) To discourage companies from seeking a UK Listing
Correct Answer: B Explanation: Aligning the UK Listing Rules with international market standards ensures investors have the information they need to make informed decisions while maintaining appropriate protections.
39
What is the role of the UK Listing Rules in relation to takeover bids? A) They prohibit all takeover bids B) They require disclosure of potential or actual takeover bids C) They mandate approval from the FCA for all bids D) They allow takeover bids without any disclosure
Correct Answer: B Explanation: The UK Listing Rules require disclosure of potential or actual takeover bids as part of a company’s ongoing obligations.
40
What is the main legislation covering limited companies in the UK? A) Companies Act 2006 B) Sarbanes-Oxley Act 2002 C) Financial Services Act 2012 D) Corporate Governance Code
Correct Answer: A Explanation: The Companies Act 2006 is the main legislation covering limited companies in the UK, including regulations on company formation, statutory reporting, and directors' responsibilities.
41
What are the statutory functions of Companies House? A) Incorporate and dissolve limited companies, examine and store company information, and make it available to the public B) Conduct audits, approve marketing strategies, and manage employee relations C) Oversee financial disclosures, regulate stock exchanges, and enforce tax compliance D) Draft corporate governance codes, manage shareholder meetings, and approve mergers
Correct Answer: A Explanation: Companies House incorporates and dissolves limited companies, examines and stores company information delivered under the Companies Act, and makes this information available to the public.
42
What is the legal obligation of every registered company in the UK? A) To provide Companies House with an up-to-date annual return and, in most cases, annual accounts B) To submit monthly tax returns to the Financial Conduct Authority C) To conduct quarterly audits of employee performance D) To publish marketing strategies for public review
Correct Answer: A Explanation: Every registered company must provide Companies House with an up-to-date annual return and, in most cases, annual accounts, including a directors’ statement.
43
What must a company do to gain official recognition? A) Register with Companies House B) Obtain approval from the Financial Reporting Council C) Conduct an Initial Public Offering (IPO) D) Submit a corporate governance report
Correct Answer: A Explanation: A company must register with Companies House to gain official recognition. Until registered, it has no legal existence and cannot enter into contracts or undertake business.
44
What is the minimum allotted share capital required for a public company in the UK? A) £10,000 B) £50,000 C) £100,000 D) £25,000
Correct Answer: B Explanation: A public company must have an allotted share capital of at least £50,000 to comply with registration requirements.
45
What document must private companies comply with during registration? A) Memorandum of Association B) Articles of Incorporation C) Corporate Governance Code D) Financial Reporting Standards
Correct Answer: A Explanation: Private companies must comply with the Memorandum of Association and registration requirements of the Companies Act during registration.
46
What information must be included in the registration documents for a company? A) The company’s name, type, registered office, and proposed officers B) The company’s marketing strategy and employee satisfaction surveys C) The company’s financial performance and shareholder dividends D) The company’s tax returns and audit reports
Correct Answer: A Explanation: Registration documents must include the company’s name, whether it is private or public, the registered office location, and the statement of proposed officers.
47
What additional information must be included if a company is limited by shares? A) A statement of capital and initial shareholdings B) A list of marketing strategies C) A report on employee performance D) A summary of tax obligations
Correct Answer: A Explanation: If a company is limited by shares, the registration documents must include a statement of capital and the initial shareholdings.
48
What happens if a company is not registered with Companies House? A) It has no legal existence and cannot enter into contracts or undertake business B) It is automatically dissolved after one year C) It is fined by the Financial Conduct Authority D) It is required to submit a compliance report
Correct Answer: A Explanation: Until a company is registered with Companies House, it has no legal existence and cannot enter into contracts or undertake business.
49
What is the purpose of the Articles of Association? A) To outline the internal governance rules of the company B) To provide a summary of the company’s financial performance C) To list the company’s marketing strategies D) To detail the company’s tax obligations
Correct Answer: A Explanation: The Articles of Association outline the internal governance rules of the company and are included in the registration documents.
