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ACCA P1 GRE Revision Question Set 1 1. Distinguish between unitary and two-tier boards of directors.

unitary all directors are members (ED and NED) no distinction between strategic oversight and operational management All directors are of equal rank. All directors able to influence strategy Decisions are made collectively . Two-tier Split between: NED: supervisory or oversight board (chaired by the chairman) ED: operational board (usually chaired by the chief executive) Supervisory board decides on strategic issues. has representatives of stakeholders, management, bank, etc operational board responsible for executing the strategy determined by the supervisory board Directors on the lower tier (operational board) do not have the same levels of responsibility or power as those on the supervisory board. Responsibilities between the boards are clearly defined supervisory board responsible for many legal and regulatory compliance issues (such as financial reporting)

Structure

Powers and rank

Legal Responsibility

share the collective responsibility in terms of legal and regulatory liability

2.

Explain the FOUR roles of non-executive directors UK Higgs Report (2003) PEOPLE management of the executive members of the board (remuneration, appointment, contractual, disciplinary) RISK ensure internal controls and risk management systems are in place. STRATEGY contribute to and challenge the direction of strategy SCRUTINY scrutinize the performance of executive management and hold them accountability. Reduce agency issues

3.

Define environmental footprint the SIZE of a COMPANYS IMPACT on the environment in three aspects: The companys RESOURCE CONSUMPTION. Any HARM to the environment brought about by pollution emissions. A MEASUREMENT of the resource consumption and pollution emissions in terms of harm to the environment (either qualitative, quantitative or replacement terms)

4.

Explain what are agency problem and agency cost in joint-stock companies AGENCY PROBLEM/ISSUE INTEREST: Directors (agent) not acting in the interest of shareholders (principal) RISK: Different risk attitudes ROOT CAUSE: Arise from agency relationship, i.e. separation of ownership and management (agent and principal) e.g. breach of trust by directors, fraud, aggressive risk taking AGENCY COST MONITOR & CONTROL: cost incurred by the shareholder in monitoring and controlling the activities of company agents (i.e. directors) e.g. external audit, shareholder-directors meetings, appraisal, more NEDs to ensure directors are acting in the interest of shareholders

5.

Explain transparency in the context of corporate governance INFORMATION: Openness, clarity, no withholding (unless necessary) CG: directors providing essential info to shareholders (e.g. FS, announcements of material matters)

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6.

Define stakeholder and stakeholder claim STAKEHOLDER: Bi-directional relationship: any person or group that can affect or be affected by an entitys actions Interest: Has a concern/issue with the entity Voluntary or involuntary STAKEHOLDER CLAIM EXPECTATION: Stakeholders want something DIRECT CLAIM unambiguous, made by those with their own voice made directly between the stakeholder and the organisation e.g. employees, resident, supplier INDIRECT CLAIM By inarticulate or voiceless stakeholders unable to express their claim direct to the organisation because powerless (minor customer), no voice (environment), distance (foreign supplier) this does not invalidate their claim STAKEHOLDER ANALYSIS stakeholders are important in both business ethics and in strategic analysis management to decide on the strengths of each stakeholders claim in formulating strategy and in making decisions

7.

Contrast absolutist (dogmatic) and relativist (pragmatic) ethical assumptions ABSOLUTIST (DOGMATIC) there are eternal truth unchanging set of ethical principles in all situations Regardless of outcome or situation e.g. religion, deontology RELATIVIST (PRAGMATIC) Wide variety of acceptable ethical beliefs nd practices Situational what is the best ethical approach based on the situation and outcome? e.g. teleological, egoism

* a dogmatic assumption is one that is accepted without discussion or debate 8. Explain the two categories of ethical safeguard identified in the IFAC and ACCA guideline: Ethical safeguard protection/security against unethical behaviours Safeguards by progression, legislation or regulations Corporate governance Professional code of ethics Professional Disciplinary procedures Safeguards within the firms own system and procedures Different team for non-assurance work Quality control procedures Rotating partner *Pg. 294 bpp 9. Explain what is a induction programme and Continual professional development (CPD) for directors INDUCTION process of orientation and familiarisation company culture, structure, markets, products, risk, etc people management, key suppliers, institutional investors, etc CPD update skills and knowledge as relevant to the professional situation regulation/law, technical, etc

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