Acca f8 audit & assurance chapter 2 corporate governance mcqs

🎓 ACCA Audit & Assurance

📋 Exam Instructions

This practice test contains 50 multiple choice questions

Each question has 4 options (A, B, C, D) unless otherwise stated

Choose the best answer for each question

All questions are based on ACCA Audit & Assurance Chapter 2: CorporateGovernance

Answers and explanations are provided at the end

📚 Study Tips

Read each question carefully before selecting an answer

Review the explanations to understand the concepts

Focus on areas where you scored lower

Practice regularly to improve retention

📝 PART 1: QUESTIONS (50 Questions)

Question 1: The Organization of Economic Cooperation

Development (OECD) has developed Principles of a corporate governance framework to address issues in this area Which of the following is NOT an OECD principle?

A It should ensure timely and accurate disclosure of all material

Chapter 2: Corporate Governance - Practice Quiz (50 Questions)

matters in financial statements

B It should ensure a majority of independent non-executive

directors on board committees

C It should promote transparent and fair markets and supporteffective supervision and enforcement

D It should recognise the rights and ensure the equitable treatment

of all stakeholders

Question 2: Which of the following defines 'corporate

governance'?

A The part of the board made up of non-executive directors (NEDs)

B The board of directors, trustees or governors of an entity

C The relationship between directors, shareholders and auditors

D The system by which companies are directed and controlled

Question 3: Which of the following is NOT a requirement of the UK Corporate Governance Code?

A A smaller company should have at least two independent executive directors

non-B There should be a nomination committee to lead the process forboard appointments

C Directors' performance should be subject to annual review

D The roles of finance director and chief executive should not beexercised by the same individual

Question 4: Which TWO of the following statements regarding corporate governance in the UK are correct? (Select the best single answer that represents both correct statements)

A All directors should be subject to re-election every three years

AND Remuneration for non-executive directors cannot include shareoptions

B A majority of members of the audit committee should be

independent non-executive directors AND The board should

establish a separate risk committee

C All directors should be subject to re-election every three years

AND A majority of members of the audit committee should be

independent non-executive directors

D Remuneration for non-executive directors cannot include shareoptions AND The board should establish a separate risk committee

Question 5: Which of the following statements is correct

according to the UK Corporate Governance Code?

A A listed company must have an internal audit function

B The chief executive is responsible for leadership of the board

C Appointments to the board should be lead by a remuneration

committee

D The position of chair should not be held beyond nine years

Question 6: Which of the following is NOT a Principle of the

UK Corporate Governance Code?

A Annual evaluation of the board should consider its compositionand diversity

B The chair is responsible for the overall effectiveness of the board

in directing the company

C The board should establish procedures to manage risk and

oversee the internal control framework

D The board should ensure the equitable treatment of all

shareholders, including minority shareholders

Question 7: What is the primary purpose of corporate

governance?

A To maximize short-term profits

B To ensure compliance with tax regulations

C To provide a framework for achieving objectives and monitoringperformance

D To eliminate all business risks

Question 8: Which of the following is a key role of executive directors (NEDs)?

non-A Day-to-day management of the company

B Providing independent oversight and challenge to executivemanagement

C Preparing the annual financial statements

D Conducting internal audits

Question 9: What is the recommended composition of the audit committee under the UK Corporate Governance Code?

A A majority of independent non-executive directors

B At least three members, all independent non-executive directors

C Equal numbers of executive and non-executive directors

D At least two members, with one being the finance director

Question 10: Which committee is responsible for setting executive remuneration?

A Audit committee

B Nomination committee

C Remuneration committee

B Companies can choose which governance rules to follow

C Companies should comply with the code or explain why they havenot

D Companies only need to explain their governance practices

Question 12: Which of the following is a benefit of good corporate governance?

A Guaranteed profitability

B Elimination of all business risks

C Enhanced investor confidence and access to capital

D Reduced need for external auditing

Question 13: What is the role of the nomination committee?