50
What must public companies comply with in addition to registration requirements? A) Rules for issuing shares to the public B) Employee satisfaction surveys C) Quarterly marketing reports D) Tax exemption policies
Correct Answer: A Explanation: Public companies must comply with additional rules for issuing shares to the public, such as having a minimum allotted share capital of £50,000.
51
What is the confirmation statement required to include? A) The company’s registered office address, principal business activities, directors, shareholders, and share capital B) The company’s marketing strategies and employee satisfaction surveys C) The company’s tax returns and audit reports D) The company’s dividend policies and financial forecasts
Correct Answer: A Explanation: The confirmation statement includes details such as the company’s registered office address, principal business activities, directors, shareholders, and share capital.
52
How often must a confirmation statement be delivered to Companies House? A) Every six months B) At least once every twelve months C) Every three years D) Only when the company is incorporated
Correct Answer: B Explanation: Every company must deliver a confirmation statement to Companies House at least once every twelve months.
53
What is the purpose of a company’s accounting records under the Companies Act? A) To disclose the financial position of the company and ensure compliance with the Act B) To track employee performance and marketing strategies C) To calculate shareholder dividends and tax obligations D) To monitor environmental and social policies exclusively
Correct Answer: A Explanation: Accounting records must disclose the financial position of the company and enable directors to ensure compliance with the Companies Act.
54
What must annual accounts provide by law? A) A true and fair view of the company’s economic state B) A detailed marketing strategy C) A summary of employee satisfaction surveys D) A forecast of future profits
Correct Answer: A Explanation: By law, annual accounts must give a true and fair view of the company’s economic state.
55
Which accounting standards must companies listed on the London Stock Exchange follow? A) International Financial Reporting Standards (IFRS) B) Generally Accepted Accounting Principles (GAAP) C) Sarbanes-Oxley Standards D) European Corporate Governance Standards
Correct Answer: A Explanation: Companies listed on the London Stock Exchange must follow International Financial Reporting Standards (IFRS).
56
What is included in a company’s annual accounts? A) An income statement, a balance sheet, and a directors’ report B) A marketing strategy, employee performance reviews, and tax returns C) A shareholder dividend report, tax obligations, and audit summaries D) A list of environmental policies, social initiatives, and community projects
Correct Answer: A Explanation: Annual accounts typically include an income statement, a balance sheet signed by a director, and a directors’ report.
57
What must the directors’ report include for a quoted company? A) Information on environmental matters, employees, and social issues B) A summary of marketing strategies and employee satisfaction surveys C) A forecast of future profits and tax obligations D) A detailed list of shareholder dividends
Correct Answer: A Explanation: The directors’ report for a quoted company must include information on environmental matters, employees, and social and community issues.
58
What is the purpose of the directors’ remuneration report? A) To outline the company’s policy on directors’ remuneration and performance conditions B) To summarize the company’s marketing strategies C) To provide a forecast of future profits D) To detail the company’s tax obligations
Correct Answer: A Explanation: The directors’ remuneration report outlines the company’s policy on directors’ remuneration, including performance conditions for share options and long-term incentive schemes
58
What must be approved at the annual general meeting of a quoted company? A) The directors’ remuneration report B) The company’s marketing strategy C) The employee satisfaction survey results D) The environmental policy report
Correct Answer: A Explanation: At the annual general meeting, a resolution must be passed approving the directors’ remuneration report for the financial year.
59
What is the purpose of the chair’s statement in the annual report? A) To provide a broad overview of the company’s activities B) To summarize the company’s tax obligations C) To outline the company’s marketing strategies D) To detail the company’s employee performance reviews
Correct Answer: A Explanation: The chair’s statement provides a broad overview of the company’s activities and is optional.
