AFIN427 CORPORATE GOVERNANCE AND ETHICS

PAST EXAMINATION PAPERS

COMPILED BY

PROF. BRYSON MUMBA

JUNE 2025
Contents

Contents
Mid Semester Examinations ............................................................................................................................................. 3

APRIL, 2025 ................................................................................................................................................................... 3

OCTOBER, 2024 ................................................................................................................................................................. 8

APRIL 2024 .................................................................................................................................................................. 11

October 2023 .............................................................................................................................................................. 19

APRIL 2023 .................................................................................................................................................................. 24

OCTOBER 2022 ............................................................................................................................................................ 28

April 2022 .................................................................................................................................................................... 34

October 2021 .............................................................................................................................................................. 39

End of Semester Examinations ....................................................................................................................................... 45

JUNE 2025 ................................................................................................................................................................... 45

DECEMBER 2024 ......................................................................................................................................................... 50

JUNE 2024 ................................................................................................................................................................... 57

DECEMBER 2023 ......................................................................................................................................................... 63

JUNE 2023 ................................................................................................................................................................... 71

DECEMBER 2022 ......................................................................................................................................................... 77

June 2022 .................................................................................................................................................................... 82

December 2021 ........................................................................................................................................................... 87

June 2021 .................................................................................................................................................................... 93

2|Page
Mid Semester Examinations

SCHOOL OF BUSINESS, ECONOMICS AND MANAGEMENT

AFIN 427 CORPORATE GOVERNANCE & BUSINESS ETHICS

MID SEMESTER EXAMINATION

APRIL, 2025
……HOURS

Time allowed: 3 HOURS plus 5 minutes reading time

INSTRUCTIONS TO THE CANDIDATES:

1. Check that you have the correct examination paper in front of you.

2. There are FOUR (4) questions in this paper. Answer ALL.

3. All questions must be answered in the answer booklet only.

4. Write down the number of questions that you have answered on the cover of the examination
answer booklet.

5. Begin each question on a new page.

6. No books, files or mechanical / electronic aids are permitted.

3|Page
7. There shall be no communication among students during the examination. Any students caught
doing this will be disqualified.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO.

QUESTION ONE

ABCX Plc started as a family business in the year 1990 but got listed on the Lusaka Securities Exchange in
2021. The business is in the manufacture and production of chemicals used to control insecticides and
pesticides on farms. In 2024, the company has experienced great growth due to the high level of financial
support from the Government of the Republic of Zambia to farmers.

The company is seeking to obtain a loan amount of K160 million to enable the company expand its
operations in anticipation of the expected increase in demand for chemicals in future. An international
financing company, AfricaTrades Ltd, which has been approached by ABCX Plc, is willing to provide the
K160 million at an interest rate of 25% and repayable over five years. The investment analysis of
AfricaTrades Ltd is rather concerned with the corporate governance practices at ABCX Plc as was reported
in the 2024 annual report. The extract of the 2024 annual report is as follows:

“CORPORATE GOVERNANCE

The company continued to operate by enforcing good corporate governance practices in

accordance with the LUSE Code by complying with ALL the recommended practices. The
company has a Board of Directors and two board committees. In the year 2024, the records of
board and committee meetings were as follows:

The Board 10 meetings

Audit Committee 1 meeting

4|Page
Risk Committee 4 meetings

The Board and committee memberships were as follows:

The Board 5 members of whom four were NED and three were
female

Audit Committee 3 all NEDs

Risk Committee 3 ( CEO, Director Finance and a NED)

The roles of the Chief Executive Officer and the Chairperson of the Board were combined. There
was a Company Secretary and a Deputy Chairperson of the Board. The Deputy Chairperson was
the Director Finance. During the year there has been no changes to the Board composition as the
shareholders re-appointed the same directors on recommendation by the Company Secretary. The
company holds annual general meetings and each committee has its own terms of reference and
the Board has a Board Charter.

The Board carried out an evaluation of its performance every three years which is conducted by an
external consultant and a training workshop was held for all Board members as part of Continued
Professional Development.

Director Compensation
The remuneration package for the board members and committee members is determined by the
CEO and submitted to the Board for approval before implementation. Executive directors’
remuneration is performance-related.

Audit
The company has an internal audit department headed by the Director Audit who reports to
Director Finance. The company has been externally audited by a firm of Chartered Accountants
5|Page
since 2021. The external auditors were appointed by the shareholders on recommendation by the
Company Secretary.

Required:

a) Critically assess the corporate governance practices at the company. You must identify ten bad
corporate governance practices and ten good corporate governance practices with justification.
(20 marks)
b) Outline the issues that would need to be addressed in ensuring that there is good Corporate
Governance practices at the company. (10 Marks)
c) State and explain five benefits to society of good corporate governance practices (5 Marks)
d) What does the term to converge in corporate governance mean? (5 Marks)

[Total 40 Marks]

QUESTION TWO

Delegation of authority is a fundamental concept in the principal-agent relationship.

Required:

a) Describe what you understand by delegation of authority and its importance in the
management of institutions. (10 marks)
b) List and describe ten (10) factors that you would take into account if you were given the
responsibility to form an Effective Board of Directors for a company. (10 marks)
[Total 20 Marks]

QUESTION THREE

a) Explain the term diversity in relation to corporate governance and give any three benefits of
board diversity. [10 marks]

6|Page
b) Compare and contrast the German Model and the Islamic Model of corporate governance.
[10 marks]
[Total 20 Marks]

QUESTION FOUR

a) Briefly explain the following, in relation to Agency Theory:

i. What are FOUR responsibilities of the principal? (4 marks)

ii. What are 3 examples of monitoring costs? (3 marks)
iii. Describe THREE causes of the agency problem (3 marks)
(10 marks)
b) Identify FIVE Corporate governance principles and give a brief description of each. (10 marks)
[Total 20 marks]

END OF EXAMINATION PAPER

7|Page
OCTOBER, 2024

SCHOOL OF BUSINESS, ECONOMICS AND MANAGEMENT

AFIN 427- CORPORATE GOVERNANCE & BUSINESS ETHICS

MID SEMESTER EXAMINATION

-----OCTOBER, 2024
00:00 – 00:00
Time allowed: 3 HOURS plus 5 minutes reading time
INSTRUCTIONS TO THE CANDIDATES:

1. Check that you have the correct examination paper in front of you.

2. There are FOUR (4) questions in this paper. Answer ALL.

3. All questions must be answered in the answer booklet only.

4. Write down the number of questions that you have answered on the cover of the
examination answer booklet.

5. Begin each question on a new page.

6. No books, files or mechanical / electronic aids are permitted.

7. There shall be NO communication among students during the examination. Any

students caught doing this will be disqualified.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO.

8|Page
QUESTION ONE

ESO Plc is a company that was listed on the Lusaka Securities Exchange on 1st January 2022.
Prior to that, it had been operating as private company under the name ESO Ltd for over 20 years.
The company’s principal activity is fertilizer manufacturing. The company’s shareholding as at 31st
December 2023 comprised 30% by the Government of the Republic of Zambia through the
Ministry of Finance and 70% by the public. The company has been audited by CAB Chartered
Accountants since 2015. The Senior partner in CAB Chartered Accountants in charge of the audit
of the company has been rotated every three years.

In the annual report for the year ended 31st December 2023, it was disclosed that the company
had performed very well in terms of increased revenues but it had recorded a decline in profits
since it got listed on the LUSE. The increase in the revenues was attributed to the fact that the
company had undertaken significant research and development activities which saw the creation
of new products and new markets in the COMESA region.

Mr Kay, the Chairperson of the Board was appointed on 15th December 2015 together with 13
other non-executive members by the Minister of Finance. The 13 other non-executive board
members comprised nine Permanent Secretaries from different line Ministries, three
representatives of the private sector and one from academia. The board composition has not
changed since 2015. The Chief Executive Officer (CEO) was not a member of the Board.

Mr. Kay conducts a board evaluation by appraising the performance of each board member every
three years. The evaluation report is submitted to the Minister of Finance once it is completed and
deliberated upon by the entire board. There are three board committees namely the Finance and
Administration Committee, the Appointments Committee and the Remuneration Committee. All the
committees had committee charters, were all chaired by the CEO and each committee met
quarterly in each year whilst the main board met every six months. The Remuneration for the CEO
and other executive officers is determined by the Ministry of Finance and communicated to the
Board for implementation. The remuneration package for the non-executive directors of the board
is recommended by the Finance and Administration Committee and approved by the board.

Required:

9|Page
 a) Critically assess the corporate governance practices at the company. In your assessment,
you must identify and justify five good corporate governance practices and ten bad
corporate governance practices. (30 marks)
b) Describe five recommendations you would make on how the corporate governance
practices could be improved with justifications. (10 marks)

[TOTAL: 40 MARKS]

QUESTION TWO

Allon and James have registered a company called Allon James Manufactuers Ltd. Allon is the
main shareholder with 90% shareholding whilst James is the second shareholder with 10% shares.
They have approached you to assist in the appointment of a board of directors for the company in
accordance with the requirements of the Companies Act No. 20 of 2017. They are unsure of what
factors they should consider when forming an effective board of directors and what the fiduciary
duties of directors are.

Required:

a) Describe ten factors that you advice Allon and James to consider when forming an effective
board of directors. Each factor must be justified. (20 marks)
b) Explain two fiduciary duties of a director. (4 marks)
c) Describe the three agency costs and three causes of the agency problem.
(6 marks)
[TOTAL: 30 MARKS]
QUESTION THREE

ABD Ltd is planning to start manufacturing solar panels to meet the demand that has skyrocketed
in Zambia due to the load shedding that is being experienced in the country. You are a Non-
Executive Board member of the ABD Ltd board of directors and you have recently been appointed

10 | P a g e
as the Chairperson of the Risk Committee of the board. Your first task is to develop a risk
management framework for the company.

Required:

a) Explain the process that your committee would undertake in order to provide a risk
management framework for the company. (10 marks)
b) Identify and describe five strategic risks and five operational risks that the company faces
with respect to the planned solar manufacturing business. (10 marks)

[TOTAL: 20 MARKS]

QUESTION FOUR

a) Explain the roles of the chairman in corporate governance. (5 marks)

b) The LUSE code states that the roles of the chairperson of the board and chief executive officer
must be performed by separate persons. Briefly explain why this is considered a good
corporate governance practice. (5 marks)

[TOTAL: 10 MARKS]

END OF EXAMINATION PAPER

APRIL 2024

11 | P a g e
 SCHOOL OF BUSINESS, ECONOMICS AND MANAGEMENT

AFIN 427 CORPORATE GOVERNANCE & BUSINESS ETHICS

MID TERM SEMESTER EXAMINATION

Xxxxx APRIL, 2024

XXX-XXX

Time allowed: 3 HOURS plus 5 minutes reading time

INSTRUCTIONS TO THE CANDIDATES:

8. Check that you have the correct examination paper in front of you.

9. There are FOUR (04) questions in this examination paper. ALL questions must be answered.

10. All questions must be answered in the answer booklet only.

11. Write down the number of questions that you have answered on the cover of the examination
answer booklet.

12. Begin each question on a new page.

13. No books, files or mechanical / electronic aids are permitted.

14. There shall be no communication among students during the examination. Any students caught
doing this will be disqualified.

12 | P a g e
 DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO.

QUESTION ONE

Jojo Nduna is the Chief Executive Officer of a company registered with PACRA under the name of
KingDollar Ltd. KingDollar Ltd started as a family business in the year 2000. The company is owned by Mr
Jojo Nduna Snr who has 90% shareholding and Mrs Nduna who has 10%. The vision carrier is Mr Jojo
Nduna Snr who is Jojo’s father. The business is in Steel production. The company has experienced great
growth due to the high level of construction that has been taking place in Zambia and the prospects of the
production of electric vehicles.

When Mr Jojo Nduna Snr started the business, it had only 5 employees and the value of the total assets
then was K1.5 million. Since 2000, the business has experienced unprecedented growth. The number of
employee has grown to 500 and the value of assets is now valued at K200 million. KingDollar Ltd has
acquired a farm in Chongwe where they intend to build their multimillion Steel Plant. The Company’s
strategic plan is to supply Steel to the SADC region and to China. A market survey conducted has indicates
that the demand in the SADC countries is overwhelming.

