Sample Practice Questions, Answers, and Explanations

Domain 1: Governance and Business Ethics

1. Which of the following establishes a corporation's governance mechanism?

a. Stockholders

Incorrect. Stockholder's rights and obligations are described in bylaws.

b. Corporate bylaws

Correct. A corporation's governance mechanism is established by a firm's bylaws, which are a set of internal rules or policies. Bylaws describe the powers of the corporation and the duties and responsibilities of the board of directors and officers, and how to treat stockholders.

c. Board of directors

Incorrect. The board of director's duties and responsibilities are described in bylaws.

d. Corporate officers

Incorrect. Corporate officers' duties and responsibilities are described in bylaws.

2. A corporation must be managed on which of the following principles?

a. Corporate governance

Correct. For a corporation to be legitimate, its governance principles must correspond to the will of the general public. Therefore, a corporation must be managed on the principles of corporate governance defining the roles of shareholders, directors, and officers/mangers in corporate decision making and accountability. Corporate control, law, and ethics become a part of corporate governance.

b. Corporate control

Incorrect. Corporate control deals with acquiring and managing resources to operate the corporation in an efficient and effective manner.

c. Corporate law

Incorrect. Corporate laws deals with complying with laws and ...

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