60
What is the deadline for private companies to file their accounts with Companies House? A) Within nine months of the year end B) Within six months of the year end C) Within three months of the year end D) Within twelve months of the year end
Correct Answer: A Explanation: Private companies must file their accounts with Companies House within nine months of the year end.
61
What is the purpose of the Association of British Insurers (ABI) guidelines on directors’ remuneration? A) To adjust remuneration to reflect performance and allow for clawbacks B) To eliminate performance-related pay C) To increase shareholder dividends D) To reduce the role of environmental policies
Correct Answer: A Explanation: The ABI guidelines recommend adjusting remuneration to reflect performance, allowing for clawbacks, and including non-financial performance objectives.
62
What is the penalty for late delivery of accounts to Companies House? A) Financial penalties and potential prosecution of directors B) A reduction in shareholder dividends C) Suspension of the company’s marketing activities D) A mandatory audit of employee performance
Correct Answer: A Explanation: Late delivery of accounts to Companies House may result in financial penalties and prosecution of company directors and the company secretary.
63
What is the role of external auditors regarding the directors’ and chair’s statements? A) To report inconsistencies between these statements and the rest of the annual report B) To ensure these statements provide a true and fair view C) To approve the company’s marketing strategies D) To evaluate employee performance reviews
Correct Answer: A Explanation: External auditors are required to report any inconsistencies between the directors’ and chair’s statements and the rest of the annual report.
64
Which companies are required by the Companies Act 2006 to have a company secretary? A) All public companies B) All private companies C) Only companies listed on the London Stock Exchange D) Only companies with more than 50 employees
Correct Answer: A Explanation: The Companies Act 2006 requires all public companies to have a company secretary, although private companies are not required to have one.
65
What duty does the Companies Act 2006 impose on directors regarding the company secretary? A) To ensure the secretary has the requisite knowledge and experience to discharge their functions B) To appoint the secretary from within the Board of Directors C) To ensure the secretary is a shareholder in the company D) To delegate all responsibilities of the Board to the secretary
Correct Answer: A Explanation: Directors must take all reasonable steps to ensure the company secretary has the requisite knowledge and experience to discharge their functions.
66
What is one of the key roles of a company secretary? A) Guiding the chair and Board on their responsibilities under rules and regulations B) Drafting the company’s marketing strategies C) Conducting employee performance reviews D) Approving shareholder dividends
Correct Answer: A Explanation: A company secretary guides the chair and Board on their responsibilities under the rules and regulations to which they are subject.
66
What are some acceptable qualifications for the post of company secretary? A) Chartered secretary, accountancy, or legal qualifications B) Marketing and sales certifications C) Employee performance management qualifications D) Environmental and social governance certifications
Correct Answer: A Explanation: Acceptable qualifications for a company secretary include being a chartered secretary or holding accountancy or legal qualifications.
67
What is the role of the company secretary in relation to information flows? A) Overseeing the company’s tax filings B) Ensuring good information flows within the Board and between senior management and non-executive directors C) Conducting employee training sessions D) Managing the company’s marketing communications
Correct Answer: B Explanation: The company secretary ensures good information flows within the Board and its committees and between senior management and non-executive directors.
68
How does the company secretary support the chair? A) By conducting financial audits B) By managing the company’s marketing strategies C) By ensuring the Board functions efficiently and effectively D) By overseeing employee satisfaction surveys
Correct Answer: C Explanation: The company secretary supports the chair in ensuring the Board functions efficiently and effectively.
69
What responsibility does the company secretary have regarding shareholders? A) Conducting shareholder satisfaction surveys B) Drafting shareholder agreements C) Maintaining good shareholder relations and keeping the Board informed on shareholders’ views D) Approving shareholder dividends
Correct Answer: C Explanation: The company secretary maintains good shareholder relations and keeps the Board informed on shareholders’ views.
