PAMANTASAN NG LUNGSOD NG MUNTINLUPA

College of Business Administration

University Road, Poblacion, Muntinlupa City

MIDTERM EXAMINATION – GOVERNANCE, BUSINESS ETHICS, RISK MANAGEMENT

AND INTERNAL CONTROL
1st SEMESTER, A.Y 2021-2022
Name: ______________________
Date: _______________________

I. True or False. Write the word TRUE if the statement is correct, if FALSE, underline the
word or statement that makes the statement incorrect and write the correct answer.

1. Accountability is a secondary requirement of good governance. Not only governmental

institutions but also the private sector and civil society organizations must be
accountable to the public and to their institutional stakeholders.

2. Good governance requires fair legal frameworks that are enforced with bias.

3. Good and effective governance answers the question: (a) is the board telling us what
is going on? (b) Is the board taking their responsibility and (c) Is the board doing all the
things that will only benefit them?

4. The roles of chairperson and chief executive officer can be delegated to one person.

5. Compliance with regulatory bodies is limited only to the following agencies: AMLA,
BIR, PEZA, and DOLE.

6. Governance starts with the board of directors delegating responsibilities through

elected shareholders/owners.

7. Stewardship includes financial statements that are clear with full disclosure and that
reflect the underlying economics of the company.

8. The role of Management is the same as the broad role of the entire board of directors.

9. The Audit Committee’s role is to set accounting and auditing standards dictating
underlying financial reporting and auditing concepts; set the expectations of audit
quality and accounting quality.

10. Internal Auditors perform audits of company financial statements to ensure that the
statements are free of material misstatement including misstatements that may be due
to fraud or error.

11. Sarbanes Oxley Act helps organizations improve performance by developing thought
leadership that enhances internal control, risk management, governance and fraud
deterrence.

12. Ethics can be defined as set of moral principles or values that govern the actions and
decisions of an individual or group to do something that is not in accordance with law.

13. Ethical behavior is necessary for a society to function in an orderly manner. Ethics is
the glue that holds society together. The need for ethics in society is sufficiently
important that any commonly held ethical values are incorporated into policies and
procedures.
 14. All the recognized professions have several common characteristics. The most
important of these characteristics are: (a) responsibility to serve the public; (2) a
complex body of knowledge; (3) standards of admission to the profession; and (4) the
need for private confidence.

15. The main purpose of business ethics is to serve as a standard or ideal upon which
business conduct should be based.

II. Multiple Choice.

16.I. Depending on the materiality threshold, approval of management, the RPT

Committee, the Board or the shareholders may be required. In cases where the
shareholders’ approval is required, it is good practice for interested shareholders to
abstain and let the disinterested parties or majority of the minority shareholders
decide.
II. The Board should be primarily responsible for approving the selection and
assessing the performance of the Management led by the Chief Executive Officer
(CEO), and control functions led by their respective heads (Chief Risk Officer, Chief
Compliance Officer, and Chief Audit Executive).
III. Results of performance evaluation should be linked to other human resource
activities such as training and development, remuneration, and succession planning.
These should likewise form part of the assessment of the continuing fitness and
propriety of management, including the Chief Executive Officer, and personnel in
carrying out their respective duties and responsibilities.
IV. The Board should oversee that an appropriate internal control system is in place,
including setting up a mechanism for monitoring and managing potential conflicts of
interest of Management, board members, and shareholders. The Board should also
approve the Internal Audit Charter.

a. Statement 1 is correct
b. Statement 2 is correct
c. Statement 3 is correct
d. Statement 4 is correct
e. Statement 1 is incorrect
f. Statement 2 is incorrect
g. Statement 3 is incorrect
h. Statement 4 is incorrect
i. 2 statements are incorrect
j. All statements are correct
k. All statements are incorrect

