Corporate Governance - Right Approach for AA Exam
Corporate Governance - Right Approach for AA Exam
Corporate Governance has been tested multiple times for around 6 Marks in section B of the AA paper as a scenario
Candidates are awarded 1⁄2 mark for identifying the deficiency and 1⁄2 mark for explaining the implication of the deficiency. Candidates are awarded 1 mark for each well-explained recommendation.
Explaining the deficiency in corporate governance
Candidates are required to identify the deficiency from the scenario
The explanation of deficiency needs to be clear about how this results in a corporate governance issue i.e. the impact. For example, just stating that ‘this is poor corporate governance’ would not be awarded credit.
For the deficiency of the Chair and CEO being the same individual, it should be explained why this would be an issue. To gain the marks available, they needed to explain that there could be an abuse of power by one individual, as both are key roles.
Writing Recommendations on Corporate Governance Weaknesses
a recommendation to ensure compliance with corporate governance principles.
This must be phrased as an action;
often candidates provide objectives rather than actions. For example, for the deficiency relating to non-executive remuneration being based on pre-tax profits, a recommendation of ‘remuneration should not be based on short-term profits’ will not be awarded credit. To gain the one mark available, the recommendation must give a clear action, for example, ‘non-executives’ remuneration should be based on their time commitment, responsibilities or on a fixed annual fee.
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Case Study – An evaluation of a student's answer to the Exam scenario
In this answer by the student, she failed to identify why Fred’s appointment as chairman is a weakness instead, she stated heshould be appointed, and the Recommendation does not address the weakness here
The second point is that NED’s remuneration based on profits is a weakness. What can be its impact on company governance? It is not given – its recommendation is again irrelevant, but it does include one valid point as well.
Thirdly, not having an audit committee -- how it is affecting the company - - - internal controls weaknesses are discussed by the student, but how weaknesses are linked with audit committee roles, it is not clear Moreover, the Recommendation here is not explaining what athe udit committee and its composition should be.
A picture of Notes depicting how shot gun focussed the AA/ F8 sessions