70
What systems does the company secretary develop and oversee? A) Systems for employee performance reviews B) Systems to ensure compliance with applicable codes and legal requirements C) Systems for environmental impact assessments D) Systems for marketing and sales strategies
Correct Answer: B Explanation: The company secretary develops and oversees systems to ensure the company complies with all applicable codes, legal, and statutory requirements.
71
What is one of the administrative responsibilities of the company secretary? A) Approving employee promotions B) Maintaining statutory books, including registers of members, directors, and secretaries C) Conducting quarterly financial audits D) Drafting the company’s marketing strategies
Correct Answer: B Explanation: The company secretary oversees the day-to-day administration of the company, including maintaining statutory books and organising Board meetings.
72
What is the company secretary’s role in Board meetings and AGMs? A) Conducting employee performance reviews B) Organising meetings, preparing agendas, and taking minutes C) Approving shareholder dividends D) Drafting marketing strategies
Correct Answer: B Explanation: The company secretary organises Board meetings and AGMs, prepares agendas, and takes minutes.
73
What additional responsibilities might some company secretaries have? A) Managing environmental and social governance policies exclusively B) Facilities, HR, insurance, investor relations, pension administration, premises, and share registration C) Conducting financial audits and approving tax filings D) Drafting marketing strategies and employee satisfaction surveys
Correct Answer: B Explanation: Some company secretaries may also have responsibilities for facilities, HR, insurance, investor relations, pension administration, premises, and share registration.
74
What is the role of the company secretary in monitoring legislation? A) Approving tax filings B) Conducting employee training on legal matters C) Drafting new legislation for the company D) Monitoring changes in relevant legislation and the regulatory environment and taking action accordingly
Correct Answer: D Explanation: The company secretary monitors changes in relevant legislation and the regulatory environment and takes action accordingly.
75
What is required for a person to be appointed as a company secretary? A) They must be a member of the Board of Directors B) They must be a shareholder in the company C) They must have a minimum of 10 years of experience in marketing D) They must appear to the directors to have the capability to discharge the functions of secretary
Correct Answer: D Explanation: A person may be appointed as a company secretary if they appear to the directors to have the capability to discharge the functions of the role.
76
What is the primary purpose of the three lines of defence model? A) To ensure only senior management is responsible for risk management B) To assign risk management responsibilities across the organisation C) To eliminate the need for external audits D) To focus solely on financial risks
Correct Answer: B Explanation: The three lines of defence model ensures that risk management is the responsibility of everyone across the organisation.
77
Who is primarily responsible for identifying and controlling risks in the first line of defence? A) Internal audit team B) Front-line managers C) External regulators D) Risk management department
Correct Answer: B Explanation: In the first line of defence, front-line managers are responsible for identifying and controlling risks in line with the risk strategy and control environment.
78
What is the role of the risk management department in the second line of defence? A) To directly control risks in operational activities B) To act as advisors and monitors to senior management and the Board C) To conduct external audits of risk management practices D) To oversee shareholder relations
Correct Answer: B Explanation: The risk management department acts as advisors and monitors to senior management and the Board, forming the second line of defence.
79
Who is typically the risk owner for risks associated with fraudulent claims? A) The head of IT B) The finance director C) The head of claims D) The internal audit team
Correct Answer: C Explanation: The head of claims is the risk owner for risks associated with fraudulent claims, as they are most closely involved with this activity.
80
Who is responsible for ensuring the accuracy of accounting records in the first line of defence? A) The head of IT B) The finance director C) The internal audit team D) The risk management department
Correct Answer: B Explanation: The finance director has ultimate responsibility for ensuring the accuracy of accounting records.
81
What is the purpose of the three lines of defence model in risk management? A) To ensure compliance with the risk strategy across all levels of the organisation B) To eliminate the need for internal audits C) To focus solely on financial risks D) To assign all risk management responsibilities to external regulators
Correct Answer: A Explanation: The three lines of defence model ensures compliance with the risk strategy across all levels of the organisation.