17. I. The Board should oversee that a sound enterprise risk management (ERM)
framework is in place to effectively identify, monitor, assess and manage key business
risks. The risk management framework should guide the Board in identifying
units/business lines and enterprise-level risk exposures, as well as the effectiveness of
risk management strategies.
II. Risk management policy is not part of a corporation’s corporate strategy. The Board
is responsible for defining the company’s level of risk tolerance and providing
oversight over its risk management policies and procedures.
III. The Board Charter guides the directors on how to discharge their functions. It
provides the standards for evaluating the performance of the Board. The Corporate
Code also contains the roles and responsibilities of the Chairman.
IV. Board committees should be set up to the extent possible to support the effective
performance of the Board’s functions, particularly with respect to audit, risk
management, related party transactions, and other key corporate governance
concerns, such as nomination and remuneration. The composition, functions and
responsibilities of all committees established should be contained in a publicly
available Corporate Code.
 a. Statement 1 is correct
b. Statement 2 is correct
c. Statement 3 is correct
d. Statement 4 is correct
e. Statement 1 is incorrect
f. Statement 2 is incorrect
g. Statement 3 is incorrect
h. Statement 4 is incorrect
i. 2 statements are incorrect
j. All statements are correct
k. All statements are incorrect

18. I. Board committees such as the Audit Committee, Corporate Governance Committee,
Board Risk Oversight Committee and Related Party Transaction Committee are
necessary to support the Board in the effective performance of its functions. The
establishment of the same, or any other committees that the company deems
necessary, allows for specialization in issues and leads to a better management of the
Board’s workload. The type of board committees to be established by a company
would depend on its size, risk profile and complexity of operations. However, if the
committees are not established, the functions of these committees may be not be
carried out by the whole board or by any other committee.
II. The Board should establish an Audit Committee to enhance its oversight capability
over the company’s financial reporting, internal control system, internal and external
audit processes, and compliance with applicable laws and regulations. The committee
should be composed of at least three appropriately qualified non-executive directors,
the majority of whom, including the Chairman, should be independent. All of the
members of the committee must have relevant background, knowledge, skills, and/or
experience in the areas of accounting, auditing and finance. The Chairman of the
Audit Committee should be the chairman of the Board or of any other committees.
III. The Audit Committee is responsible for overseeing the senior management in
establishing and maintaining an adequate, effective and efficient internal control
framework. It ensures that systems and processes are designed to provide assurance
in areas including reporting, monitoring compliance with laws, regulations and internal
policies, efficiency and effectiveness of operations, and safeguarding of assets.
IV. The Audit Committee recommends the approval the External Audit Charter (EA
Charter), which formally defines the role of External Audit and the audit plan as well as
oversees the implementation of the EA Charter

a. Statement 1 is correct
b. Statement 2 is correct
c. Statement 3 is correct
d. Statement 4 is correct
e. Statement 1 is incorrect
f. Statement 2 is incorrect
g. Statement 3 is incorrect
h. Statement 4 is incorrect
i. 2 statements are incorrect
j. All statements are correct
k. All statements are incorrect

19. I. The Audit Committee meets with the Board at least every month without the presence
of the CEO or other management team members, and periodically meets with the head
of the internal audit.
II. The Board should establish a Corporate Governance Committee that should be
tasked to assist the Board in the performance of its corporate governance
responsibilities, including the functions that were formerly assigned to a Nomination and
 Remuneration Committee. It should be composed of at least two members, all of whom
should be independent directors, including the Chairman.
III. The Corporate Governance Committee (CG Committee) oversees the
implementation of the corporate governance framework and periodically reviews the
said framework to ensure that it remains appropriate in light of material changes to the
corporation’s size, complexity and business strategy, as well as its business and
financial environments.
IV. Subject to a corporation’s size, risk profile and complexity of operations, the Board
should establish a separate Corporate Governance Committee (CG Committee) that
should be responsible for the oversight of a company’s Enterprise Risk Management
system to ensure its functionality and effectiveness. The CG Committee should be
composed of at least three members, the majority of whom should be independent
directors, including the Chairman. The Chairman should not be the Chairman of the
Board or of any other committee. At least one member of the committee must have
relevant thorough knowledge and experience on risk and risk management.
IV. Enterprise risk management is integral to an effective corporate governance process
and the achievement of a company's value creation objectives. Thus, the CG Committee
has the responsibility to assist the Board in ensuring that there is an effective and
integrated risk management process in place. With an integrated approach, the Board
and top management will be in a confident position to make well-informed decisions,
having taken into consideration risks related to significant business activities, plans and
opportunities.