Jojo Nduna did his studies in the United Kingdom and is a qualified Chartered Accountant and also has a
Diploma in Project Management. He graduated in 2006 and has been understudying his father who has
since retired and acts as an advisor and Chairperson of the Board of KingDollar Ltd. Mr Jojo Nduna Snr
appointed three Non- Executive Directors to the board in 2010 and they have occupied the positions of
NEDs to-date. The Non-Executive Directors comprise of his wife who is a Chartered Accountant, his lawyer
friend and another friend from church who is a human resource practitioner. There are 3 executive directors
namely the Chief Executive Officer, Human Resource Director and Finance Director. The company holds
annual general meetings every two years. On the other hand the Board meets every quarter and considers
the reports from the Audit and Finance Committee, the Risk Management Committee and the
Remuneration Committee. Each committee has its own terms of reference and the Board has a Board
Charter.
13 | P a g e
KingDollar Ltd is seeking to obtain a loan amount of K60 million to enable the company expand its
operations and meet its Strategic vision. Efforts to obtain the loan from financiers in Zambia proved a
challenge considering that the cost of capital in Zambia is very high and ranges between 35% - 60 %.

Jojo Nduna has contacted a company in the UK called ABD Global Financiers Plc who are willing to provide
funding of K60m that the company needs to finance its operations. ABD Global Financiers Plc is listed on
the London Stock Exchange. ABD Global Financiers Plc complies with the UK Combined code of corporate
governance. They are willing to finance KingDollar Ltd business operations and are able to offer the loan at
a much lower interest rate of 25%. However, upon reviewing the corporate governance practices for
KingDollar Ltd the financier ABD Global Financiers Plc has raised a number of concerns regarding the
corporate governance practices.

Required:

a) Critically assess the corporate governance practices at KingDollar Ltd.

(20 Marks)

b) State and explain what could be hindrances to convergence of the corporate governance codes followed
by KingDollar Ltd and that followed by ABD Global Financiers Plc.
(10 Marks)

c) What does the term to converge in corporate governance mean?

(5 Marks)

d) Identify and describe FIVE strategic risks that KingDollar Ltd is exposed to.

(5 marks)

14 | P a g e
 [Total 40 Marks]

QUESTION TWO

c) Following your understanding of the Enron scandal:

I. Identify and explain what were the FOUR major corporate governance weaknesses in Enron
(12 marks)

II. What were the recommendations in the Sarbanese-Oxley Act 2002 aimed at addressing the
identified weakness in (I) above. (Note: link each recommendation to the weakness identified)
(8 marks)

d) Explain the roles of the Company Secretary in corporate governance.

(5 marks)

[Total: 25 marks]

QUESTION THREE

c) Briefly explain the following, in relation to Agency Theory:

i. What are THREE responsibilities of the principal? (3 marks)

ii. What are bonding costs giving three examples? (6 marks)
iii. Describe THREE causes of the agency problems. (6 marks)

[Total 15 marks]

QUESTION FOUR

Attached is a Notice Issued by Bayport Financial Services Ltd for the 2024 Annual General Meeting.

15 | P a g e
Required:

a. Identify and describe 10 matters in the notice that typify corporate governance practices with
justification. (10 marks)

16 | P a g e
17 | P a g e
 b. Describe the roles and responsibilities of the Board Chairperson. (10 marks)

[Total: 20 marks)

END OF EXAMINATION PAPER

18 | P a g e
October 2023

SCHOOL OF BUSINESS, ECONOMICS AND MANAGEMENT

AFIN 427- CORPORATE GOVERNANCE & BUSINESS ETHICS

MID SEMESTER EXAMINATION

-----OCTOBER, 2023
00:00 – 00:00
Time allowed: 3 HOURS plus 5 minutes reading time
INSTRUCTIONS TO THE CANDIDATES:

1. Check that you have the correct examination paper in front of you.

2. There are FOUR (4) questions in this paper. Answer ALL.

3. All questions must be answered in the answer booklet only.

4. Write down the number of questions that you have answered on the cover of the
examination answer booklet.

5. Begin each question on a new page.

6. No books, files or mechanical / electronic aids are permitted.

7. There shall be NO communication among students during the examination. Any

students caught doing this will be disqualified.

19 | P a g e
 DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO.

QUESTION ONE

The following information relates to a Company called DCBA Plc.

History and Shareholdings

DCBA Company Plc was incorporated in the year 2015 as a limited company and was later listed
on the LUSE on 1st January 2020. The shareholders structure comprises the following:

%
Shareholder Number of shares Type of shareholder holding
Government of the Republic of
A 120,000 Zambia 60%
B 50,000 Chinese Investor 25%
C 20,000 General Public 10%
D 10,000 NAPSA 5%
Total 200,000 100%

Board of Directors

The board of directors comprises two members namely Mr GRZ a non-executive director and Chairperson
of the Board representing the Government of the Republic of Zambia and Mrs Chini an independent non-
executive director. Mr GRZ and Mrs Chini have been members of the board since 2020 after being
appointed by the Shareholders at an AGM. The board meets twice a year.

In addition the board has four established committees namely Audit and Risk Committee, Remuneration
Committee, Appointments Committee and ICT Governance Committee. Mr GRZ and Mrs Chini are not
members of any of the board committees. The composition of the board committees in 2022 was as
follows:

20 | P a g e
 Number
of Number of meeting
Committee Name members Members held in 2022
External Auditor, Director
Audit & Risk Internal Audit, Director
Committee 4 Finance, CEO 1
Remuneration
Committee 2 Director HR, CEO 6
Appointments Director HR, CEO, Director
Committee 3 Marketing 3
ICT Governance External committee members
Committee 9 appointed by the CEO 9

Each Committee had its own terms of reference which were reviewed annually. The board
members do not attend Annual General Meetings of the company. The Non-executive directors of
the company have access to the CEO but restricted access to executive management and the
company secretary. Board and committee Agendas and papers are distributed at the start of each
meeting and taken back by the company secretary at the end of each meeting.
Director Compensation
The remuneration package for the board members and committee members is determined by the
Remuneration committee and submitted to the Board for approval before implementation.
Executive directors’ remuneration is performance-related and the performance related component
of the total remuneration forms a substantial portion.

Audit
The company has an internal audit department headed by the Director Audit who reports to the
Audit and Risk Committee. The company has been audited by DDBV Chartered Accountants since
2015 having been appointed by the major shareholder the Government of the Republic of Zambia.
DDBV Chartered Accountants have also been providing tax advice to the company. External Audit
reports are addressed to the Board.

21 | P a g e
Required:
c) Critically assess the corporate governance practices at DCBA Company Plc.(30 marks)
d) Describe five recommendations you would make on how the corporate governance
practices could be improved with justifications. (10 marks)

[TOTAL: 40 MARKS]
QUESTION TWO

You have been appointed as a Consultant to develop internal control system for a new company
using an Internal Control Framework.

REQUIRED:

c) Describe five (05) components of an Internal Control Framework and five(05) advantages of
using an Internal Control Framework when developing an internal control system.
( 10 marks)
d) Complete the following Table by identifying one risk for each operational area, one preventative
and one detective internal control for each identified risk:

Operational Area Risk Preventative Control Detective control

i. Stores

ii. Manufacturing

iii. Land and

Buildings
iv. Human Resource

(12 marks)
e) Describe any eight (08) limitations of internal controls. (8 marks)

[TOTAL: 30 MARKS]

22 | P a g e
QUESTION THREE

a) Briefly explain the following in relation to Corporate Governance:

i. Role of Non-Executive Directors
ii. Independence as a Corporate Governance Pillar
iii. Type II Agency Theory
iv. Agency costs
v. Remuneration alignment
(10 marks)
b) Briefly explain the LUSE code of best corporate governance practice in respect of the Board
Chairperson and the Chief Executive Officer. (5 marks)
[TOTAL: 15 MARKS]

QUESTION FOUR

Delegation of authority is a fundamental concept in the principal-agent relationship.

Required:

c) Describe what you understand by delegation of authority and its importance in the
management of institutions. (5 marks)
d) List and describe ten (10) factors that you would take into account if you were given the
responsibility to form an Effective Board of Directors for a company. (10 marks)

[TOTAL: 15 MARKS]

END OF EXAMINATION PAPER

23 | P a g e
APRIL 2023

SCHOOL OF BUSINESS, ECONOMICS AND MANAGEMENT

AFIN 427 CORPORATE GOVERNANCE & BUSINESS ETHICS

MID SEMESTER EXAMINATION

WEDNESDAY 12 TH APRIL, 2023

14:00 – 17:00 HOURS

Time allowed: 3 HOURS plus 5 minutes reading time

INSTRUCTIONS TO THE CANDIDATES:

1. Check that you have the correct examination paper in front of you.

2. There are FOUR (4) questions in this paper. Answer ALL.

3. All questions must be answered in the answer booklet only.

4. Write down the number of questions that you have answered on the cover of the
examination answer booklet.

5. Begin each question on a new page.

6. No books, files or mechanical / electronic aids are permitted.

7. There shall be NO communication among students during the examination. Any

students caught doing this will be disqualified.

24 | P a g e
 DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO.

QUESTION ONE

GoodFarm Ltd was formed in 2004 and registered with PACRA. The company is involved in
farming involving crop growing, goat raring, chicken raring and feed production. Initially, the
company was only involved in crop growing but over the last ten years it has seen significant
growth in the types of activities and also growth in revenues and profits. On 1 st January 2021, the
company was listed on the Lusaka Securities Exchange in order to raise funds to finance the
strategy to expand the company operations into the West African region and also to diversify its
product range by going into Mining. The listing of the company managed to raise equity capital
amounting to US $200m and the name of the company was changed to XYZ Plc.

XYZ Plc has a board of directors in place which meets once a year to prepare for the Annual
General Meeting. The Board is chaired by Mrs Makokolo who has been the chairperson for the
past three years. She is a mining Engineer by profession but she is also the Chief Executive
Officer. Other Board members are Mr Jombo who is an independent NED and also acts as Vice
Chairperson of the Board, three representatives of Zambia National Farmers Union (all female),
Ms Clean who is a trainee Accountant and Mr Advoco, a trained advocate. The appointment of
board members is done by the Nominations Committee which makes recommendations to the
shareholders at the AGM. Although the Board has a code of ethics, a board charter and committee
charters, these were last reviewed and updated eight years ago.

Mrs Makokolo chairs all the three committees of the board namely the Nominations Committee,
Remunerations committee and the Risk Committee. The membership of the committees is rotated
every quarter and Mrs Makokolo decides who sits on which committee. The committees meet
quarterly. The company has been audited by Vheers Chartered Accountants since 2010. The audit

25 | P a g e
Partner at Vheers is a personal friend to Mrs Makokolo. The appointment of auditors is done by the
Nominations committee.

All directors receive induction on joining the board and they are regularly updated on their skills
and knowledge through in-house training conducted by the Institute of Directors of Zambia.
Furthermore, the board undertook a formal evaluation of its own performance three years ago and
this was done by Vheers Chartered Accountants.

At the recent Annual General Meeting the shareholders raised concerns on the corporate
governance practices at the company and have requested you to assess the corporate
governance practices and to make recommendations on how the corporate governance practices
could be improved.

Required:
e) Critically assess the corporate governance practices at XYZ Plc.(30 marks)
f) Describe five recommendations you would make on how the corporate governance
practices at XYZ Plc could be improved with justifications. [10 marks]

[TOTAL: 40 MARKS]
QUESTION TWO

You have been approached by a friend who wants to know more about corporate governance. She
does not understand (1) why corporate governance is important in organisations, (2) why there
should be diversity on the board of directors, (3) the different approaches to corporate governance
practices and (4) the role of the company secretary.

REQUIRED:

f) Describe the benefits of corporate governance to organisations and society at large.

[10 marks]
g) Explain the term diversity in relation to corporate governance and give any three benefits of
board diversity. [5 marks]

26 | P a g e
h) Compare and contrast the German Model and the Islamic Model of corporate governance.
[10 marks]
[TOTAL: 25 MARKS]

QUESTION THREE

Internal control consists of the policies, processes, tasks, behaviours, and other aspect of the
company meant to aid in achieving organizational objectives.

Required

a) Explain four purposes of Internal Controls and how internal controls relate to corporate
governance. [10 marks]
b) For each of the following operational areas of a company, you are required to describe one
risks related to the operational area:
i. Fixed Assets
ii. Accounts Receivable
iii. Procurement of goods and services
iv. Human resources
v. Investments
[5 marks]
c) For each risk described in (b) above describe one preventive internal control and one
detective internal control to address the risks. [10 marks]

[TOTAL: 25 MARKS]

QUESTION FOUR

Attached is a Notice Issued by Zanaco Plc for the 2023 Annual General Meeting.