82
What is the responsibility of the internal audit team in the third line of defence? A) To review the overall risk management operation and ensure compliance with the risk strategy B) To directly manage risks in operational activities C) To draft the company’s risk strategy D) To oversee the company’s marketing strategies
Correct Answer: A Explanation: The internal audit team reviews the overall risk management operation to ensure compliance with the risk strategy agreed by senior management or the Board.
83
What is the role of external parties, such as regulatory bodies, in the three lines of defence model? A) To eliminate the need for internal audits B) To provide feedback to senior managers on the effectiveness of risk management practices C) To directly manage risks in operational activities D) To approve the company’s marketing strategies
Correct Answer: B Explanation: External parties, such as regulatory bodies, provide feedback to senior managers on the effectiveness of risk management practices and the design of the risk strategy.
84
What is the primary focus of the first line of defence? A) Reviewing the effectiveness of the risk management department B) Identifying and controlling risks in operational activities C) Providing feedback to external regulators D) Conducting internal audits of risk management practices
Correct Answer: B Explanation: The first line of defence focuses on identifying and controlling risks in operational activities, primarily through front-line managers.
85
What is the role of operational management in the second line of defence? A) To deliver risk control in line with the risk strategy B) To conduct external audits of risk management practices C) To oversee shareholder relations D) To provide feedback to regulatory bodies
Correct Answer: A Explanation: Operational management is accountable for delivering risk control in line with the risk strategy, even though the risk management department advises and monitors them.
86
What is the primary purpose of key risk indicators in a business? A) To identify changes in risks and effectiveness of controls B) To eliminate the need for audits C) To track company profits D) To oversee shareholder dividends
Correct Answer: A Explanation: Key risk indicators help managers and directors track changes in risks and assess the effectiveness of controls.
87
Which business risk is commonly graded by materiality in key risk indicators? A) IT downtime B) Employee training C) Shareholder votes D) Marketing effectiveness
Correct Answer: A Explanation: IT downtime is graded by materiality, such as less than 30 minutes, greater than 30 minutes, or greater than two hours.
88
How is fraud monitored as a key risk indicator? A) By tracking both internal fraud (employees) and external fraud (third parties or policyholders) B) By reviewing shareholder satisfaction surveys C) By measuring financial growth trends D) By assessing marketing effectiveness
Correct Answer: A Explanation: Fraud is monitored by tracking both internal fraud by employees and external fraud by third parties or policyholders making fraudulent claims.
89
What must management do when a major risk event occurs or a trend is identified? A) Investigate the circumstances and review control effectiveness B) Eliminate all risks immediately C) Ignore the trend if profits remain stable D) Shift responsibility to external regulators
Correct Answer: A Explanation: When a major risk event occurs or a trend is identified, management investigates the circumstances and reviews control effectiveness.
90
What is a cost/benefit exercise used for in risk management? A) To assess whether additional controls are necessary B) To determine how much revenue is lost due to risk events C) To monitor employee satisfaction levels D) To track marketing performance
Correct Answer: A Explanation: A cost/benefit exercise helps determine whether additional controls should be implemented to reduce risks.
91
What are two other common key risk indicators businesses track? A) Property loss/damage and employee injury/illness B) Shareholder dividends and marketing expenses C) Advertising reach and customer satisfaction D) Environmental impact and tax filings
Correct Answer: A Explanation: Businesses commonly track property loss/damage and employee injury/illness to assess financial and operational risks.
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How frequently are risk indicators reviewed by managers and directors? A) Monthly (such as during Board meetings) B) Only when a major risk occurs C) Annually D) Every five years
Correct Answer: A Explanation: Risk indicators are typically reviewed monthly during Board meetings to monitor trends and assess control effectiveness.