a. Statement 1 is correct
b. Statement 2 is correct
c. Statement 3 is correct
d. Statement 4 is correct
e. Statement 1 is incorrect
f. Statement 2 is incorrect
g. Statement 3 is incorrect
h. Statement 4 is incorrect
i. 2 statements are incorrect
j. All statements are correct
k. All statements are incorrect

20. I. The BROC Develops a formal enterprise risk management plan which contains the
following elements: (a) common language or register of risks, (b) well-defined risk
management goals, objectives and oversight, (c) uniform processes of assessing risks
and developing strategies to manage prioritized risks, (d) designing and implementing
risk management strategies, and (e) continuing assessments to improve risk strategies,
processes and measures.
II. Subject to a corporation’s size, risk profile and complexity of operations, the Board
should establish a Related Party Transaction (RPT) Committee, which should be tasked
with reviewing all material related party transactions of the company and should be
composed of at least three non-executive directors, two of whom should be
independent, including the Chairman.
III. The RPT Committee evaluates on an ongoing basis existing relations between and
among businesses and counterparties to ensure that all related parties are continuously
identified, RPTs are monitored, and subsequent changes in relationships with
counterparties (from non-related to related and vice versa) are captured. Related
parties, RPTs and changes in relationships should never be reflected in the relevant
reports to the Board and regulators/supervisors.
IV. The RPT Committee reports to the President of the Company on a regular basis, the
status and aggregate exposures to each related party, as well as the total amount of
exposures to all related parties.
 a. Statement 1 is correct
b. Statement 2 is correct
c. Statement 3 is correct
d. Statement 4 is correct
e. Statement 1 is incorrect
f. Statement 2 is incorrect
g. Statement 3 is incorrect
h. Statement 4 is incorrect
i. 2 statements are incorrect
j. All statements are correct
k. All statements are incorrect

21. I. The Committee Charter clearly defines the roles and accountabilities of each
committee to avoid any overlapping functions, which aims at having a more effective
board for the company. This can also be used as basis for the assessment of committee
performance.
II. The directors should attend and actively participate in all meetings of the Board,
Committees, and Shareholders in person or through tele-/videoconferencing conducted
in accordance with the rules and regulations of the Commission, except when justifiable
causes, such as, illness, death in the immediate family and serious accidents, prevent
them from doing so. In Board and Committee meetings, the director should review
meeting materials and if called for, ask the necessary questions or seek clarifications
and explanations.
III. A director’s commitment to the company is evident in the amount of time he dedicates
to performing his duties and responsibilities, which includes his presence in all meetings
of the Board, Committees and Shareholders. In this way, the director is able to
effectively perform his/her duty to the company and its shareholders. The absence of a
director in more than fifty percent (50%) of all regular and special meetings of the Board
during his/her incumbency is a ground for disqualification in the succeeding election,
unless the absence is due to illness, death in the immediate family, serious accident or
other unforeseen or fortuitous events.
IV. The non-executive directors of the Board should concurrently serve as directors to
a maximum of five publicly listed companies to ensure that they have sufficient time to
fully prepare for meetings, challenge Management’s proposals/views, and oversee the
long-term strategy of the company.

a. Statement 1 is correct
b. Statement 2 is correct
c. Statement 3 is correct
d. Statement 4 is correct
e. Statement 1 is incorrect
f. Statement 2 is incorrect
g. Statement 3 is incorrect
h. Statement 4 is incorrect
i. 2 statements are incorrect
j. All statements are correct
k. All statements are incorrect