Required:

c. Identify and describe 10 matters in the notice that typify corporate governance practices
with justification. [10 marks]
27 | P a g e
 [TOTAL: 10 MARKS]

END OF EXAMINATION PAPER

OCTOBER 2022

SCHOOL OF BUSINESS, ECONOMICS AND MANAGEMENT

AFIN427- CORPORATE GOVERNANCE AND BUSINESS ETHICS
MID SEMESTER EXAMINATION

-------- OCTOBER, 2022

00:00 – 00:00 HOURS

Time allowed: 3 HOURS plus 5 minutes reading time

INSTRUCTIONS TO THE CANDIDATES:

1. Check that you have the correct examination paper in front of you.

2. There are FOUR (4) in this paper. Answer ALL.

3. All questions must be answered in the answer booklet only.

4. Write down the number of questions that you have answered on the cover of the
examination answer booklet.

28 | P a g e
5. Begin each question on a new page.

6. No books, files or mechanical / electronic aids are permitted.

7. There shall be NO communication among students during the examination. Any

students caught doing this will be disqualified.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO.

QUESTION ONE

AFIN427 Manufacturing Plc is a company registered with PACRA and is listed on the Lusaka
Securities Exchange (LUSE). The company has been manufacturing cleaning detergents and
other chemicals for the mining industry in Rufunsa District of Zambia for over ten years. Mr
Janguloo has been the Chief Executive Officer and Chairperson of the Board for ten years.

The company has recorded a decline in its profitability in the last two years of its operations and
the shareholders are concerned about the decline in profitability. There have also been adverse
social media reports that the company allegedly constructed a dam over the Chongwe river without
permission from the local authority and from the Chief. The construction of the dam has led to
reduced availability of water for drinking and also for agricultural activities for the local
communities. Furthermore, it has been reported that the Chongwe River has been polluted by the
chemicals from the manufacturing plant.

The table below provides details of the number, age, gender, profession, length of service and
committee membership of the Board of Directors of the company:

Board Years Age Gender Profession Board Position

Member served committee(s)
No. on the membership
Board

1. 10 70 Male Mining Audit CEO and

Board

29 | P a g e
 Engineer Committee; Chairperson

Appointments
Committee;

Remuneration
Committee

2. 10 67 Male Chemical Chairperson Deputy

Engineer of the Audit CEO and
Committee Board Vice
Chairperson

3. 5 65 Male Chemical Chairperson Non-

Engineer of the Executive
Appointments Director
Committee

4. 4 66 Male Chemical Chairperson Non-

Engineer of the Executive
Remuneration Director

5. 2 65 Male Chemical Audit Non-

Engineer Committee Executive
Director

6. 1 60 Male Accountant Remuneration Non-

Committee Executive
Director

7. 1 40 Male Accountant Appointments Non-

Committee Executive
Director

8. 1 42 Male Human Remuneration Non-

Executive

30 | P a g e
 Resource Committee Director

9. 1 43 Female Accountant Remuneration Non-

Committee Executive
Director

10. 1 48 Female Accountant Audit Non-

Committee Executive
Director

All the Board members are appointed by Mr Janguloo.

During the last year, the record of board and committee meetings were as follows:

The Board Held 10 meetings

Remuneration Committee Held 1 meeting

Appointments committee Held 4 meetings

Audit Committee Held no meeting

During the last ten years, the Board has conducted an evaluation of its effectiveness once and this
was done by an external consultant from the Institute of Directors of Zambia. The company
organises a board induction every time a new board member is appointed to the board.

The company has been holding Annual General Meetings every year as required by the
Companies Act and also it has been releasing quarterly financial statements as required by LUSE.
At the last Annual General Meeting the shareholders directed the Board to develop strategies to
address the declining financial performance in the last two years so that dividends could be
declared in future. The shareholders were also concerned on the remuneration policy for executive
management in that there was no performance related component in the remuneration package

31 | P a g e
and that the nomination committee failed to ensure that the remuneration of executive
management was competitive.

REQUIRED:

Critically evaluate the corporate governance practices at AFIN427 Manufacturing Plc.

[TOTAL: 25 MARKS]

QUESTION TWO

During the 1990s, there were a number of banks in Zambia that collapsed due to inadequacies in
corporate governance arrangements (Mushota, 2002). The banks that collapsed included the
following:

1. Meridian Bank
2. Africa Commercial Bank
3. Commerce Bank
4. Credit Africa Bank
5. First Merchant Bank
6. Manifold Investment Bank
7. Prudence Bank
8. Zambia Export and Import Bank (EXIM) and
9. Union Bank

Required:

a) Describe in detail the different corporate governance failures that caused the collapse of
any five of the above banks. (15 marks)
b) On 29th April, 2016, the Bank of Zambia, issued a gazette notice entitled Bank of Zambia
Corporate Governance Directive which was to be followed by all financial institutions
operating in Zambia and regulated by the Bank of Zambia. Describe fully any ten
principles that are included in the Bank of Zambia Corporate Governance Directive.
(10 marks)

[TOTAL: 25 MARKS]

32 | P a g e
QUESTION THREE

a) Explain the benefits to society of good corporate governance practices in organisations.

(10 marks)
b) Compare and contrast the role of the Chairperson of the Board to that of the Chief
Executive Officer. ( 9 marks)
c) Explain Three factors/drivers for bringing about convergence in corporate governance
codes and practices and Three impediments to convergence in corporate governance
codes and practices. (6 marks)

[TOTAL: 25 MARKS]

QUESTION FOUR

Mr Collins Njonjo, has recently been appointed as the Chairperson of the Board of Directors of a
State-Owned Enterprise based in Zambia. The Company Secretary of the company has prepared
and sent a draft Agenda for the 1st Board meeting which was scheduled to be held within two
weeks. Included on the Agenda was an item called Development of the Board Charter. Mr
Njonjo was not sure about the purpose and content of a Board Charter as this was his first
appointment to be a Board Member and also being appointed the Chairperson. He has
approached you, since you are studying Corporate Governance at Unilus, to explain the purpose
of a Board Charter and also to advise him on the contents of a Board Charter.

REQUIRED:

a) Describe the purpose of a Board Charter. (5 marks)

b) Describe in detail the contents of a Board Charter for the company for submission to Mr
Njonjo, the Board Chairperson. (20 marks)
[TOTAL: 25 MARKS]

END OF EXAMINATION PAPER

33 | P a g e
April 2022

SCHOOL OF BUSINESS, ECONOMICS AND MANAGEMENT

AFIN 427- CORPORATE GOVERNANCE & BUSINESS ETHICS

MID SEMESTER EXAMINATION

MONDAY 11TH APRIL, 2022

14:00 – 17:00 HOURS

Time allowed: 3 HOURS plus 5 minutes reading time

INSTRUCTIONS TO THE CANDIDATES:

1. Check that you have the correct examination paper in front of you.

2. There are FOUR (4) in this paper. Answer ALL.

3. All questions must be answered in the answer booklet only.

4. Write down the number of questions that you have answered on the cover of the examination
answer booklet.

5. Begin each question on a new page.

6. No books, files or mechanical / electronic aids are permitted.

34 | P a g e
7. There shall be NO communication among students during the examination. Any students caught
doing this will be disqualified.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO.

QUESTION ONE

Lonehill Construction Company Ltd was incorporated in the year 2002. The shareholders structure
comprises of a Mr Jay Zulu, NEON Engineers Co. (a company comprising of 5 Zambian Civil engineers)
and an Institutional Investor called Global Engineers whose office is registered in Australia. The ratio of
shareholder ownership is 5:2:3 respectively.

The background to the formation of this company is that Jay was the sole owner for over a 10 year period,
before he decided to sell some of his shares to the other investors. This was done through a private
arrangement, the company is not listed on the stock exchange. Jay has been managing the operations of
the company and is the Chief Executive Officer. Jay is a qualified civil engineer with over 20 years post
qualifying experience.

The company has won many Government tenders in the recent past which has resulted in the business
experiencing capacity growth. The company’s profile has been enhanced and heightened. The medium
strategic plan for the company is to expand its operations by opening a regional office in Rwanda which has
great opportunities for the company to explore. The contact company in Rwanda is called Rwenco Ltd, who
are willing to partner with Lonehill Construction Company to explore business opportunities there.

The current Non-Executive Directors comprises of a Mr Ben Zulu the son to Jay who is a qualified Civil
Engineer, Florence Musonda an Accountant and Steve Longwe a lawyer.

35 | P a g e
The NED are paid a quarterly allowance as this has been the trend before the other shareholder came on
board in 2012. The Board has been meeting only when the need arises to discuss pertinent issues.

The Executive Directors comprises of 7 members who are recruited by outsourcing services of a company
that conducts the interviews and selects the best candidate. The Executive Directors remuneration package
is a basic salary.

The current Finance Director Kenny Hatembo is a former employee of the auditing firm currently engaged
to audit the books of accounts for the company. The auditing firm has been auditing the books of accounts
for the last 5 years. The auditing firm was selected by the Chief Executive Officer Mr. Zulu.

REQUIRED:

a) As a student of Corporate Governance you have been requested by the shareholders to review the
practices that are in place and give suggestions of what the best code of corporate governances practices
should be, especially in the event that the company intends to expand its operations into Rwanda.

(15 Marks)

b) Describe to the Board the roles and responsibilities of the Chief Executive Officer and in specific relation
to Jay’s responsibilities.

(5 Marks)

c) Explain to the Board the roles of the Non- Executive Directors in relation to Lonehill Construction
Company.

(5 Marks)

36 | P a g e
 [TOTAL: 25 MARKS]

QUESTION TWO

a) The Sarbanes Oxley Act of 2002 was enacted in response to loss of stock market trust caused by
inadequacies in corporate governance arrangements as witnessed in what has been described as the worst
scandal in American history of the Enron case.

Required:

Describe in detail the main purposes of the SOX Act.

(8 Marks)

b) The Enron scandal took place due to the various weak corporate governance practices.

Required:

Describe in detail the different issues that caused the company to collapse.

(10 Marks)

c) What does PCAOB stand for? What roles did the Act place on this regulator?

(7 Marks)

[TOTAL: 25 MARKS]

QUESTION THREE

a) What are the features of business ethics?

37 | P a g e
 (8 Marks)

b) What is the difference between Act utilitarianism and Rule utilitarianism?

(7 Marks)

c) What do the terms relativism and subjectivism approaches mean?

(5 Marks)

d) Why are codes of ethics important?

(5 Marks)

[TOTAL: 25 MARKS]

QUESTION FOUR

a) What are the factors that determine the extent to which the external auditors relies on the internal audit
reports?

(7 Marks)

b) Describe the similarities and differences between an External and Internal auditor.

(7 Marks)

c) Describe the different types of Agency costs.

(6 Marks)

d) What are the characteristics of the Principal / Agency relationship?

(5 Marks)
[TOTAL: 25 MARKS]

38 | P a g e
 END OF EXAMINATION PAPER

October 2021

SCHOOL OF BUSINESS, ECONOMICS AND MANAGEMENT

AFIN 427 CORPORATE GOVERNANCE & BUSINESS ETHICS

MID SEMESTER EXAMINATION

11TH OCTOBER, 2021

14:00-17:00 HOURS

Time allowed: 3 HOURS plus 5 minutes reading time

INSTRUCTIONS TO THE CANDIDATES:

8. Check that you have the correct examination paper in front of you.

9. There are FOUR (4) questions in this paper. Answer ALL.

10. All questions must be answered in the answer booklet only.

39 | P a g e
11. Write down the number of questions that you have answered on the cover of the examination
answer booklet.

12. Begin each question on a new page.

13. No books, files or mechanical / electronic aids are permitted.

14. There shall be no communication among students during the examination. Any students caught
doing this will be disqualified.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO.

QUESTION ONE

Bright Phiri is the Chief Executive Officer of a company registered with PACRA under the name of
SteelKing Ltd. SteelKing Ltd started as a family business in the year 1990. The vision carrier is Mr. Tom
Phiri who is Bright’s father. The business is in Steel production. The company has experienced great
growth due to the high level of construction that has been taking place in Zambia.

When Mr Tom Phiri started the business in 1990 he only had 5 employees and the value of the total assets
then was K5 million. During the last 10 years the business has experienced unprecedented growth. The
number of employee has grown to 500 and the value of assets is now valued at K100 million. SteelKing Ltd
has acquired a farm in Chongwe were they intend to build their multimillion Steel Plant. The Company’s
strategic plan is to supply Steel to the SADC Nationals. A market survey conducted has indicates that the
demand in the SADC countries is overwhelming.

