CMA Final Law – Question Bank

Corporate Governance

Self Practice Questions

Descriptive Questions

1. Mention differences between:

(a) law and ethics
(b) ethics and Corporate Governance
(c) environment sustainability and corporate social responsibility

(a)
Laws refer to the set of codified norms which are enforced by the state. They act as external
obligations. On the other hand, ethics refer to the set of norms which guide our internal compass
and judgements.
The law is created by the Government, which may be local, regional, national or international. On
the other hand, ethics are governed by an individual, legal or professional norms, i.e. workplace
ethics, environmental ethics and so on.

(b)
Ethics Corporate Governance
The values and principles considered as The method of governance should be with ethical
foundation. It relates to the inner self of an values but is the methods which are important.
individual which reflects at the workplace.
Applies at all levels. A manager has to be Normally applies at top level, corporate policies and
honest at every level. procedures are made at higher level only.
Emerges naturally Needs to be studied and experienced. There are
established guidelines on these issues which have
emerged in course of time
Regulations are not important Regulations are important as it needs strict
compliance. In most of the countries, corporate
governance is regulated.

(c)
While environmental sustainability is usually a part of corporate social responsibility, CSR does not
only focus on sustainability. For many companies, treating the environment well is important, and
this value may be reflected in their CSR programs.
A sustainable business is one that works in step with societal and environmental goals, rather than
at odds with them. Corporate sustainability is a business strategy for long-term growth that works
in harmony with people and the planet.

2. What are three approaches to sustainable development, commonly known as triple bottom-
line approach.

P a g e 20.1 | CA Shivangi Agrawal

 CMA Final Law – Question Bank

Answer:
Economic approach: The current decision should not impair the prospects of maintaining or
improving future living standards. This also called “Profit” approach.
2. Ecological/Environment Approach: Scarce natural resources should be preserved for the future,
which would include preservation of genetic diversity, water, mines, forests etc. Industries should
use minimum natural resources. Any industry damaging the environment through affluent
discharge should be avoided or minimised. This also called “Planet” approach
3. Social approach: The industry is for the society and shall not damage social security, values and
welfare of the people. This also called “People” approach

3. How can a company identify whether its CSR activities are impactful or not?

Answer:
Any CSR project/activity should have some impact, big or small. In order to know the impact, an
impact analysis study is supposed to be made, which would compare the achieved results with the
desired result. In order to get real picture, it is the following issues needs consideration.
(a) Should preferably done by an independent agency
(b) Focused on the impact only
(c) Done immediately after the benefit given
(d) Should be data based

4. What parameters to be checked when CSR activity is being done through third party
implementing agencies?

Answer:
When the project is being implemented by implementing agencies, , the organisation needs to
evaluated, which can be done with following checks.
(a) Documentation
(b) Inspection of project site
(c) Track record of the organisation
(d) Beneficiary feedback
(e) Sponsors’ feedback
(f) Interview of the persons responsible for implementation.

5. Discuss the issues in family managed companies.

Answer:
Emerging issues in CG in family managed companies in India.
(i) Separation of ownership and management: In few companies in India, the main promoter or
owner have chosen to be investor and not to a part of management even as part time chairman. The
whole Board of directors are non owners and are hard core professionals.
(ii) Family members acquiring professional courses from reputed institutes.
(iii) Promoters are encouraging professionals in the organisation.
(iv) Promoters are more focused on compliances to avoid loss of reputation which may result to
price fall in the share market.
(v) Role and leadership clarity decided at board level
(vi) Owners are accepting and honouring opinion of managers.
(vii) Family’s social and emotional issues are being satisfied by forming trusts/foundations which
are separate from the business entity, without any conflict of interest.

P a g e 20.2 | CA Shivangi Agrawal

 CMA Final Law – Question Bank

6. There are various methods of rating a company’ governance parties. However, one has to
keep few issues in mind while assessing the Governing practices. Comment

Answer:
(i) Board Structure and balancing
(ii) Share holder Rights and Compensation’
(iii) Accounting
(iv) Ownership and Control
(v) Professionalism
(vi) Disclosures
(vii) Market price of shares
(viii)Compliance of law
(ix) Earnings Dividend pay-out
(x) Dealing with conflict of interest
(xi) Related party transactions
(xii) Risk management
(xiii)Investor grievances
(xiv)Customer grievances
(xv) Vendor grievances
(xvi) CSR initiatives

7. The following points relate to which theory?

a) Directors are regarded as stewards of the company’s assets. They decide what is to be done
and drive the people of the company
b) This theory considers wide inclusion of stakeholders, other than shareholders. Hence the
directors need to keep a balance between the interests of various stakeholders.