22. I. Being a director necessitates a commitment to the corporation. Hence, there is a need
to set a limit on board directorships. This ensures that the members of the board are
able to effectively commit themselves to perform their roles and responsibilities,
regularly update their knowledge and enhance their skills. Since sitting on the board of
too many companies may interfere with the optimal performance of board members, in
that they may not be able to contribute enough time to keep abreast of the corporation’s
 operations and to attend and actively participate during meetings, a maximum board
seat limit of five directorships is recommended.
II. The Board expects commitment from a director to devote sufficient time and attention
to his/her duties and responsibilities. Hence, it is important that a director notifies his/her
incumbent Board before accepting a directorship in another company. This is for the
company to be able to assess if his/her present responsibilities and commitment to the
company will be affected and if the director can still adequately provide what is expected
of him/her.
III. The presence of independent directors in the Board is to ensure the exercise of
independent judgment on corporate affairs and proper oversight of managerial
performance, including prevention of conflict of interests and balancing of competing
demands of the corporation. There is increasing global recognition that more
independent directors in the Board lead to more objective decision-making, particularly
in conflict of interest situations. In addition, experts have recognized that there are
varying opinions on the optimal number of independent directors in the board. However,
the ideal number ranges from one-half to a substantial minority.
IV. Independent directors need to possess a good general understanding of the industry
they are in. Further, it is worthy to note that independence and competence should go
hand-in-hand. It is therefore important that the non-executive directors, including
independent directors, possess the qualifications and stature that would enable them to
effectively and objectively participate in the deliberations of the Board.

a. Statement 1 is correct
b. Statement 2 is correct
c. Statement 3 is correct
d. Statement 4 is correct
e. Statement 1 is incorrect
f. Statement 2 is incorrect
g. Statement 3 is incorrect
h. Statement 4 is incorrect
i. 2 statements are incorrect
j. All statements are correct
k. All statements are incorrect

23. I. Service in a board for a long duration may impair a director’s ability to act
independently and objectively. Hence, the tenure of an independent director is set to a
cumulative term of nine years. Independent directors (IDs) who have served for nine
years may continue as a non-independent director of the company. Reckoning of the
cumulative nine-year term is from 2013, in connection with SEC Memorandum Circular
No. 10, Series of 2012.
II. Any term beyond ten years for an ID is subjected to particularly rigorous review, taking
into account the need for progressive change in the Board to ensure an appropriate
balance of skills and experience. However, the shareholders may, in exceptional cases,
choose to re-elect an independent director who has served for nine years. In such
instances, the Board must provide a meritorious justification for the re-election.
III. To avoid conflict or a split board and to foster an appropriate balance of power,
increased accountability and better capacity for independent decision-making, it is
recommended that the positions of Chairman and Chief Financial Officer (CFO) be held
by different individuals. This type of organizational structure facilitates effective decision
making and good governance. In addition, the division of responsibilities and
accountabilities between the Chairman and CFO is clearly defined and delineated and
disclosed in the Board Charter.
IV. The Board should designate a lead director among the independent directors if the
Chairman of the Board is not independent, including if the positions of the Chairman of
the Board and Chief Executive Officer are held by one person.
 a. Statement 1 is correct
b. Statement 2 is correct
c. Statement 3 is correct
d. Statement 4 is correct
e. Statement 1 is incorrect
f. Statement 2 is incorrect
g. Statement 3 is incorrect
h. Statement 4 is incorrect
i. 2 statements are incorrect
j. All statements are correct
k. All statements are incorrect

24. I. In cases where the Chairman is not independent and where the roles of Chair and
CFO are combined, putting in place proper mechanisms ensures independent views
and perspectives. More importantly, it avoids the abuse of power and authority, and
potential conflict of interest. A suggested mechanism is the appointment of a strong
“lead director” among the independent directors. This lead director has sufficient
authority to lead the Board in cases where management has clear conflicts of interest.
II. The abstention of a director from participating in a meeting when related party
transactions, self-dealings or any transactions or matters on which he/she has a material
interest are taken up ensures that he has no influence over the outcome of the
deliberations. The fundamental principle to be observed is that a director does not use
his position to profit or gain some benefit or advantage for his himself and/or his/her
related interests.
III. The non-executive directors (NEDs) should have separate periodic meetings with
the external auditor and heads of the internal audit, compliance and risk functions,
without any executive directors present to ensure that proper checks and balances are
in place within the corporation. The meetings should be chaired by the lead independent
director.
IV. NEDs are expected to scrutinize Management’s performance, particularly in meeting
the companies’ goals and objectives. Further, it is their role to satisfy themselves on the
integrity of the corporation’s internal control and effectiveness of the risk management
systems. This role can be better performed by the NEDs if they are provided access to
the external auditor and heads of the internal audit, compliance and risk functions, as
well as to other key officers of the company without any executive directors present. The
lead independent director should lead and preside over the meeting.