Bright Phiri did his studies in the United Kingdom and is a qualified Chartered Accountant and also has a
Diploma in Project Management. He graduated in 2006 and has been understudying his father who has
since retired and acts as an advisor. Mr Tom Phiri appointed three Non- Executive Directors to act on his
behalf. The Non-Executive Directors comprise of his wife who is a Chartered Accountant, his lawyer friend
Kangwa Tembo, a friend from church Sitali Seya who is a human resource practitioner. There are 3
executive directors namely the Chief Executive Officer, Human Resource Director and Finance Director.

40 | P a g e
SteelKing Ltd is seeking to obtain a loan amount of K60 million to enable the company expand its
operations and meet its Strategic vision. Efforts to obtain the loan from financiers in Zambia proved a
challenge considering that the cost of capital in Zambia is very high and ranges between 35% - 40 %.

Bright Phiri the CEO was the best student in his intake at Oxford University. During his stay in UK he
belonged to the Chambers of Commerce of the city of Manchester. Through this contact he was able to
identifier a financier based in the UK. The financier called JT Global Financiers is listed on the London
Stock Exchange. They are willing to finance SteelKing business operations and are able to offer the loan at
a much lower interest rate of 10%.

However, upon reviewing the corporate code of practices for SteelKing Ltd the financier JT Global
Financiers has raised a number of concerns.

Required:

a) Outline the issues that would need to be addressed in ensuring that there is good Corporate Governance
practices at SteelKing.

(10 Marks)

b) State and explain what could be hindrances to convergence of the corporate governance codes between
the financiers and SteelKing.

. (10 Marks)

c) What does the term to converge in corporate governance mean?

(5 Marks)

41 | P a g e
 [Total 25 Marks]

QUESTION TWO

Florence Kasembo is the newly appointed Chief Internal Auditor of Farmbeef Company. Florence is a
seasoned Accountant with over 20 years post qualifying experience. She is a member of the Institute of
Internal Auditors and is the chairperson of the Zambia branch.

Farmbeef is a Zambian company that has been in operation for over 30 years. The previous Chief Internal
Auditor resigned from his position because of the differences he had with the Chief Executive Officer Mr
Steve Taluka.

Mr Taluka is known to be a tough man but also very intimidating and does not take advice very well. Mr
Taluka has been CEO for the last 15 years and has been part of the growth of this company. Farmbeef is
listed on Lusaka Stock Exchange and the shares have been trading very well in the last 10 years. 5 years
ago the Shareholders offered Steve shares in the Company as an incentive for his outstanding
performance.

Florence prepared the first Internal Audit Report during the last quarter ending 31st March 2021. The
practice is that the Internal Audit Report has to be presented first to the Executive Management Committee
before it is presented to the Audit committee of the Board. The Report presented revealed weak controls in
the recruiting of staff. The new Procurement Manager recruited does not possess the right qualifications
and experience for the job. It is believed that the new Procurement Manager is an acquaintance of the
CEO. The internal audit carried out an audit to review the recruitment procedure.

The CEO was not amused that the issue of recruiting the Procurement Manager was raised in the Internal
Audit Report. He tried to convince Florence to remove the particular Report.

42 | P a g e
Required:

a) Discuss how the Chief Internal Auditor should handle this matter.

(10 Marks)

b) Describe the responsibilities and scope of work of an Internal Auditor.

(5 Marks)

c) What role does internal audit plays in relation to corporate governance?

(5 Marks)

d) Describe the difference between Internal and External Auditors.

(5 Marks)

[Total 25 Marks]

QUESTION THREE

a) Describe the different types of Corporate Governance models.

(15 Marks)

b) What does the term “insider” mean?

(5 Marks)

c) What does it mean to have convergence in form and not function?

(5 Marks)

43 | P a g e
 [Total 25 Marks]

QUESTION FOUR

d) Briefly explain the following, in relation to Agency Theory:

i. What are the responsibilities of the principal?

ii. What are bonding costs?
iii. Describe THREE agency problems.
iv. What does alignment of interest mean?
(10 marks)

e) Identify FOUR Corporate governance principles and give a brief description of each.
(8 marks)

f) Identify FOUR types of internal audit and give a brief description of each.
(7 Marks)

[Total 25 marks]

END OF EXAMINATION PAPER

44 | P a g e
End of Semester Examinations

JUNE 2025

SCHOOL OF BUSINESS, ECONOMICS AND MANAGEMENT

AFIN 427: CORPORATE GOVERNANCE & BUSINESS ETHICS

END OF SEMESTER FINAL EXAMINATION

JUNE XX, 2025

00:00 – 00:00

Time allowed: 3 HOURS plus 5 minutes reading time

INSTRUCTIONS TO THE CANDIDATES:

1. Check that you have the correct examination paper in front of you.

2. There are Two (02) Sections in this examination paper. Question One (01) in Section A is
compulsory. Answer any Three (03) questions from Section B.

3. All questions must be answered in the answer booklet only.

4. Write down the number of questions that you have answered on the cover of the examination
answer booklet.

5. Begin each question on a new page.

6. No books, files or mechanical / electronic aids are permitted.

45 | P a g e
7. There shall be NO communication among students during the examination. Any students caught
doing this will be disqualified.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO.

SECTION A – COMPULSORY

QUESTION ONE

VYP Ltd used to be one of the market leaders in the financial sector in Zambia. The company has however,
recorded enormous decline in profitability, arising from a drop in interest income, and liquidity over the last 5
years and recently the Bank of Zambia has written to the board of directors of VYP Ltd to provide it with
strategies of how the company will turn round the company so that it becomes financially sustainable again.

During the year ended 31st December, 2024, it was reported at the Annual General Meeting that the CEO
had offered all the directors, including the NEDs, with performance related bonuses if the company reached
the set sales performance targets and the bonuses were eventually paid at the end of the year for meeting
the sales targets. The non-executive directors (NEDs) were very happy and promised to work extra hard
the following year to ensure that management achieved even better results at all cost.

The Board had two board committees namely the Audit committee and the risk committee. The Risk
committee was chaired by the CEO and the audit committee was chaired by an independent NED. Each
committee held six meetings during the year and the board met once.

46 | P a g e
Internal Audit in their report raised some concerns regarding the payment of the bonuses to NEDs. The
CEO took time to explain the issues raised to the Director Internal Audit who reluctantly accepted that the
concern on bonuses be dropped and not be reported to the Audit Committee. The Director of Internal Audit
was fearful that the CEO may not renew his contract that was coming to any end within six months. The
company secretary then forwarded the Internal Audit report to the Audit Committee for discussion.

During the year, two NEDs had joined the oganisation. The two underwent a detailed induction programme
before joining the board and board committees. The audit committee determined the sitting allowances for
the two NEDs.

The Director Internal Audit with the help of the independent external auditors prepared the annual reports
including the financial statements that complied with the accounting standards. The Audit Committee
reviewed the accounts and adopted the financial reports after deliberations. The committee also reviewed
the external audit report and forwarded the final reports to the AGM.

Required:

a) Prepare ten recommendations to improve the corporate governance practices at the company. Each
recommendation must be justified by reference to relevant corporate governance codes and/or the
Companies Act No. 10 of 2017. (20marks)
b) Describe five fiduciary duties of an agent in a principal-agency relationship. (10 marks)
c) Identify and describe five risks that are faced by companies in the operational area of sales.
(10 marks)
[TOTAL = 40 marks]

SECTION B

ATTEMPT ANY THREE QUESTIONS

47 | P a g e
QUESTION TWO

There are many theories that can be used to explain the relationships between a principal and an agent.
Two such theories are the stewardship theory and the stakeholder theory.

Required:
a) Explain the differences and similarities between stewardship theory and stakeholder theory in a
principal-agency relationship. (10 marks)
b) In a principal-agent relationship, there are broadly three different costs that the principal incurs
arising from the relationship. Explain any two such costs giving one example for each cost.
(10 marks)
[TOTAL:20 marks]
QUESTION THREE

A company listed on the Lusaka Securities Exchange has disclosed the following in their annual report:

“Risk Management

“The board makes use of the COSO framework as a generally recognised risk management and internal control
model in order to maintain a sound system of risk management and internal control.”

Required:

(a) Describe the COSO framework and how it can be used by the board of directors to maintain a sound
system of risk management and internal controls in an organization.
(15 marks)
(b) Best practice require Internal Audit department in an organisation to have a dual reporting role
administratively and functionally. Briefly identify and explain the dual reporting roles of internal audit as
per best practice. (5 marks)
[TOTAL:20 marks]
QUESTION FOUR
You have been appointed as a consultant on an international project to harmonise or converge the
corporate governance best practices from the Organisation for Economic Co-operation and Development

48 | P a g e
(OECD) and International Corporate Governance Network (ICGN) codes. An expected outcome from the
consultancy is to research and provide four reasons for the need to harmonise these two codes and also to
provide six hinderances or challenges that harmonization of the codes may face.

Required:

d) Explain the four reasons or factors in support of the harmonisation of the two codes.
(4 marks)
e) Explain the six reasons or factors that are a hindrance to harmonisation of the two codes.
(6 marks)
f) Assess the benefits of the separation of the roles of chief executive officer from the chairperson of the
Board of directors. (10 marks)
[TOTAL:20 marks]

QUESTION FIVE

‘Business Ethics influences decision making in an organisation and is important to the profitability and
success of an organisations.’

Required:

a) Discuss the above statement clearly explaining business ethics and the benefits of business ethics
to the financial sustainability of an organization. (10 marks)
b) Explain the role of a Board Secretary in managing Non-Executive Directors conflicts of interest in an
organization. (10 marks)
[TOTAL:20 marks]

END OF EXAMINATION PAPER

49 | P a g e
DECEMBER 2024

SCHOOL OF BUSINESS, ECONOMICS AND MANAGEMENT

AFIN 427- CORPORATE GOVERNANCE & BUSINESS ETHICS

END OF SEMESTER FINAL EXAMINATION

DECEMBER 2024
14:00 - 17:00 HOURS
Time allowed: 3 HOURS plus 5 minutes reading time
INSTRUCTIONS TO THE CANDIDATES:

15. Check that you have the correct examination paper in front of you.

16. There are Two (02) Sections in this examination paper. Question One (01) in Section A is
compulsory. Answer any Three (03) questions from Section B.

17. All questions must be answered in the answer booklet only.

18. Write down the number of questions that you have answered on the cover of the
examination answer booklet.

19. Begin each question on a new page.

20. No books, files or mechanical / electronic aids are permitted.

21. There shall be NO communication among students during the examination. Any
students caught doing this will be disqualified.
50 | P a g e
 DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO.

SECTION A: COMPULSORY

QUESTION ONE

VVV Plc is a company registered with PACRA and is listed on the Lusaka Securities Exchange
(LUSE). The company has been manufacturing building blocks since 2000 at its factory based in
Kafue. It supplies different sized building blocks including pavers. The customer base ranges from
private construction companies, government departments and private individuals.

In its latest financial statements for the year ended 31st December 2023, the directors reported the
following:

“Board performance:

The Board continued to perform its oversight role while providing guidance to the
executive management. The Board activities are properly documented.

The Board Charter

The Company maintains a Board Charter which highlights the duties and responsibilities of
the Board of Directors. The Charter sets out the following:

1. The appointment of directors

2. Directors Conduct
3. Duties and Roles of the Directors
4. The powers of the Directors
5. Remunerating Directors
6. Assessments, removal and resignation of Directors
7. Powers delegated to board committees comprising Audit committee,
Appointments Committee and Remuneration Committee

Board composition and engagement

The Board was made up of five members during the year and their tenure, age, gender,
profession and board committee membership is as below:
51 | P a g e
Board Years Age Gender Profession Board Position
Member served committee(s)
No. on the membership
Board

11. 10 70 Female Environmental Audit CEO and

Engineer Committee; Board
Chairperson
Appointments
Committee;

Remuneration
Committee

12. 10 67 Female Environmental Chairperson of Deputy CEO

Engineer the Audit and Board
Committee Vice
Chairperson

13. 5 65 Female Environmental Chairperson of Non-

Engineer the Executive
Appointments Director
Committee,
member of
Remuneration
committee

14. 4 66 Female Environmental Chairperson of Non-

Engineer the Executive
Remuneration Director

15. 2 65 Male Chartered Audit Non-

Accountant Committee Executive

52 | P a g e
 Director

The Non-Executive Directors are eligible for appointment by the shareholders at the AGM.
The Chief Executive Officer is also appointed by the shareholders at the AGM.

