CIMA BA4 Corporate governance, controls and corporate social responsibility: practice questions with answers

Answer: D. The Cadbury Report defined corporate governance as 'the system by which companies are directed and controlled'. Boards of directors are responsible for governance; shareholders appoint the directors and auditors and satisfy themselves that an appropriate governance structure is in place. Governance covers board structure and roles, accountability, risk management and internal control, remuneration and relations with shareholders and other stakeholders.

Answer: B. The UK Code states that the board should establish a nomination committee, a majority of whose members are independent non-executive directors, to lead the process for appointments, ensure plans are in place for orderly succession to both the board and senior management positions, and oversee the development of a diverse pipeline for succession. Appointments should be made on merit against objective criteria, promoting diversity.

Answer: C. Those charged with governance (the directors) and management have primary responsibility for preventing and detecting fraud. They do this by creating a culture of honesty and ethical behaviour, assessing fraud risk, and designing and operating effective internal controls. Internal audit supports them by evaluating controls and sometimes investigating suspected fraud; the external auditor's role is limited to obtaining reasonable assurance about material misstatement in the financial statements.

Answer: A. Milton Friedman argued that 'the social responsibility of business is to increase its profits' while staying within 'the rules of the game' (open and free competition without deception or fraud). Managers are agents of the shareholders, and spending company money on social causes is effectively taxing shareholders without their consent. This contrasts with stakeholder views of CSR, under which businesses should take account of the interests of employees, customers, communities and the environment.

Answer: D. Internal audit adds value by giving the board, audit committee and management independent, objective assurance that risks are being managed and controls are working, and advice on how governance, risk management and control can be improved.

For example, it may identify control weaknesses, inefficiencies or risks of fraud and recommend practical improvements. To keep its objectivity, internal audit should not take on management responsibilities.

Answer: A. Sarbanes-Oxley requires the company's chief executive officer (CEO) and chief financial officer (CFO) to certify in each annual and quarterly report that they have reviewed it, that it contains no untrue statement or omission of a material fact, and that the financial statements fairly present the company's financial condition and results. They also accept responsibility for the company's internal controls over disclosure.

Personal certification, backed by criminal penalties for knowingly false certification, reflects the rules-based nature of the US approach to corporate governance.