a. Statement 1 is correct
b. Statement 2 is correct
c. Statement 3 is correct
d. Statement 4 is correct
e. Statement 1 is incorrect
f. Statement 2 is incorrect
g. Statement 3 is incorrect
h. Statement 4 is incorrect
i. 2 statements are incorrect
j. All statements are correct
k. All statements are incorrect

25. I. Disclosure of the criteria, process and collective results of the assessment ensures
transparency and allows shareholders and stakeholders to determine if the directors are
performing their responsibilities to the company. Companies are given the discretion to
determine the assessment criteria and process, which should be based on the
mandates, functions, roles and responsibilities provided in the Board and Committee
 Charters. In establishing the criteria, attention is given to the values, principles and skills
required for the company. The Corporate Governance Committee oversees the
evaluation process.
II. The Board should adopt a Code of Business Conduct and Ethics, which would provide
standards for professional and ethical behavior, as well as articulate acceptable and
unacceptable conduct and practices in internal and external dealings. The Code should
be properly disseminated to the Board, senior management and employees. It should
also be disclosed and made available to the public through the company website.
III. A Code of Business Conduct and Ethics formalizing ethical values is an important
tool to instill an ethical corporate culture that pervades throughout the company. The
main responsibility to create and design a Code of Conduct suitable to the needs of the
company and the culture by which it operates lies with the Board. To ensure proper
compliance with the Code, appropriate orientation and training of the Board, senior
management and employees on the same are necessary.
IV. The Board has the primary duty to make sure that the internal controls are in place
to ensure the company’s compliance with the Code of Business Conduct and Ethics and
its internal policies and procedures. Hence, it needs to ensure the implementation of
said internal controls to support, promote and guarantee compliance. This includes
efficient communication channels, which aid and encourage employees, customers,
suppliers and creditors to raise concerns on potential unethical/unlawful behavior
without fear of retribution. A company’s ethics policy can be made effective and
inculcated in the company culture through a communication and awareness campaign,
continuous training to reinforce the code, strict monitoring and implementation and
setting in place proper avenues where issues may be raised and addressed without fear
of retribution.

a. Statement 1 is correct
b. Statement 2 is correct
c. Statement 3 is correct
d. Statement 4 is correct
e. Statement 1 is incorrect
f. Statement 2 is incorrect
g. Statement 3 is incorrect
h. Statement 4 is incorrect
i. 2 statements are incorrect
j. All statements are correct

III. Essay (3 points each)

1. Is equal pay for equal work always necessary, ethically?

2. Are whistleblowers considered as company heroes or disloyal employees?
3. Why is trust important in modern economies?

IV. Bonus Question (+1 each question)

1. Statement 1: An entity shall capitalize borrowing costs that are directly attributable to
the acquisition, construction or production of a qualifying asset as part of the cost of that
asset.
Statement 2: An asset is normally ready for its intended use or sale when the physical
construction of the asset is complete even though routine administrative work might
continue.
Statement 3: An entity is required to disclose the borrowing costs capitalized during the
period and the capitalization rate used to determine the amount of borrowing cost
eligible for capitalization.
 Statement 4: Investment income earned on temporary investment of general
borrowings should be deducted from the borrowing costs incurred and only the net
amount should be capitalized.
Statement 5: Capitalization of borrowing costs may still continue during periods when
inventory classified as qualifying asset is undergoing slow transformation.

a. Only one statement is correct

b. Only one statement is incorrect
c. Only two statements are correct
d. Only two statements are incorrect
e. All statements are correct
f. All statements are incorrect

2. Mahal ba ako ni Doc Migs? Provide supporting evidence, if applicable. 

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“To everyone with a dream, know that your dreams are valid. And on your path, you are
never denied and only redirected” – Catriona Gray, Miss Universe 2018