Environmental policy statement

The Company is committed to protecting the environment to ensure a long-term

sustainable future for the country and its people. In keeping with this policy, the
Company’s main objectives are:

a) To minimize the use of energy

b) Eliminate the use of toxic substances
c) Reduce the generation of waste

The board and committee meetings for the year were as follows:

Number of meetings

The Board 6

Audit committee 1

Remuneration Committee 10

The External Auditors are recommended for appointment by the Appointments Committee
and approved by the shareholders at the AGM.”

Required:

g) Critically assess the corporate governance practices at the company. In your assessment,
you must identify and justify ten good corporate governance practices and ten bad
corporate governance practices. (20 marks)
h) Describe five recommendations you would make on how the corporate governance
practices could be improved with justifications. (10 marks)
i) Describe five powers of the board of directors. (10 marks)

53 | P a g e
 [TOTAL: 40 MARKS]

54 | P a g e
SECTION B – ANSWER ANY THREE QUESTIONS

QUESTION TWO

According to the Human Rights Watch (2023), “Kabwe is one of the worst pollution hot spots in
Africa because of contamination from a former lead and zinc mine. The mine was originally owned
directly or indirectly by Anglo-American and other British colonial companies, later nationalized,
and closed in 1994. But the mine’s toxic waste was never cleaned up. As a result, lead dust from
its large uncovered waste dumps blows over to nearby residential areas such as Chowa, Kasanda,
and Makululu, putting the health of 200,000 people at risk”. (source:
https://www.hrw.org/news/2023/07/20/zambia-clean-toxic-lead-waste-mine-site.

Required:
a) With reference to the article above, provide six arguments against the classical view or
purely economical view that companies and the board of directors of companies only
responsibility is to maximize profits for shareholders. ( 6 marks)
b) Explain the role investors play in influencing companies to adopt CSR initiatives.
(6 marks)
c) In a situation involving ethical issues, there are practical steps that should be taken using an
Ethical Framework. Describe one such framework for decision making clearly identifying
the steps involved. (8 marks)
[TOTAL: 20 MARKS]

QUESTION THREE

Explain the following terms in corporate governance:

a) Convergence in corporate governance codes. (5 marks)

b) Fairness as a fundamental pillar in corporate governance and how it can be applied in
practice. (5 marks)
c) Utilitarianism theory of ethics. (5 marks)
d) Risk Analysis Matrix and how it is used in corporate governance (5 marks)

55 | P a g e
 (TOTAL: 20 MARKS)

QUESTION FOUR

A friend of yours has contracted you to set up an effective internal control system for a new
company that she has formed and has commenced operations. The company is involved in the
importation and sell of video games in Lusaka. She has informed you that, in her view, the internal
control system can only be regarded as being effective if it is fool proof in that it can prevent and
detect all risks that the company faces without exception.

Required:

a) Describe five factors that you would take into account in developing a strong and effective
internal control system for the new company. (10 marks)
b) Describe five reasons why you would not agree with your friend’s statement that “…in her
view, the internal control system can only be regarded as being effective if it is fool proof in
that it can prevent and detect all risks that the company faces without exception…”.
(10 marks)

[TOTAL: 20 MARKS]

QUESTION FIVE

There are many theories on corporate governance. These theories are derived based on many
factors such as the assumptions made regarding who the key parties to the principal-agent
relationship are and the beliefs on the behaviour of the parties to the relationship.
Required:
a) With reference to the above and the theory developed by Jensen and Meckling (1976),
discuss the principal-agent theory and its implications for corporate governance.
(10 marks)
b) Compare and contrast the strengths and weaknesses of shareholder theory and
stakeholder theory of corporate governance. (10 marks)
[TOTAL: 20 MARKS]

END OF EXAMINATION PAPER

56 | P a g e
JUNE 2024

SCHOOL OF BUSINESS, ECONOMICS AND MANAGEMENT

AFIN 427- CORPORATE GOVERNANCE & BUSINESS ETHICS

END OF SEMESTER FINAL EXAMINATION

MONDAY 10TH JUNE, 2024

14:00 - 17:00 HOURS

Time allowed: 3 HOURS plus 5 minutes reading time
INSTRUCTIONS TO THE CANDIDATES:

1. Check that you have the correct examination paper in front of you.

2. There are Two (02) Sections in this examination paper. Section A is compulsory. Answer
any Three (03) questions from Section B.

3. All questions must be answered in the answer booklet only.

4. Write down the number of questions that you have answered on the cover of the
examination answer booklet.

5. Begin each question on a new page.

6. No books, files or mechanical / electronic aids are permitted.

7. There shall be NO communication among students during the examination. Any

students caught doing this will be disqualified.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO.

57 | P a g e
SECTION A: COMPULSORY

QUESTION ONE

Mulele Ltd is a Zambian family business that has been wholly-owned and controlled by the Mulele
family since 1920. The current chief executive, Mr James Mulele , is the great grandson of the
company’s founder and has himself been in post as CEO since 2010. Because the Mulele family
wanted to maintain a high degree of control, they operated a two-tier board structure: four
members of the Mulele family comprised the supervisory board and the other eight non-family
directors comprised the operating board. The non-family directors were all employees of the
company. Despite being quite a large company with 5,000 employees, Mulele Ltd never had any
non-executive directors because they were not required in privately-owned companies. The four
members of the Mulele family valued the control of the supervisory board to ensure that the full
Mulele family’s wishes (being the only shareholders) were carried out.

On 3rd January 2017, the two tiers of the board met in a joint session to discuss a flotation (issuing
public shares on the Lusaka Securities Exchange) of 80% of the company. The issue of the family
losing control was raised by Mr James Mulele. He said that if the company became listed, the
Mulele family would lose the freedom to manage the company as they wished, including
supporting their own long-held values and beliefs. These values, he said, were managing for the
long term and adopting a paternalistic management style. Other directors said that the new listing
rules that would apply to the board, including compliance with the LUSE corporate governance
codes of practice, would be expensive and difficult to introduce. However, after a long and heated
debate, the board of directors voted for the floatation as the company needed the equity that would
be raised for investing in the much needed projects to diversify the company.

The flotation went ahead in 2023. In order to comply with the new listing rules, Mulele Ltd
changed its name to Mulele Plc and the shareholders replaced the eight non-family directors with
58 | P a g e
eight non-executive directors (NEDs) and formed a unitary board. The family members were not
replaced and no evaluation of the performance of the family members was conducted. A number
of problems arose around this time with NEDs feeling frustrated at the culture and management
style in Mulele Plc, whilst the Mulele family members found it difficult to make the transition to
managing a public company with a unitary board. James Mulele said that it was very different from
managing the company when it was privately owned by the Mulele family. The Human Resources
Manager said that an effective induction programme for NEDs and some relevant continuing
professional development (CPD) for existing executives might help to address the problems.

Required:

a) Compare the typical governance arrangements between a family business and a listed
company, and assess Mr James’ opinion that the Mulele family will ‘lose the freedom to
manage the company as they wish’ after the flotation. (10 marks)
b) Assess the benefits of introducing an induction programme for the new NEDs, and requiring
continual professional development (CPD) for all board members at Mulele Plc after its
flotation. (8 marks)

c) Explain four key roles of the Nominations Committee of the Board of Directors and its
composition. (10 marks)

d) Describe the importance of undertaking board evaluation and explain how board evaluations
can be implemented in an organization. (12 marks)

[TOTAL: 40 MARKS]

59 | P a g e
SECTION B – ANSWER ANY THREE QUESTIONS

QUESTION TWO

a) The practice of good corporate governance in organisations is based on the need for the Board
of Directors to implement the key pillars of corporate governance. Identify and describe any ten
key pillars of corporate governance. (10 marks)
b) Approaches to corporate governance practices may be classified as rules based or principles
based. Explain the differences between the two approaches by use of examples.
(10 marks)

[TOTAL: 20 MARKS]

QUESTION THREE

XXX Plc is a Zambian company that has been in existence since the year 2000. The shareholders
structure comprises of 40% Zambian financial institutions and 60% owned by an American
company called AMECO Ltd.

XXX Plc is in the business of construction of roads, buildings and bulk water and oil pipelines
within the SADC region. Following the drought situation experienced in Zambia, the company has
proposed to the Government of the Republic of Zambia to construct water pipelines to transfer
water from inland lakes such as lake Bangweulu to areas in Zambia that have water shortages for
irrigation purposes. This is a massive project and the company is in the process of sourcing
funding for this project. The majority shareholder AMECO Ltd has been very instrumental in
sourcing for funding.

In view of this strategic direction that the company has decided to embark on the new project, its
Board of Directors have seen the need to recruit a Chief Risk Officer to manage all the risks
associated to the business and any that might occur in the future.

60 | P a g e
Required:

a. You have been appointed as the Chief Risk Officer of XXX Plc. Identify and describe any five
strategic risks that the company is exposed to in respect of the new project. (10 marks)
b. “The International Corporate Governance Network (ICGN) is focused around company
governance and how board of directors should promote successful companies, thereby creating
sustainable value creation for investors while having regard to other stakeholders.”

Principle No.5 of the ICGN Global guidance addresses the Risk oversight by the Board.

Outline the specific corporate governance guidelines contained in ICGN Principle No. 5 concerning
the risk oversight role of the Board of Directors. (10 marks)

(TOTAL: 20 MARKS)

QUESTION FOUR

The Cadbury Report (1992) defined corporate governance as a “System by which companies are
directed and controlled”. With reference to controlling, Harold Koontz (1993) defined
“Controlling” as “the measurement and correction of performance in order to make sure that
enterprise objectives and the plans devised to attain them are accomplished”.

Required:

a. Describe four key elements of a strong and effective internal control system that Board of
Directors can set up in an organisation. (4 marks).
b. Discuss the role of internal auditors in evaluating and strengthening internal control
mechanisms. (5 marks)
c. Internal controls are said to have inherent limitations. Can you describe any five such
limitations. ( 5 marks)
d. In line with the Cadbury Report quoted above, procurement of stationery is a key activity in
a university. Describe one preventative control, one detective control and one corrective
61 | P a g e
 control against the risk of theft of stationery at a University.
(6 marks)
[TOTAL: 20 MARKS]

QUESTION FIVE

a) Briefly explain the importance of the following in relation to Corporate Governance and
Business Ethics:

I. External Auditor Independence

II. Board gender diversity

III. Utilitarian Theory

IV. Stewardship theory

(8 marks)

b) You have been appointed as a consultant to advise a Board of Directors of a company on

Corporate Social Responsibility (CSR) and its importance. Briefly explain three benefits of
CSR and three challenges faced by Boards of Directors in undertaking CSR.

(12 marks)

[TOTAL: 20 MARKS]

END OF EXAMINATION PAPER

62 | P a g e
DECEMBER 2023

SCHOOL OF BUSINESS, ECONOMICS AND MANAGEMENT

AFIN 427- CORPORATE GOVERNANCE & BUSINESS ETHICS

END OF SEMESTER FINAL EXAMINATION

MONDAY, 11TH DECEMBER 2023

14:00 - 17:00 HOURS
Time allowed: 3 HOURS plus 5 minutes reading time
INSTRUCTIONS TO THE CANDIDATES:

1. Check that you have the correct examination paper in front of you.

2. There are Two (02) Sections in this examination paper. Question One (01) in Section A is
compulsory. Answer any Three (03) questions from Section B.

3. All questions must be answered in the answer booklet only.

4. Write down the number of questions that you have answered on the cover of the
examination answer booklet.

5. Begin each question on a new page.

6. No books, files or mechanical / electronic aids are permitted.

63 | P a g e
7. There shall be NO communication among students during the examination. Any
students caught doing this will be disqualified.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO.