Answer:
a) Stewardship Theory
b) Stakeholder Theory

8. Is it wise for the company to practice good governance which comes with additional cost?

Answer:
Good Governance has a lot of benefits as enumerated under:
1. Better governed company is essential for growth and stabilization
2. Reputation of the company will enhance one people know that you are a honest or good
governed company.
3. Better use of funds of the company, which may be fines collected from public of the company by
the managers.
4. Better management of resources which are available to the company.
5. Better governed ensures long term and steady growth.
6. Establishing stakeholders’ confidence
7. Leverage of competitive advantages
8. Alliances with other companies are easy as others are interested to be associated with your
company.

P a g e 20.3 | CA Shivangi Agrawal

 CMA Final Law – Question Bank

Good corporate governance is generally associated with publicly listed companies, the governance
benefits to non-listed companies are less often talked about. However, An increase in confidence by
investors and banks in the company due to robust financial management reporting will not only
improve access to capital, but also minimise both cost of capital and cost of equity, resulting in an
optimised capital flow and also sales margin.
So in the long run, practicing good governance will undoubtedly be cost effective and bundled with
a lot of more benefits.

9. The National Guidelines on Responsible Business Conduct comprises nine thematic pillars
of business responsibility that are known Principles. Enumerate.

Answer:
✓ Principle 1: Businesses should conduct and govern themselves with integrity and in a
manner that is ethical, transparent and accountable. The principle ensures ethical
behaviour in all operation, functions and processes, is the basic of businesses that are
guiding their governance of economic, social and environmental responsibilities.
✓ Principle 2: Businesses should provide goods and service in a manner that is sustainable
and safe. The principle emphasises that businesses have to focus on safety and resource-
efficiency in the design and manufacture of their products. These products have to be
manufactured in such a way, by which it creates value by minimising and mitigating its
adverse impacts in the environment and society through all stages of its life cycle, from
design to final disposal. This principle encourages businesses to understand every material
sustainability issues across their product life cycle and value chain.
✓ Principle 3: Businesses should respect and promote the well-being of all employees,
including those in their value chains. The principle encloses all policies and practises that
are about the equity, dignity and well-being and the provision of decent work, for every
employee that who are engaged within a business or in its value chain, without any
discrimination and in a way that contributes to the diversity. The principle identifies the
well-being of an employee and the welfare of his/ her family.
✓ Principle 4: Businesses should respect the interests of and be responsive to all its
stakeholders. This principle recognises the businesses operate in an eco-system that
consists of some stakeholders, being shareholders and investors and their activities affect
natural resources, habitats, communities and the environment. The principle brings into
light that businesses have a responsibility to maximise the positive effects and minimise
and mitigate the negative impacts of the products, operations and practises on their
stakeholders.
✓ Principle 5: Businesses should respect and promote human rights. This principle identifies
the human rights are rights that have to be inherent to all human beings and these
guidelines are applied without discrimination. These human rights are considered to be
inherent, inalienable, interrelated, interdependent and indivisible. This principle is inspired,
informed and guided by the Constitution of India and the International Bill of Rights, and
recognises the primacy of the State’s duty to protect and fulfil human rights.
✓ Principle 6: Businesses should respect and make efforts to protect and restore the
environment. This principle gives preference to environmental issues that are
interconnected at the local, regional and global levels doing businesses to address the
problems like pollution, biodiversity conservation, sustainable use of natural resources and
climate change in a comprehensive and systematic manner. The principle encourages firms
to adopt environmental practises and processes that minimise or eliminates the harmful
effects of their operations across the value chain. Moreover, it also persuades businesses to
follow the Precautionary Principle in all its actions.