93
What should a company do if existing controls are found to be inadequate? A) Implement further controls to reduce the risk B) Cease operations immediately C) Ignore the issue if no financial losses occur D) Rely solely on external audits
Correct Answer: A Explanation: If controls are inadequate, a company implements additional risk controls to reduce exposure.
94
hat is the purpose of a firm's risk appetite? Back: A) To determine which risks the firm wishes to seek or avoid B) To eliminate all risks entirely C) To ensure complete financial security D) To oversee employee performance
Correct Answer: A Explanation: Risk appetite is used to determine the risks a firm is willing to accept and those it wishes to avoid, helping with strategy and business planning.
95
Which factor influences an insurance company’s risk appetite? A) The availability of appropriate reinsurance B) The company’s marketing strategy C) The number of shareholders D) The amount of taxes paid
Correct Answer: A Explanation: Insurance companies consider factors like reinsurance availability when determining the types of risks they are willing to accept.
96
What is risk tolerance? A) The level of loss a firm is prepared to accept if a risk event occurs B) The process of eliminating all risks C) A company’s financial strategy D) A firm’s marketing budget
Correct Answer: A Explanation: Risk tolerance refers to the level of loss a company is willing to accept should a risk event occur.
97
What is the international risk management standard that provides a framework for managing risk? A)UK Corporate Governance Code B) IFRS Guidelines C) FCA Regulatory Handbook D) ISO 31000
Correct Answer: D Explanation: ISO 31000 is the international risk management standard providing a framework for handling risk across organisations.
98
What is an example of risk tolerance for investment risks? A) Allowing investment losses up to 5% of book value per year B) Accepting unlimited losses across all assets C) Preventing employees from investing in the company D) Not allowing any investment losses
Correct Answer: A Explanation: Firms may tolerate investment losses up to a set percentage, such as 5% of book value per year.
99
What does residual risk refer to? A) The elimination of all possible risks B) The risk that remains after all controls are implemented C) The overall financial risks to the company D) The company’s marketing challenges
Correct Answer: B Explanation: Residual risk is the remaining risk after all mitigating actions have been taken.
100
What is the core role of the audit committee? A) To manage the company’s marketing strategy B) To scrutinise the robustness of the control framework and assess its application C) To oversee employee performance D) To eliminate all risks within the company
Correct Answer: B Explanation: The audit committee ensures that the control framework is robust and applied effectively.
101
What is the minimum membership requirement for an audit committee? A) Two independent non-executive directors for all companies B) Three independent non-executive directors, or two for smaller companies C) One executive director and two non-executive directors D) Four directors, including the chair of the Board
Correct Answer: B Explanation: The UK Corporate Governance Code requires an audit committee to have three independent non-executive directors, or two for smaller companies.
102
Which companies must undergo a statutory external audit? A) Companies with fewer than 50 employees B) Banks, insurance companies, and public companies C) Companies with a turnover below £10.2m D) Private companies with net assets below £5.1m
Correct Answer: B Explanation: Banks, insurance companies, and public companies are always subject to a statutory audit to ensure transparency.
103
What is the primary objective of the Audit, Reporting and Governance Authority (ARGA)? A) To safeguard jobs and the UK’s global reputation for investment B) To eliminate the need for external audits C) To focus solely on financial reporting D) To replace the Companies Act 2006
Correct Answer: A Explanation: ARGA aims to safeguard jobs and the UK’s global reputation for investment by improving audit practices and corporate transparency.
104
What must companies disclose in ESG (Environmental, Social, and Governance) reporting? A) Strategy, processes, and due diligence regarding ESG matters B) Only environmental risks C) Marketing strategies and advertising budgets D) Employee salaries
Correct Answer: A Explanation: ESG requires disclosures about strategy, governance, social impact, and environmental processes.
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What is the role of the chief internal auditor (CIA)? A) To eliminate all corporate risks B) To manage external audits C) To oversee employee promotions D) To propose audit plans for review and report directly to the audit committee

Casestudy M92 (10 decks)

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