SECTION A: COMPULSORY

QUESTION ONE

ChongoLo Plc, a company listed on the Lusaka stock exchange has posted a loss of K1.2m for the
year ended 31st December 2022. This trend is in line with the results for the previous 4 years
where the reported net profit for each year were as follows:
2021 2020 2019 2018

Net Profit(Loss) for the Year (K0.9m) (K0.2m) K0.6m K1.1m

When the Board presented these results and the annual report to the shareholders at the Annual
General Meeting, the shareholders resolved not to adopt the financial statements and tasked the
Board to explain fully what was happening to the company and to strategise how to improve
performance. The shareholders were very concerned that since 2018, they have not received any
dividends and the share price for the company has been on the decline.
The Board Chairperson, who was also the CEO of the company, called for an urgent board
meeting to discuss the poor results and the new strategy to be adopted to improve performance.
During the meeting, it was established that, among other things, the major contributing factors to
poor results was demotivation among many members of the Executive Directors and some Non-
Executive Directors and dysfunctional board committees.
A special team was set up to review the performance of the three board committees – the
Nomination, Finance and Risk committees. In their report, they discovered that the Nomination and
Finance committees met once a month during the year while the risk committee met twice. In
addition, they discovered that there was no action done on all the recommendation in the internal
audit reports. The Board Chairperson had reviewed the internal audit reports which contained 30
64 | P a g e
reported weaknesses in internal controls but no action was taken to correct the weaknesses.
Among the reported weaknesses were infrequent board meetings ( only one annual board meeting
was held), fraud in the sales department due to lack of segregation of duties, rampant attendance
by Executive Directors of workshops overseas, the finance committee was chaired by the CEO
and there was no company secretary for the past two years.
As regards the reported demotivation among many members of the Executive Directors and some
Non-Executive Directors, it was found that the Executive Directors were on one year contracts
other than the CEO who was on a five year contract and the annual salaries comprised basic pay
only. Performance appraisals were not being conducted and no salary increments had been
effected over the four years for members of staff. The NED’s remuneration was determined by the
Nominations Committee and approved by the Finance Committee. The NEDs were paid (1) a
monthly fee, (2) sitting allowances for each meeting that was held by the Committees and the
Board and (3) an annual bonus. To attract and retain high caliber Non-Executive Directors (NEDs),
the company had a policy of offering NEDs shares in the company but this was not implemented.
Share options were not offered to the Executives Directors.
It was further reported that the external auditors, Mongu & Co, had not yet completed major
consultancy projects in the company despite having been paid in full. Among the pending works,
they were yet to complete development of the Computerised Accounting system. The auditors
however, did a good job in helping prepare the final accounts that were audited without any
significant issues being raised.
Additionally, it was reported that during the year under review, all the executive directors and the
NEDs underwent continuous profession development and induction.
REQUIRED:

b) Critically asses the corporate governance practices at the company. (25 marks)

c) Explain the benefits of new Non-Executive Directors undergoing an induction programme

(10 marks)

d) Internal Audit has a dual reporting line in ideal corporate governance arrangements. Identify the
dual reporting lines and explain why? (5 marks)
65 | P a g e
 [TOTAL: 40 MARKS]
SECTION B – ANSWER ANY THREE QUESTIONS

QUESTION TWO

According to Coleman (2011), “Risk management is the art of using lessons from the past to
mitigate misfortune and exploit future opportunities”. In corporate governance, risk is the central
component of managing an organization and a key concern of board members to enhance
corporate governance which can be achieved through the implementation of a systematic risk
management process.

REQUIRED:

a) By reference to Coleman’s definition of risk management, describe fully the components of

a risk management process. (10 marks)
b) Develop and complete a Risk Analysis Matrix clearly showing your response to each risk (
Avoid, Allow, Mitigate, Accept) based on the following risk descriptors, likelihood of
occurrence and impact of risk:

Risk Description Likelihood of Impact of risk

occurrence (Rare, (Negligible,
Unlikely, Possible, Marginal, Critical,
Likely, Certain) Catastrophic)

i. Demand shortfall for Likely Catastrophic

products and services
ii. Customer retention Possible Critical
iii. Information technology Likely Marginal
failure
iv. Pricing pressure Certain Critical
v. Cost overrun Certain Negligible

(10 marks)
[TOTAL: 20 MARKS]
66 | P a g e
QUESTION THREE

An unknown disease has erupted in Zambia and has caused great panic among citizens. On the
other hand, Government is still wondering on how to address the disease. Fortunately, a drug
producing company called Zed Drug Manufacturing Ltd (ZDM Ltd) through its R&D has made a
ground-breaking invention of a drug likely to cure the disease. The drug’s trade name is CureD.

Before the news reaches the public, ZDM Ltd’s Board and Management held a meeting to
deliberate on the drug. In attendance were: the Board Chairman, the Board Secretary, the CEO,
the Chief Drug Specialist, and the Chief Accountant.

The Chief Drug Specialist indicated that CureD may have defects because it has not undergone
essential animal trials. Therefore, it could have potential harmful side effects on users. “It is
therefore our duty to prevent damage on users”. Concluded the Chief Drug Specialist. On the other
hand, the accountant and the CEO indicated that it was important for CureD to be released as
soon as possible. They argue that any further delay would entail that competitors would have
enough time to come up with the cure. Hence, the company would lose out on the drug since it has
already invested substantive amount in research, and inputs for the drug. Specifically, the Chief
Accountant disclosed that a whopping amount of K2 billion has been invested, and any further
delay would only escalate this figure. Therefore, it does not make any business, and economic
sense to delay the release of the product on the market.

Upon this revelation, the board chairperson and CEO suggested that, it would be better the drug is
released while research continues on how best the would-be side-effects will be addressed.
“Possibly, producing another drug to counter the side-effects”. Argued the Chairperson. In the
long-term, CureD is argued to have the potential to benefit over 75 percent of Zambians. However,
health, and safety rules state that the drug should not be made available without following the due
process.

67 | P a g e
REQUIRED:

a) Identify five (5) ethical issues which makes it unethical for CureD to be released on the
market. (5 Marks)
b) Describe five (5) practical steps you would take to deal with any ethical situation such as the
one given in the scenario. (5 Marks)
c) Using one ethical framework, what decisions can you make in the above scenario? Justify
your decisions (5 Marks)
d) Using any of the two (2) ethical frameworks described in question (c), what decisions can
you make in the above scenario. Justify your decisions.
(2 Marks)
e) Give two (2) practical (real life) examples of conflict of interest, and propose three (3) ways
of managing them. (5 Marks)

(TOTAL: 20 MARKS)

QUESTION FOUR

The images below are part of the many pictures that were taken when Zambia Gold Company
Limited (ZGCL) handed over 160 desks and building materials to Mwinilunga District Education
Board in 2021. In his speech, ZGCL Project Manager Mr. Charles Mjumphi said education is key to
both personal, and national development.

68 | P a g e
Required:

a) Explain seven (7) benefits to Zambia Gold Company Ltd (ZGCL)

for engaging in Corporate Social Responsibility activities such as the one indicated above.
(7 Marks)
b) Describe five (5) arguments against Corporate Social
Responsibility. (5 Marks)
c) Describe five types of Corporate Social Responsibility.
(5 Marks)
d) Briefly explain the concepts of People, Planet and Profits (3Ps)
within the context of Corporate Social Responsibility.
(3 Marks)

[TOTAL: 20 MARKS]

QUESTION FIVE

c) Briefly explain the following terms in relation to Corporate Governance:

V. Independence
VI. Board diversity
VII. Fiduciary duty of the agent
VIII. Agency costs
69 | P a g e
 (8 marks)

d) Briefly outline and explain the composition and duties of the following board committees:
I. Audit Committee
II. Risk Committee
III. Remuneration committee
IV. Nominations committee
(12 marks)
[TOTAL: 20 MARKS]

END OF EXAMINATION PAPER

70 | P a g e
JUNE 2023

SCHOOL OF BUSINESS, ECONOMICS AND MANAGEMENT

AFIN427- CORPORATE GOVERNANCE AND BUSINESS ETHICS

END OF SEMESTER FINAL EXAMINATION

MONDAY 12 TH JUNE, 2023
14:00 – 17:00 HOURS

Time allowed: 3 HOURS plus 5 minutes reading time

INSTRUCTIONS TO THE CANDIDATES:

1. Check that you have the correct examination paper in front of you.

2. There are Two (02) Sections in this examination paper. Question One (01) in Section A is
compulsory. Answer any Three (03) questions from Section B.

3. All questions must be answered in the answer booklet only.

4. Write down the number of questions that you have answered on the cover of the
examination answer booklet.

5. Begin each question on a new page.

6. No books, files or mechanical / electronic aids are permitted.

7. There shall be NO communication among students during the examination. Any

students caught doing this will be disqualified.

71 | P a g e
 DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO.

SECTION A – COMPULSORY

QUESTION ONE

BLS Plc is a company that is registered in the United Kingdom and it has subsidiaries in Zambia
and the Democratic Republic of Congo (DRC). BLS-Zam Plc is the Zambian subsidiary which is
listed on the Lusaka Securities Exchange whilst BLS-Congo Plc is listed on the Kinshasa Stock
Exchange. BLS Plc is listed on the London Stock Exchange.

BLS Plc’s principal line of business is copper trading. It purchases copper from Zambia and the
DRC through its subsidiaries for sale on the London Metals Exchange. An extract from the annual
report for the year ended 31st December 2022 is as follows:

“CORPORATE GOVERNANCE

The Group continued to operate by enforcing good corporate governance practices in accordance
with the Combined Code in the United Kingdom and the local corporate governance codes in
Zambia and the DRC. The Group has Boards of Directors and two board committees for each
company. During the last year, the records of board and committee meetings were as follows:

BLS Plc BLS-Zam Plc BLS-Congo Plc

The Board 4 1 8

Audit Committee 4 6 Nil

Risk Committee 1 Nil 1

The Board and committee memberships were as follows:

BLS Plc BLS-Zam Plc BLS-Congo Plc

The Board 5 members of whom 3 members of 3 members of

four were NED and whom one whom 2 were

72 | P a g e
 three were female was NED NED and one
was female

Audit Committee 3 all NED 2 2 both NED

Risk Committee 3 all NED 2 2 – one NED

and one
Executive

The role of the Chief Executive Officer and the Chairperson of the Board was separated in all the
three entities. There was one Company Secretary who served all the three entities and was based
in London. The Company Secretary also served as the Chief Executive Officer for all the
companies. During the year there has been no changes to the Board composition as the
shareholders re-appointed the same directors on recommendation by the Company Secretary.
Each Board carried out an annual evaluation of its performance and a training workshop was held
for the BLS Plc board in London on risk management. It is planned that training workshops for
BLS-Zam Plc and BLS-Congo Plc will be held in the coming year.

Each Board carried out a robust assessment of the company’s emerging and principal risks and it
is hereby confirmed that the assessments have been completed except at BLS-Congo Plc where
there has been a delay because of the absence of an internal audit department at the company.
Reported Internal control weaknesses have been attended to on a timely basis at BLS Plc and
BLS-Zam Plc”.

REQUIRED:

g) Critically asses the corporate governance arrangements at BLS Plc and its subsidiaries.
(30 marks)
h) Explain the purpose of a Board Charter and describe any four matters that are normally
included in a Board Charter. (5 marks)
i) Explain the limitations of internal controls (5 marks)

[TOTAL: 40 MARKS]

73 | P a g e
SECTION B – ANSWER ANY THREE QUESTIONS

QUESTION TWO

The International Corporate Governance Network (ICGN) was established in 1995 with a mission
to promote effective standards of corporate governance and investor stewardship to advance
efficient markets. The ICGN has developed standards of corporate governance that comprise eight
Guidance Principles. Guidance Principle No. 6 – Remuneration contains the following clauses:

 Remuneration Alignment
 Balanced Remuneration
 NED remuneration
 No performed Based Pay for NEDs
 Remuneration Committee
REQUIRED:

a) Describe the recommended corporate governance practices under each of the above
clauses under Guidance Principle No. 6 – Remuneration. (10 marks)
b) Describe fully four (04) different types of Corporate Social Responsibility that organisations
engage in. (10 marks)

[TOTAL: 20 MARKS]

QUESTION THREE

The Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the United
States, created the COSO cube which is a diagram that shows the relationship among all parts of
an internal control system.

74 | P a g e
Organisations can utilise the COSO cube as a framework for the implementation of an Enterprise
Risk Management system.

REQUIRED:

Describe in detail what the various parts of the COSO cube represent and how you could use it to
develop an Enterprise Risk Management system.

[TOTAL: 20 MARKS]

QUESTION FOUR

a) Briefly explain the following, in relation to Agency Theory:

i. Three causes of the Agency problem

ii. Responsibilities of the Principle giving three examples

iii. Bonding costs giving three examples of bonding costs

iv. Fiduciary duties of the agent giving three such duties

(12 marks)
b) Describe the following pillars of Corporate governance:
i. Innovation
ii. Probity
iii. Independence
iv. Reputation (8 marks)
[TOTAL: 20 MARKS]
75 | P a g e
QUESTION FIVE

“Business Ethics is a subject that deals with moral guidelines and good corporate
governance. Companies are supposed to set high standards and adhere to certain common
business practices” (www.tutorialspoint.com).

