Week 5

• What is the main focus of Lecture 7?

  Corporate Governance
• What does Agency Theory address?


  The separation of ownership from executive control
• Who highlighted the agency dilemma in corporate governance?

  Adam Smith
• What is the role of auditors in corporate governance?

  To equalize information imbalance between directors and shareholders
• What is Corporate Governance?

  • System of checks and balances
  • Ensures accountability to stakeholders
  • Promotes socially responsible business practices
• Who is responsible for the governance of companies?

  Boards of directors
• What does the UK Corporate Governance Code set standards for?

  Board leadership and company purpose
• What is required of companies with a Premium Listing of equity shares?

  To report on compliance with the Code
• What is the 'Comply or Explain' framework?

  Companies must explain deviations from the Code
• When was the latest edition of the UK Corporate Governance Code published?

  January 2024
• What was a main change in the 2024 version of the Code?

  Strengthening internal control measures
• What are the key reports that influenced UK Corporate Governance?

  • Cadbury Report (1992)
  • Greenbury Report (1995)
  • Hampel Report (1998)
  • Turnbull Report (1999)
  • Higgs Report (2003)
  • Smith Report (2003)
• What did the Cadbury Report introduce?

  Independent non-executive directors
• What principle did the Hampel Report emphasize?

  Good governance needs broad principles, not strict rules
• What does the Turnbull Report focus on?

  Internal controls
• What is a requirement for the audit committee according to the Code?

  Must consist of independent non-executive directors
• How does the UK Corporate Governance Code differ from the Sarbanes-Oxley Act?

  The Code allows for 'comply or explain' flexibility
• What should the board ensure regarding financial statements?

  They should be fair, balanced, and understandable
• What are the sections of the UK Corporate Governance Code 2024?

  1. Board Leadership and Company Purpose
  2. Division of Responsibilities
  3. Composition, Succession and Evaluation
  4. Audit, Risk and Internal Control
  5. Remuneration
• What is the focus of the 'Division of Responsibilities' section?

  Clarifying roles within the board
• What is a potential issue with CEO duality?

  It may lead to lack of board independence
• What should non-executive directors do according to the Code?

  Challenge and develop proposals on strategy
• What is required of the audit committee's chair?

  Must not be a member of the audit committee
• What is the role of the audit committee?

  Monitor the integrity of financial statements
• What should the board establish regarding risk management?

  An effective risk management and internal control framework
• What is the minimum membership for the audit committee?

  Three independent non-executive directors
• What is a requirement for audit committee members?

  At least one must have relevant financial experience
• What should the audit committee review?

  The company's risk management and internal control framework
• What are the provisions related to audit, risk, and internal control?

  1. Establish an audit committee of independent NEDs
  2. Monitor integrity of financial statements
  3. Review risk management and internal control framework
• What is the role of the audit committee regarding financial statements?

  Monitor the integrity of financial statements
• What does the audit committee provide advice on?

  Fairness and understandability of annual reports
• What standard should the audit committee follow?

  Audit Committees and External Audit: Minimum Standard
• What does the audit committee review regarding risk management?

  Internal control framework of the company
• What should the audit committee do if there is no internal audit function?

  Consider the need for one annually
• What should the audit committee report to the board?

  How it has discharged its responsibilities
• What should the annual report describe about the audit committee?

  Work of the audit committee and its matters
• What should directors explain in the annual report?

  Responsibility for preparing the annual report
• What should the board assess regarding risks?

  Emerging and principal risks of the company
• What should the board confirm in the annual report?

  Completion of risk assessment and management
• How often should the board review the effectiveness of the risk management framework?

  At least annually