A To nominate the external auditor

B To lead the process for board appointments and succession

planning

C To nominate candidates for employee positions

D To nominate the company for awards

Question 14: According to the UK Corporate Governance Code, how often should the board's performance be evaluated?

A Every three years

B Every two years

C Annually

D Only when problems arise

Question 15: What is the maximum recommended tenure for independent non-executive directors?

A Six years

B Nine years

C Twelve years

D No maximum limit

Question 16: Which of the following is NOT typically a responsibility of the audit committee?

A Monitoring the integrity of financial statements

B Overseeing the external audit process

C Setting executive remuneration packages

D Reviewing the effectiveness of internal controls

Question 17: What is meant by 'board diversity'?

A Having directors from different companies

B Including directors with different skills, experience, backgrounds,and characteristics

C Having both executive and non-executive directors

D Including directors of different ages only

Question 18: Which stakeholder group has the primary responsibility for appointing and removing directors?

A Employees

B Customers

C Shareholders

D Creditors

Question 19: What is the purpose of an annual general meeting (AGM)?

A To conduct day-to-day business operations

B To provide a forum for shareholders to receive information andexercise their rights

C To negotiate with suppliers

D To interview potential employees

Question 20: Which of the following is a characteristic of effective risk management?

A Eliminating all risks completely

B Focusing only on financial risks

C Regular identification, assessment, and monitoring of risks

D Delegating all risk decisions to external consultants

Question 21: What is the role of internal audit in corporate governance?

A To replace the external auditor

B To provide independent assurance on risk management, control,and governance processes

C To manage the company's day-to-day operations

D To set the company's strategic direction

Question 22: Which principle emphasizes the importance of long-term sustainable success?

A Shareholder primacy

B Stakeholder capitalism

C Profit maximization

D Cost minimization

Question 23: What is the purpose of a whistleblowing policy?

A To encourage employees to report concerns about wrongdoing

B To monitor employee performance

C To reduce employee turnover

D To increase productivity

Question 24: Which of the following best describes the relationship between the chair and CEO roles?

A They should always be the same person

B They should be separate individuals with distinct responsibilities

C The CEO should report to multiple chairs

D The roles are identical in function

Question 25: What is the significance of director

independence?

A Independent directors work part-time only

B Independent directors provide objective judgment free fromconflicts of interest

C Independent directors are not paid for their services

D Independent directors cannot own shares in the company

Question 26: Which of the following is a key component of executive remuneration design?

A Guaranteed annual increases regardless of performance

B Alignment with long-term shareholder value creation

C Matching the highest paid employee in the company

D Based solely on industry averages

Question 27: What is the purpose of related party transaction disclosure?

A To increase administrative burden

B To ensure transparency and prevent conflicts of interest

C To reduce the number of transactions

D To eliminate all related party relationships

Question 28: Which governance mechanism helps ensure board accountability to shareholders?

A Secret board meetings

B Annual director re-election

C Permanent director appointments

D Closed shareholder communications

Question 29: What is the role of institutional investors in corporate governance?

A To manage day-to-day operations

B To engage with companies on governance matters and exercisevoting rights

C To replace the board of directors

D To conduct external audits

Question 30: Which of the following is an example of good governance practice in risk management?

A Avoiding all business risks

B Having a comprehensive risk register that is regularly updated

C Delegating all risk decisions to junior staff

D Focusing only on risks that have occurred before

Question 31: What is the purpose of board committees?

A To replace the main board

B To provide detailed oversight of specific areas and support boarddecision-making

C To reduce the number of board meetings

D To exclude non-executive directors from decisions

Question 32: Which factor is most important when assessing director independence?

A Length of service only

B Absence of relationships or circumstances that could affect

A It applies only to listed companies

B It provides guidance for institutional investors on engagementwith investee companies

C It replaces the Corporate Governance Code

D It only covers environmental issues

Question 34: Which of the following best describes corporate social responsibility (CSR)?

