ACCA考试P1-P3模拟题及解析5

　　以下是高顿网校小编为学员整理的：ACCA P1-P3模拟题及解析。
 

　　After a recent financial crisis in the country of Oland, there had been a number of high profile company failures and a general loss of confidence in business. As a result, an updated corporate governance code was proposed, with

　　changes to address these concerns.

　　Before the new code was published, there was a debate in Oland society about whether corporate governance provisions should be made rules-based, or remain principles-based as had been the case in the past. One elected legislator, Martin Mung, whose constituency contained a number of the companies that had failed with resulting rises in unemployment, argued strongly that many of the corporate governance failures would not have happened if directors were legally accountable for compliance with corporate governance provisions. He said that ‘you can’t trust the markets to punish bad practice’, saying that this was what had caused the problems in the first place. He said that Oland should become a rules-based jurisdiction because the current ‘comply or explain’ was ineffective as a means of controlling corporate governance.

　　Mr Mung was angered by the company failures in his constituency and believed that a lack of sound corporate governance contributed to the failure of important companies and the jobs they supported. He said that he wanted the new code to make it more difficult for companies to fail.

　　The new code was then issued, under a principles-based approach. One added provision in the new Oland code was to recommend a reduction in the re-election period of all directors from three years to one year. The code also required that when seeking re-election, there should be ‘sufficient biographical details on each director to enable shareholders to take an informed decision’. The code explained that these measures were ‘in the interests of greater accountability’.
 

　　(a) Examine how sound corporate governance can make it more difficult for companies to fail, clearly explaining what ‘corporate governance’ means in your answer. (10 marks)

　　(b) Martin Mung believes that Oland should become a rules-based jurisdiction because the current ‘comply or explain’ approach is ineffective as a means of controlling corporate governance.
 

　　Explain the difference between rules-based and principles-based approaches to corporate governance

　　regulation, and argue against Martin Mung’s belief that ‘comply or explain’ is ineffective. (8 marks)

　　(c) Explain what ‘accountability’ means, and discuss how the proposed new provisions for shorter re-election periods and biographical details might result in ‘greater accountability’ as the code suggests. (7 marks)

　　(25 marks)
 

　　(a) How sound corporate governance addresses company failure.

　　Corporate governance is the system by which organisations are directed and controlled. A sound system of corporate governance, whether rules or principles-based, is capable of reducing company failures in a number of ways.

　　First, it addresses issues of management, management succession and alignment of board interests with those of shareholders. This reduces the agency problem and makes it less likely that management will promote their own self-interests above those of shareholders. By promoting longer-term shareholder interests over personal or short-term interests, companies are less likely to come under the types of pressures that might lead to failure.

　　Second, a sound system of corporate governance helps to identify and manage the wide range of risks that a company can face, some of which will be capable of causing the company to fail. These might arise from changes in the internal or external environments, and most codes specify a strict set of management procedures for identifying and controlling such risks.

　　Third, an effective code will specify a range of effective internal controls that will ensure the effective use of resources and the minimisation of waste, fraud, and the misuse of company assets. Internal controls are necessary for maintaining the efficient and effective operation of a business, whereas weak or absent controls are more likely to lead to the conditions that

　　could threaten its survival.

　　Fourth, effective codes encourage reliable and complete external reporting of financial data and a range of other voluntary disclosures. By using this information, investors can establish what is going on in the company and will have advanced

　　warning of any problems. This need to report creates an accountability of management to shareholders and restricts the types of actions and behaviours likely to threaten company survival.

　　Fifth, compliance with a code underpins investor confidence and gives shareholders a belief that their investments are being responsibly managed. This confidence extends to other stakeholders such as tax authorities, industry regulators and others,some of whom can cause a great deal of trouble for the company if they believe the company is being poorly managed.

　　Finally, sound corporate governance will encourage and attract new investment of share capital and also make it more likely that lenders will extend credit and provide increased loan capital if needed. This could help some companies survive in difficult times in terms of cash flow and capital requirements when companies with poorer corporate governance reputations may receive less of such support.
 

　　(b) Rules and principles, and why ‘comply or explain’ is effective.