REQUIRED:

a) By use of six (06) examples, describe the importance of business ethics. (6 marks)

b) Describe the following terms in relation to business ethics:

i. Ethical relativism

ii. Ethical subjectivism

iii. Deontology theory of ethics

iv. Utilitarianism theory of ethics

(8 Marks)

c) Organisations usually develop codes of conduct that typically contain series of statements
setting out the organisation’s values and explaining how it sees its responsibilities towards
stakeholders. Describe six (06) features of a code of conduct.
(6 marks)
[TOTAL: 20 MARKS]

END OF EXAMINATION PAPER

76 | P a g e
DECEMBER 2022

SCHOOL OF BUSINESS, ECONOMICS AND MANAGEMENT

AFIN427- CORPORATE GOVERNANCE AND BUSINESS ETHICS
END OF SEMESTER EXAMINATION

-------- DECEMBER, 2022

00:00 – 00:00 HOURS

Time allowed: 3 HOURS plus 5 minutes reading time

INSTRUCTIONS TO THE CANDIDATES:

1. Check that you have the correct examination paper in front of you.

2. There are Two (02) Sections in this examination paper. Question One (01) in Section A is
compulsory. Answer any Three (03) questions from Section B.

3. All questions must be answered in the answer booklet only.

4. Write down the number of questions that you have answered on the cover of the
examination answer booklet.

5. Begin each question on a new page.

6. No books, files or mechanical / electronic aids are permitted.

7. There shall be NO communication among students during the examination. Any

students caught doing this will be disqualified.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO.

77 | P a g e
SECTION A – COMPULSORY

QUESTION ONE

SOE Plc is a company that was listed on the Lusaka Securities Exchange in January 2015. The
company’s principal activity is the import and export of agricultural chemicals and products and the
export of maize meal. The company’s shareholding as at 31st December 2021 comprised 60% by
the Government of the Republic of Zambia through the Ministry of Finance and 40% by the public.
The company has been audited by ABC Chartered Accountants since 2015.

In the annual report for the year ended 31st December 2021, it was disclosed that the company
had performed very well in terms of increased revenues but it had recorded a decline in profits.
The increase in the revenues was attributed to the fact that the company had found a new market
for its products in the Democratic Republic of Congo.

Mr Kakanda, the Chairperson of the Board was appointed on 15 th December 2015 together with 13
other non-executive members by the Minister of Finance. The 13 other non-executive board
members comprised nine Permanent Secretaries from different line Ministries, three
representatives of the private sector and one from academia. The board composition has not
changed since 2015. The Chief Executive Officer (CEO) was not a member of the Board. Each
board member was paid a sitting allowance that was determined by the Minister of Finance.

Mr Kakanda conducts a board evaluation by appraising the performance of each board member
every three years. The evaluation report is submitted to the Minister of Finance once it is
completed and deliberated upon by the entire board. There are three board committees namely
the Finance and Administration Committee, the Appointments Committee and the Remuneration
Committee. All the committees had committee charters, were chaired separately by the three
representatives of the private sector and each committee met once in each year whilst the main
board met every quarter. The Remuneration for the CEO and other executive officers is
determined by the Ministry of Finance and communicated to the Board for implementation. The
remuneration package for the CEO and the other executive directors comprised a basic pay, car
and housing allowances.

REQUIRED:
78 | P a g e
j) Critically asses the corporate governance arrangements at SOE Plc. (20 marks)

k) Explain the role of the Board Secretary. (5 marks)

l) Explain what probity means as one of the pillars of corporate governance. (5 marks)

m) Describe the fiduciary duties of board members and the liability of board members for breach of
duties according to the Companies Act No. 10 of 2017. (10 marks)
[TOTAL: 40 MARKS]

SECTION B – ANSWER ANY THREE QUESTIONS

QUESTION TWO

Rufunsa Mineral Processing Ltd is a newly registered company with PACRA. Following the
appointment of the Board of Directors and the constitution of Board Committees, an extra-ordinary
Board meeting was called for the Board to consider and approve the following items prepared by
Management:

i. Internal Control Policy

ii. Risk Management Policy
iii. Creation of an Internal Audit department for the company

Required:

a) Describe the purpose of internal controls in an organization. (4 Marks)

b) Describe any six elements of internal controls that you would expect to find in an Internal
Control Policy. (6 marks)

c) By use of examples, explain the following types of internal controls: (6 marks)

i. Preventative controls
ii. Detective controls
iii. Corrective controls

d) Explain the role of internal audit in an organization. (4 marks)

79 | P a g e
 [TOTAL: 20 MARKS]

QUESTION THREE

There are many theories on corporate governance other than the classic Agency Theory. These
theories are derived based on the assumptions made regarding:

1. The key parties to the principal-agent relationship

2. Assumptions about the parties

3. Mechanisms to enhance corporate governance ( desirable characteristics of the Board of

Directors)

Required:

a) By use of the above three (1, 2, 3) broad assumptions describe fully the following corporate
governance theories:
i. Type I Agency Theory

ii. Type II Agency Theory

iii. Stakeholder Theory

iv. Stewardship Theory

v. Legitimacy Theory

[TOTAL: 20 MARKS]

QUESTION FOUR
80 | P a g e
In the 2018 Annual report, ZCCM-IH Plc disclosed the following in respect of their Corporate Social
Responsibility activities.

Source: ZCCM-IH Plc, 2018,

REQUIRED:

By reference to the above disclosure by ZCCM-IH Plc:

a) Explain any ten benefits to ZCCM-IH Plc for undertaking Corporate Social Responsibility
activities such as the one disclosed above. (10 marks)
b) Describe seven arguments against a company undertaking Corporate Social Responsibility
activities. (7 marks)
81 | P a g e
 c) Describe three challenges that organisations face when dealing with various stakeholders
as part of Corporate Social Responsibility. (3 marks)
[TOTAL: 20 MARKS]

QUESTION FIVE

The term corporate governance has been defined by King IV (2017:11), as being the “exercise of
ethical and effective leadership by the governing body so as to realise certain outcomes such as
legitimacy, ethical culture, effective control and good financial performance”.

REQUIRED:

a) By reference to the above definition, describe any five features of business ethics and any
five principles of business ethics in the context of corporate governance.
(10 marks)
b) Organisations usually develop codes of ethics for their employees. Explain the purpose of a
code of ethics and the features of a code of ethics. (10 marks)
[TOTAL: 20 MARKS]

END OF EXAMINATION PAPER

June 2022

82 | P a g e
 SCHOOL OF BUSINESS, ECONOMICS AND MANAGEMENT

AFIN 427: CORPORATE GOVERNANCE & BUSINESS ETHICS

END OF SEMESTER FINAL EXAMINATION

MONDAY, 13TH JUNE 2022
14:00 - 17:00 HOURS

Time allowed: 3 HOURS plus 5 minutes reading time

INSTRUCTIONS TO THE CANDIDATES:

1. Read the instructions very carefully.

2. Check that you have the correct examination paper in front of you.

3. There are FIVE (5) questions in this paper. Section A is COMPULSORY. Answer any TWO (2)
questions from Section B.

4. All questions must be answered in the answer booklet only.

5. Write down the number of questions that you have answered on the cover of the examination
answer booklet.

6. Begin each question on a new page.

7. No books, files or mechanical / electronic aids are permitted.

8. There shall be no communication among students during the examination. Any students caught
doing this will be disqualified.

83 | P a g e
DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO.

SECTION A: COMPULSORY

QUESTION ONE

The International Corporate Governance Network (ICGN) was established in 1995, ICGN Members include
institutional investors with global assets under management in excess of US$26 trillion and present in over
45 countries. Their mission is to promote effective standards of corporate governance and investor
stewardship to advance efficient markets and sustainable economies world-wide.

The ICGN Global Governance Principles (GGP) serve as ICGN’s primary standard for well-governed
companies, and have been developed in consultation with ICGN Members. The GGP are reviewed
periodically to ensure relevance with regulatory or market-led developments relating to high standards of
corporate governance.

The Principles provided by ICGN- GGP are listed as follows;

Principle No.1 - Board Role & Responsibilities;

Principle No.2 - Leadership & Independence;

Principle No.3 - Composition and Appointment;

Principle No.4 - Corporate Culture;

Principle No.5 - Risk Oversight;

Principle No.6 - Remuneration;

Principle No.7 - Reporting & Audit;

Principle No.8 - Shareholder Rights.

REQUIRED:

A. Explain the best codes of practice as provided by ICGN-GGP for the Eight (8)
Principles listed above.

84 | P a g e
 (Total: 25 marks)

QUESTION TWO

Business ethics is described by Andrew Crane as follows: "Business ethics is the study of business
situations, activities, and decisions where issues of right and wrong are addressed."

The other definition is by Raymond C Baumhart who defines Business ethics as follows: "The ethics of
business is the ethics of responsibility. The business man must promise that he will not harm knowingly."

REQUIRED:

A. Reconcile the two different definitions of Business ethics. (10 Marks)

B. Describe the relationship between Corporate Governance and Business ethics.
(10 Marks)

C. Describe the different features of Business ethics. (5 Marks)

(Total: 25 marks)

SECTION B: ANSWER ANY TWO (2) QUESTIONS

QUESTION THREE

Camco Milling Company is a fully government owned organisation that is in the business of milling maize
into mealie meal. The company has been in existence since the year 1990.

The current management team has identified an opportunity to expand its business in Congo DRC. The
CEO and the Marketing Director undertook a business trip to Kinshasa and reported that the need to
produce mealie meal in the city and country as a whole was a good prospect for the company.

The Government of Zambia who are the shareholders of this company has directed the Board of Directors
and management to quickly pursue and explore the business opportunity in DRC. The President of DRC
Congo Mr Felix Tshisekedi recently visited Zambia, and amongst other issues discussed between the 2
heads of State, was the setting up of a milling plant in Kinshasa. The DRC President gave assurance that
the company will be given all the necessary support in setting up the plant.

85 | P a g e
Some of the objectives that the company has set itself up to achieve in the medium term is summarised as
follows;

i. To set up a milling plant in Kinshasa.

ii. To borrow an amount of USD 5 million from the African Development Bank (ADB) to finance the milling
plant project.
iii. To recruit about 200 people in Kinshasa for the new project.
iv. To consider engaging in out-grower schemes in DRC.

The Government of Zambia does not provide additional funding to the company and does not guarantee
loans obtained by the company. The company is expected to run independently and generate revenue for
expansion from it’s operations. The company has a running and an active loan obtained from ABSA Bank
that was used to finance other business projects in Zambia.

REQUIRED:

A. Identify and describe the different risks that the company is exposed to as it considers expanding it’s line
of business into DRC. Provide risk management techniques to the risks identified.
(10 Marks)

B. Describe the process of risk management.

(10 Marks)

C. Why is risk management important in an organisation?

(5 Marks)

(Total: 25 marks)

QUESTION FOUR

Gertel- com Ltd a German based company that offers telecommunication services has seen an opportunity
to expand its business in a country called Braxian which is predominately an lslamic nation.

REQUIRED:

A. Describe the differences between a German and Islamic corporate governance model.
(5 Marks)

86 | P a g e
B. Describe the different factors that drive convergence of corporate governance
practices.

(5 Marks)

C. There are different factors that hinder convergence in corporate governance.

Describe the impediments to convergence.

(10 Marks)

D. Describe the characteristics of an ‘outsider model’.

(5 Marks)

(Total: 25 marks)

QUESTION FIVE

A. The internal auditors are employees of an organisation. They are recruited by management. However,
they are expected to be independent in the execution of their duties. Is it possible for internal auditors to be
independent? Explain your answer.
(5 Marks)

B. Discuss the arguments against a company engaging in corporate social responsibility activities.
(8 Marks)

C. There are different internal control elements in an organisation for it to operate effectively. Describe the
internal control elements.
(6 Marks)

D. Explain the fiduciary relationship between an Agent and a Principal.

(6 Marks)

(Total: 25 marks)

END OF EXAMINATION PAPER

December 2021

87 | P a g e
 SCHOOL OF BUSINESS, ECONOMICS AND MANAGEMENT

AFIN 427: CORPORATE GOVERNANCE & BUSINESS ETHICS

END OF SEMESTER FINAL EXAMINATION

MONDAY 13TH DECEMBER, 2021

14:00 – 17:00 HOURS

Time allowed: 3 HOURS plus 5 minutes reading time

INSTRUCTIONS TO THE CANDIDATES:

1. Check that you have the correct examination paper in front of you.

2. There are Four (4) questions and two Sections in this paper A & B.

3. SECTION A is compulsory. Answer ANY TWO (2) questions in SECTION B.

4. All questions must be answered in the answer booklet only.

5. Write down the number of questions that you have answered on the cover of the examination
answer booklet.

6. Begin each question on a new page.

7. No books, files or mechanical / electronic aids are permitted.

8. There shall be no form of communication among students during the examination. Any students
caught doing this will be disqualified.