A A legal requirement for all companies

B A company's commitment to manage its social, environmental,and economic impacts

C A marketing strategy only

D A replacement for corporate governance

Question 35: What is the primary benefit of having diverse board composition?

A Meeting regulatory quotas

B Enhanced decision-making through different perspectives and

experiences

C Reducing board meeting costs

D Eliminating all disagreements

Question 36: Which governance practice helps ensure effective board oversight of management?

A Having only executive directors on the board

B Regular executive sessions without management present

C Eliminating all board committees

D Reducing the frequency of board meetings

Question 37: What is the role of the company secretary in corporate governance?

A To replace the CEO when absent

B To support the board in achieving high standards of governance

C To conduct external audits

D To manage investor relations exclusively

Question 38: Which principle underlies the concept of fiduciary duty?

A Directors should prioritize their personal interests

B Directors should act in the best interests of the company and itsshareholders

C Directors should focus only on short-term profits

D Directors should avoid all business risks

Question 39: What is the purpose of succession planning in corporate governance?

A To reduce employee turnover

B To ensure continuity of leadership and smooth transitions

C To eliminate the need for recruitment

D To reduce training costs

Question 40: Which of the following is a key characteristic of effective board leadership?

A Making all decisions without consultation

B Promoting open dialogue and constructive challenge

C Avoiding difficult conversations

D Focusing only on operational details

Question 41: What is the significance of materiality in

corporate governance disclosures?

A All information must be disclosed regardless of importance

B Only information that could influence stakeholder decisions

should be disclosed

C Only financial information needs to be disclosed

D Materiality is not relevant to governance disclosures

Question 42: Which governance mechanism helps protect minority shareholder rights?

A Weighted voting systems favoring large shareholders

B Independent directors and transparent processes

C Eliminating shareholder voting rights

D Concentrating power in management

Question 43: What is the relationship between corporate

governance and business ethics?

A They are completely separate concepts

B Good governance provides the framework for ethical business

conduct

C Ethics are only relevant to small companies

D Governance eliminates the need for ethical considerations

Question 44: What is the primary difference between

executive and non-executive directors?

A Executive directors are paid more than non-executive directors

B Executive directors are involved in day-to-day management, executive directors provide oversight

non-C Non-executive directors cannot attend board meetings

D Executive directors serve longer terms than non-executive

directors

Question 45: According to the UK Corporate Governance Code, what should happen if a director receives significant votes against their re-election?

A The director should automatically resign

B The board should seek to understand the reasons and take

appropriate action

C The vote should be ignored

D A new election should be held immediately

Question 46: Which of the following is a key responsibility of the remuneration committee?

A Setting the company's dividend policy

B Appointing the external auditor

C Determining the remuneration policy for executive directors

D Reviewing the company's risk appetite

Question 47: What is meant by 'tone at the top' in corporate governance?

A The volume level during board meetings

B The ethical climate and culture set by senior leadership

C The physical location of executive offices

D The frequency of board communications

Question 48: Which governance principle emphasizes the

importance of stakeholder engagement?

A Shareholder primacy only

B Section 172 of the Companies Act - duty to promote success ofcompany

C Profit maximization principle

D Cost reduction principle

Question 49: What is the recommended frequency for external board evaluation?

A Every year

B Every two years

C Every three years

D Every five years

Question 50: Which of the following best describes the

concept of 'shadow directors'?

A Directors who work part-time

B Persons whose directions or instructions the directors are

accustomed to act upon

C Directors who attend meetings remotely

D Former directors who provide advice

Question 51: What is the purpose of a clawback provision in executive remuneration?

A To increase executive pay automatically

B To recover remuneration in cases of misstatement or misconduct

C To provide additional benefits to executives

D To reduce the company's tax liability

Question 52: Which factor is most likely to compromise

auditor independence?

A The auditor having professional qualifications

B The auditor providing significant non-audit services to the client

C The auditor being located in a different city

D The auditor using standardized audit procedures

✅ PART 2: ANSWERS & EXPLANATIONS