P a g e 20.4 | CA Shivangi Agrawal

 CMA Final Law – Question Bank

✓ Principle 7: Businesses, when engaging in influencing public and regulatory policy, should
do so in a manner that is responsible and transparent. This principle concedes that
businesses operate within a specified national and international legislative and policy
frameworks that guide their growth and also provides specific restrictions and boundaries.
The principle recognises the legitimacy of businesses to engage with governments for
redressal of a grievance or for influencing public policy. In addition to this, the law demands
that public policy advocacy has to expand public good.
✓ Principle 8: Businesses should promote inclusive growth and equitable development. The
principle rests the challenges of the social and economic development that are faced by the
country and enhances the national and development agenda according to the government
policies and priorities. The principle mentioned the need for collaboration amongst
businesses, government agencies and civil society in this development agenda.
✓ Principle 9: Businesses should engage with and provide value to their consumers in a
responsible manner. The principle is based on the fact consumers that are safe to use,
creating value for both. It recognises consumers having freedom of choice for the usage of
goods and services, and the enterprises strive to provide the products that are safe.

Multiple Choice Questions (MCQs)

1. Three Ps of triple bottom line are:

a. planet, people and purpose b. planet, people and profit
c. planet, profit and purpose d. planet, profit and period

2. At which level corporate governance is more relevant in a company?

a. top level b. middle level
c. lower level d. all levels

3. which among the following would amount to undesirable practice by a senior executive of a
company
a. using published information of the b. using unpublished information of the
competitor for his company’s benefit competitor for his company’s benefit
c. using un published and secret d. lure the executives of the competitor to
information of the competitor join his company.
obtained from undisclosed and unfair
source for his company’s benefit

4. Which , out of the following would not amount to Sustainable Development activity.
a. rain water harvesting b. paddy cultivation
c. solar energy d. plantation of sapling for forestation

5. corporate governance practices are almost……………….by companies in India.

a. formalised b. regulated
c. accepted d. rejected

6. The latest committee on Corporate governance was:

a. narayan Murthy committee b. kotak committee
c. kumar Mangalam Birla committee d. rahul Bajaj Committee

P a g e 20.5 | CA Shivangi Agrawal

 CMA Final Law – Question Bank

7. The ideal implementing agency of CSR projects, should be:

a. section 8 company b. trust
c. society d. one of the above

8. Economic approach to sustainability relates to:

a. Planet b. Profit
c. People d. none of the above

9. Corporate governance is more about:

a. achieving results b. managing things
c. method of managing a company d. fair method of managing a company

10. The items under Schedule VII of the Act, should be:
a. strictly interpreted b. liberally interpreted
c. depends on the company d. only a guideline

11. CG practises should target to keep balance amongst:

a. all shareholders b. all employees
c. employees and shareholders d. All stakeholders

12. When a company evaluates an implementing agency, first step is to :

a. local feedback b. interviewing the officials
c. inspection of site d. examining documents

13. Every CSR activity is ultimately for the:

a. Company b. govt.
c. implementing agency d. beneficiary

14. The CSR fund earmarked for on going project, needs to be spent within:
a. one year b. two years
c. three years d. Four years

15. Clause 49A which was the first major compliance of corporate governance by listed
companies was on thebasis of recommendation of:
a. Narayan Murthy committee b. Kotak committee
c. Kumar Mangalam Birla committee d. Rahul Bajaj Committee

16. Corpoarate governance is close to:

a. ethical conduct of business b. managerial conduct of business
c. target oriented business d. none of the above

17. A foreign entity cannot be: .

a. implementing agency of CSR project in b. advisor
India
c. trainer d. consultant

P a g e 20.6 | CA Shivangi Agrawal

 CMA Final Law – Question Bank

18. Some of the reasons for which companies cannot practice good governance may be:
a. narrow mind-set of the promoters b. financial problem in the company
c. unhealthy completion in the market d. all or any of the above.

19. A company sponsors the expenditure of a primary school of physically disabled students
having 200 students. Three employees’ children, being physical disabled, have also been
admitted in that school:
a. the school will qualify as CSR project b. not qualify as CSR project as there are
as admission of the employees’ students who are employees’ children
children is incidental
c. depends on how the company d. depends on Board of Directors
represents the same to the auditors

20. Which will not qualify as CSR expenditure

a. direct donation to a unrecognised b. contribution to fund under schedule
charitable organisation VII of the Act
c. any activity under schedule VII d. Direct implementation of a CSR project
by the company

21. Advantages of direct implementation of CSR activity by the company are:

a. Flexible, since, even small decisions b. Better supervision, since it is being
also are taken by the company directly implemented
c. Quick decision making d. All of the above

22. Advantages of third party implementation of CSR prjects, are:

a. Expertise b. Better supervision at site
c. Unbiased d. all of the above

23. CG ratings are done by :

a. commercial banks b. RBI
c. Credit Rating Agencies d. SEBI

24. Audit committee can:

a. interact with statutory auditors only b. interact with internal auditors only
c. interact with both statutory and d. none if the above
internal auditors