88 | P a g e
 DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO.
SECTION A

QUESTION ONE - COMPULSORY

The Government of Pazeria owns 100% shares of PZ Commercial Bank. This Bank has been operating
since 1995. Over the years the Government through the Ministry of Finance has been overseeing the
operations of the Bank. The Bank management is supervised by the Board of Directors appointed by the
Minister of Finance. The recommended names of Board members are ratified by Parliament. The
Permanent Secretary of the Ministry of Finance is an ex-officio member of the Board of Directors.

The new Government’s policy is to allow the private sector participate more in the economic development of
the country. The Government and cabinet of Pazeria has decided to sell off its 49% of shares to the public.
PZ Commercial Bank is not listed on the Stock Exchange of Pazeria. The Board has given responsibility to
you the Finance Director and the Chief Executive Officer Mr Tom Mubita to spearhead the exercise of
having PZ Commercial Bank listed on the Pazeria Stock Exchange.

The Bank has performed fairly well in the last 5 years. Its customer base has grown by 15% and its assets
base has increased by 10% during the period. The Banking sector has seen several new players come on
the scene, due to the liberalization of the economy and relaxation of some conditionalities by the regulator.
However, the Bank has experienced high labour turnover in the last 2 years due to the resignation of
experienced staff who have joined the competitors.

An observation made is that every time a new Minister of Finance is appointed, the Board is dissolved and
a new one is constituted. This has resulted in the tenure of the Board of Directors having an average period
of 3 to 4 years at most.

Last year the Board approved the upgrade of the Information Technology system for the Bank. The
tendering process of this project was not transparent and was marred by irregularities. This resulted in the
bank losing colossal sums of money because the Contractor has failed to deliver according to the
contractual terms. The Chairman of the Board of PZ Commercial Bank is the major shareholder of the
Company that was contracted to do the upgrade.

89 | P a g e
Required:

a) You have been requested by the Minister of Finance to present to the Parliamentary Committee on how
PZ Commercial Bank should proceed in being listed on the Stock Exchange. You should advise the
government on how they should ensure that the Bank implements good corporate practices.

(15 Marks)

b) Give your views concerning the corrupt tendering process for the upgrading of Information Technology
system that took place at the Bank.

(10 Marks)

c) What do the terms diversity and independence of the Non- Executive Directors mean?

(10 Marks)

d) Describe the differences between a unitary and dual (Two-tier) Board of Directors.

State the advantages and disadvantages of a unitary Board of Directors.

(10 Marks)

e) Outline the responsibility of the Remuneration sub- committee of the Board.

(5 Marks)

(TOTAL: 50 MARKS)

SECTION B - Answer ANY TWO (2) questions

QUESTION TWO

Prime-Rite Logistics is an indigenous local company that has been in existence since the year 2000. The
shareholders structure comprises of 49% local financial institutions and 51% owned by an Australian
Company called Austar Ltd.

90 | P a g e
Prime-Rite Logistics is in the business of cargo road transportation to and from the habours within the
Southern and Central African shores. The business prospects has been very positive. The Company’s
strategic plan is to create a railway line from Durban to Dar-es-salaam. This is a massive project and the
company is in the process of sourcing funding for this project. The majority shareholder Austar Ltd has
been very instrumental in sourcing for funding. Austar Ltd is listed on the Australia Stock Exchange.

In view of this strategic direction that the company has decided to embark on, its Board of Directors have
seen the need to recruit a Risk Director to manage all the risk associated to the business and any that
might occur in the future. The risk management has been handled by the internal audit department.

Required:

a) You have been appointed as the Risk Director of Prime-Rite Logistics. Give a detailed outline of how
you will proceed in addressing the risks that the company is prone to and provide the solutions.

(10 marks)

b) “The International Corporate Governance Network (ICGN) is focused around company governance
and how board directors should promote successful companies, thereby creating sustainable value creation
for investors while having regard to other stakeholders.”

Principle No.6 of the ICGN Global guidance addresses the Risk oversight by the Board.

Outline the specific issues raised and proposed by ICGN concerning the risk oversight.

(10 marks)

c) Describe the different types of risks. (5 marks)

[TOTAL: 25 MARKS]

QUESTION THREE

Oracle Company’s Board of Directors have identified the need to create an Internal Audit department for the
first time. One of the major responsibility of internal audit is to provide a reasonable assurance that the
internal controls established by management are adequate and operating effectively;

Required:

a) Describe the different types of internal controls. (8 Marks)

91 | P a g e
b) Internal controls are very necessary for every organisation to ensure that its set objectives are effectively
attained. However, there are limitations in ensuring that the control are effective and serving the purpose.
What are the limitations of internal controls?
(7 Marks)

c) What is delegation of Authority and why is it important? (5 Marks)

d) A strong internal control system is based on the same consistent elements.

Describe the different elements of the internal control system. (5 Marks)

[TOTAL: 25 MARKS]

QUESTION 4

A. On one side, there is a classical view or purely economical view that management’s only
responsibility is to maximize profits. On the other side stands the socioeconomic position, which
holds that management’s responsibility goes well beyond making profit to include protecting and
improving society’s welfare.

Reconcile these TWO different views. (10 Marks)

B. The principles of business ethics are related to social groups that comprise of consumers,
employees, investors, and the local community. Discuss and describe the different principles of
Business ethics. (10 Marks)

C. Describe the different types of Corporate Social Responsibility. (5 Marks)

[TOTAL: 25 MARKS]

END OF EXAMINATION PAPER

92 | P a g e
June 2021

SCHOOL OF BUSINESS, ECONOMICS AND MANAGEMENT

AFIN 427 CORPORATE GOVERNANCE & BUSINESS ETHICS

END OF SEMESTER FINAL EXAMINATION

MONDAY 14TH JUNE, 2021

14:00-17:00 HOURS

Time allowed: 3 HOURS plus 5 minutes reading time

INSTRUCTIONS TO THE CANDIDATES:

1. Check that you have the correct examination paper in front of you.

2. There are two Sections in this paper, Section A & B. Six (6) questions and

3. QUESTION ONE (1) in SECTION A is compulsory. Attempt ANY THREE (3) questions in Section
B.

4. All questions must be answered in the answer booklet only.

5. Write down the number of questions that you have answered on the cover of the examination
answer booklet.

6. Begin each question on a new page.

93 | P a g e
7. No books, files or mechanical / electronic aids are permitted.

8. There shall be no communication among students during the examination. Any students caught
doing this will be disqualified.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO.

SECTION A - COMPULSORY

QUESTION ONE

Sandy PLC is one of the market leaders in the financial sector. The company has seen enormous growth
over the last 4 years. It has recorded enormous profits and brags of a loyal, dedicated and highly trained
workforce. Busiku, the CEO of Sandy PLC has a dedicated team of executives and she has found ways of
motivating them to achieve high results through incentives. During the year ended 2020, she offered all the
directors with performance related bonus if they reach the set targets and the bonuses where eventually
paid at the end of the year for meeting the targets. The non-executive directors (NEDs) were very happy
and promised to work extra hard the following year to ensure that management achieved even better
results at all cost.

The company secretary was however not happy with the way the bonus was administered and therefore, he
rescued himself from receiving the bonus. Busiku was not pleased with the move and therefore dismissed
the company secretary from her role. The Board appointed a well-qualified and seasoned lawyer, Mutinta,
to the position of company secretary. Busiku then offered Mutinta a good package that attracted her to
accept the job offer.

Internal Audit raised some concerns in their audit report concerning the dismissal of the then Company
Secretary and the reward package given to the new Company Secretary. The CEO took time to explain the
issues raised to the Director Internal Audit who reluctantly amended the report that Busiku then forwarded
to the Audit Committee for consideration.

During the year, two NEDs joined the oganisation – Dee a seasoned engineer and Chabota a seasoned
accountant. The two underwent a detailed induction programme before joining the board and respective
94 | P a g e
board committees. Dee and Chabota were given extra roles to sit on the Legal and Audit Committees
respectively. The remuneration committee determined their packages that the two were okay with.

Busiku with the help of the independent auditors prepared the annual reports applying consistently the
accounting standards – IFRS, IAS and GAAP. The Audit Committee reviewed the accounts and adopted
the financial reports after deliberations. The committee also reviewed the external audit report and
forwarded the final reports to the AGM.

The shareholders, however, did not know whether the company was being run well and whether the
corporate governance arrangements at Sandy PLC were adequate.

Required:

a) Assess the Corporate Governance arrangements at Sandy PLC

(14 marks)
b) Briefly explain the benefits of the separation of power and the roles of chief executive officer
(6 marks)

c) Explain the benefits of an induction programme to NEDs. (5 marks)

[Total 25 marks]

SECTION B - Answer ANY THREE (3) questions

QUESTION TWO

After a recent financial crisis in the country of Zland, 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 Zland 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 Mungala, 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
95 | P a g e
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 Zland should become a rules-based
jurisdiction because the current ‘comply or explain’ was ineffective as a means of controlling corporate
governance.

Mr Mungala 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 Zland
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’.

Required:

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 Mungala believes that Zland 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 Mungala’s belief that ‘comply or explain’ is ineffective.
(8 marks)

c) Internal Audit has a dual reporting lines in ideal corporate governance arrangements. Identify the dual
reporting lines of Zland and give reason for your answer.
(7 marks)

[Total 25 marks]

96 | P a g e
QUESTION THREE

The Sarbanes-Oxley legislation in the United States was introduced in 2002, partly in response to the
earlier failure of the American energy company, Enron. It was decided by United States legislators that
compliance should be enforceable under law rather than under listing rules. At the time it was being
debated, some said that the legal enforceability of Sarbanes-Oxley would be unfair to smaller companies
without the infrastructure needed to generate internal control data and to report on it. One example of this
was the debate over s.404 of Sarbanes-Oxley, which mandated external reporting on the adequacy of
internal controls. Before a size criterion was later introduced, this applied equally to all companies but now
smaller companies are partly exempted from this requirement.

In its advice on this requirement, the United States Securities and Exchange Commission (SEC) published
the following comments:

The rules we adopted in June 2003 to implement s.404 of the Sarbanes-Oxley Act of 2002 (‘Sarbanes-
Oxley’) require management to annually evaluate whether internal control over financial reporting (ICFR) is
effective at providing reasonable assurance and to disclose its assessment to investors. Management is
responsible for maintaining evidential matter, including documentation, to provide reasonable support for its
assessment. This evidence will also allow a third party, such as the company’s external auditor, to consider
the work performed by management.

Required:

a) Explain the disadvantages of a rules-based system such as Sarbanes-Oxley in the United States.
(6 marks)

b) Construct the case to exempt smaller companies from the full reporting requirements of s.404 of the
Sarbanes-Oxley Act 2002. (7 marks)

c) Following your understanding of the Enron scandal:

I. Identify and explain the FOUR major corporate governance weaknesses in Enron.
(8 marks)

97 | P a g e
 II. What were the recommendations in the Sarbanese-Oxley Act 2002 aimed at addressing the
identified weakness in (I) above? (4 marks)

[Total 25 marks]

QUESTION FOUR

‘Business Ethics influence decision making in organizations and are important to the profitability and
success of organizations.’

Required:

a) Discuss the above statement, among other things in your answer, clearly explain business ethics and
benefits of business ethics to profitability and success of an organization (Your answer should clearly
show the link to profitability)
(20 marks)

b) Explain ethical relativism and absolutism (5 marks)

[Total 25 marks]

QUESTION FIVE
98 | P a g e
c) Briefly explain the following terms in relation to Corporate Governance:
I. Skepticism
II. Independence
III. Probity
IV. Fiduciary duty
(6 marks)

d) Briefly outline and explain the composition and duties of the following board committees:
I. Audit Committee
II. Risk Committee
(6 marks)

e) Briefly explain the Strategy, Risk, Scrutiny and People roles of None Executive Directors (NEDs) and
advantages of having NEDs in an organization.
(8 marks)

f) Briefly explain corporate social responsibility and environmental sustainability in relation to corporate
governance (5 marks)

[Total 25 marks]

QUESTION SIX

a) Identify and explain ethical threats to compliance with the fundamental principles for accountants in
practice. (8 marks)

b) Explain why Non-Executive Directors (NEDs) NEDs should not receive performance related pay
(9 marks)

99 | P a g e
 c) Explain diversity and its benefit to the Board. (8 marks)

[Total 25 marks]

END OF EXAMINATION PAPER

100 | P a g e