　　Rules and principles

　　In a rules-based approach to corporate governance, provisions are made in law and a breach of any applicable provision is therefore a legal offence. This means that companies become legally accountable for compliance and are liable for prosecution in law for failing to comply with the detail of a corporate governance code or other provision.

　　A principles-based approach works by (usually) a stock market making compliance with a detailed code a condition of listing.

　　Shareholders are then encouraged to insist on a high level of compliance in the belief that higher compliance is more robust than lower compliance. When, for whatever reason, a company is unable to comply in detail with every provision of a code,the listing rules state that the company must explain, usually in its annual report, exactly where it fails to comply and the reason why it is unable to comply. The shareholders, and not the law, then judge for themselves the seriousness of the breach.

　　This is what Martin Mung meant by markets punishing bad practice.

　　Comply or explain

　　Comply or explain is intended to allow latitude in compliance with details of corporate governance provision, but is not ‘optional’ in the usual meaning of the term. Listing rules insist on compliance with codes in many countries with‘comply or explain’allowed when compliance with detail is not possible or desirable, usually in the short to medium term. If the shareholders are not satisfied with the explanation for lack of compliance, they can punish the board by several means including holding them directly accountable at general meetings, by selling shares (thereby reducing the value of the company) or by direct intervention if a large enough shareholder.

　　Comply or explain is seen as an alternative to a rigid ‘rules-based’ approach and is effective for the following reasons:

　　It enables the policing of compliance by those who own the entity and have a stronger vested interest in compliance than state regulators who monitor compliance in a legal sense. This places the responsibility for compliance upon the investors who are collectively the legal owners of the company. It makes the company accountable directly to shareholders who can decide for themselves on the materiality of any given non-compliance.

　　It reduces the costs of compliance and recognises that ‘one size’ does not fit all. There may be legitimate reasons for temporary or semi-permanent non-compliance with the detail of a corporate governance code, perhaps because of size or the company adopting its own unique approach for highly specific and context-dependent reasons. It avoids the need for inflexible legislation, which, itself, is sometimes also ineffective. Whereas the effectiveness of a ‘comply or explain’ principles-based approach relies on the ability and willingness of shareholders and capital markets to enforce compliance, rules-based approaches rely on the effectiveness of law enforcement officials.
 

　　(c) Accountability and provisions resulting in ‘greater accountability’.Accountability

　　Boards of directors are accountable to the shareholders of the company. This means they are answerable to them in that they can be called to give an account for their behaviour and actions as agents of the shareholders. In the context of the code, it is recognised that boards do not always fully reflect the wishes and needs of shareholders and this can represent a failure of

　　accounting from the board to the shareholders. The measures proposed aim to close that gap and make it less likely that unqualified or ill-equipped people will be appointed to, or remain on, the board.

　　Resulting in greater accountability Corporate governance codes have had provisions for the retirement of directors by rotation for some time. This is when a fixed period of time is set for directorships, after which the default position is that the director retires or leaves the service of the company unless actively re-elected by the shareholders to serve another term in office. Enhancing accountability to shareholders is a key objective of any corporate governance code. The shortening of service contracts from three years to one year may result in greater accountability for the following reasons:

　　It will enable shareholders to remove underperforming directors much more quickly and to impose their will upon a board with less delay than previously. Rather than paying for underperforming directors to remain in post, with possible damage to the company as a result, or by paying out severance costs, they can simply decide not to re-elect them at the end of the one-year service contract.

　　It will enable shareholders to rebalance or refresh a board in the light of environmental changes or changes in strategy, rather than waiting for a period of time for the three-year terms of previously re-elected directors to elapse. This would make the company more responsive to the wishes of shareholders and reduce the feeling that any director has a ‘right’ to be on the

　　board at any point. However, a shorter period may leave the board under greater pressure to demonstrate short term success and that could be at the expense of longer term prosperity.

　　The availability of biographical details will enable shareholders to clearly see the experience of a candidate and decide for themselves whether they are likely to add value at a given point. The effect of this will be to act as a ‘check and balance’ against vested interests that may exist between and among directors. It also places a responsibility upon candidates seeking

　　election or re-election to a board to actively demonstrate their suitability rather than just expecting it as an entitlement.
 

　　高顿网校小编寄语：自信是成功的先决条件。