25. The recommendation of the Audit Committee:

a. may not be accepted by Board of b. has to be accepted by Board
Directors
c. In case not accepted, Board has to d. Recommendation need not go to Board
records the reasons meetings

26. Which of the following is the advantage of the family business over non-family business?
a. Staff recruitment b. Raising funds for growth
c. Ownership vs. Management d. Deep industry insight

P a g e 20.7 | CA Shivangi Agrawal

 CMA Final Law – Question Bank

Answer to MCQs

1 b 6 b 11 d 16 a 21 d 26 d
2 a 7 d 12 d 17 a 22 d
3 c 8 b 13 d 18 d 23 c
4 b 9 d 14 c 19 a 24 c
5 b 10 b 15 c 20 a 25 c

State True or False

1. Most of the provisions relating to corporate governance of a listed company is stipulated

under LODR.
2. Stakeholders means shareholders only.
3. The chairman of CSR committee has to be an independent director
4. The signing of code of conduct by directors is optional
5. Companies having budget up to Rs. 90 lakhs in a year, need have a CSR committee

Fill in the Blanks

1. Corporate governance is to be practiced at…………level of management.

2. CSR provisions apply to companies with a turnover of Rs……….crores
3. The recommendation of ………..committee was incorporated in listing agreement.
4. The CEO certification under CG relates to……………..
5. ABRR relates to annual ………….responsibility report.
6. A director can be member of maximum…………..committees taking all companies into
consideration.
7. Managerial remuneration appears under schedule …….. ……of the companies Act.
8. PRI stands for …………………………………
9. SDG, in parlance to sustainability means……………..
10. The Voluntary guidelines on CSR was issued in the year…….
11. ABRR stands for………………………………………
12. The areas of CSR is mentioned under schedule…..to Companies Act. 2013.
13. No CSR Committee is required, If the CSR Committee budget is up to Rs.`…………….

Answers to True/False

1 True
2 False
3 False
4 False
5 True

Answers to Fill in the Blanks

1 Top/ higher
2 1000
3 Kumar Mangalam Birla
4 Code of conduct
5 Business

P a g e 20.8 | CA Shivangi Agrawal

 CMA Final Law – Question Bank

6 10
7 V
8 Principles of Responsible Investment
9 Sustainability Development Goals
10 2011
11 Annual Business Responsibility Reporting
12 VII
13 50 Lakhs

Case Study 1:
1. M/s ABC Tyres Ltd., manufactures of tyres of all types of vehicles, is a public limited company has
three manufacturing units, one at Durgapur, West Bengal, Palej, Gujarat and Munnar in Kerala with
corporate office at Kolkata. The company is professionally managed, the promoter being the
chairman, only comes in Board meetings and does not interfere in day to day management. The
other directors are independent professionals. The company has sales offices and dealers pan India.

The financial performance of the company is as follows: (Rs in Crores)

Parameters 2017-2018 2018-19 2019-20 2020-21

Turnover 700 650 920 1010

Net worth 402 42.3 480 530
Net profit 14.5 15.7 16.8 18

Questions:
1. Do the company comes under CSR obligation?
2. What would be minimum budget for 2021-22.
3. Is CSR committee required?
4. What are the other obligations for CSR under the Act?
5. What will happen if the stipulated amount is not spent within the year.
6. What will happen if a project is taken up but full allocated amount is not spent?

1. Section 135 of the Act provides for the applicability of the CSR provisions on corporates.
Sub-section (1) of section lays down that every company having
• net worth of Rs 500 Crores or more; or
• turnover of Rs 1000 Crores or more;
• net profit of Rs 5 Crores
Therefore, ABC Tyres Ltd. Comes under CSR obligation.

2. Minimum budget will be Rs 2.7 lakhs for 2021-22.This 2% of average profit of last 3
financial years.
3. Yes, CSR committee is required to be formed as it comes under the purview of section 135
of the Act.
4. Other obligations are spending the amount within the financial year. The details have to be
disclosed in Board’s report as annexure. Form CSR 1 needs to be filed.
5. The unspent amount will have to be transferred to a special account.
6. If a project is taken up and full amount is not spent, the amount shall be kept separately for
financing the which will be called as “ongoing project”.

P a g e 20.9 | CA Shivangi Agrawal