Ethics and Governance · Module 3: Governance concepts
Right Verdict, Wrong Reason
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Chapters
- 0:00Question
- 0:26Breakdown
- 1:07Rule
In short
ASX Recommendation 4.1 says a listed entity's audit committee should have at least three members, all non-executive directors and a majority independent, chaired by an independent director who is not the chair of the board. In the exam, an option can reach the right verdict for the wrong reason, and that option is still wrong.
- At least three members, all non-executive, majority independent.
- Chaired by an independent director who is not the board chair.
- Check the reason in each option, not only the conclusion.
Transcript
0:00Question
Two answers say yes. Two say no. Only one is right, and here's the trap. Pike's audit committee has three non-executive directors. Two are independent. The third is the independent board chair, who'll also chair the committee. Does that follow ASX Recommendation 4.1? Pick one.
0:26Breakdown
Check it against the recommendation, line by line. Three members. All non-executive. A majority independent. So far, so good. But the committee chair should not be the chair of the board. That fails. So it departs from the recommendation. Cross out B and D. D is the tempting one. Every fact in it is true. The conclusion still isn't. Now A and C both say it departs. This is where people lose the mark. C says the board chair can't even be a member. That's not what it says. The chair can sit on the committee, just not run it. The answer is A.
1:07Rule
Right verdict, wrong reason, is still a wrong answer. Check the reason in every option. Want more traps like this? Follow for the next one.
Try a question on this lesson
From the EstatePass Ethics and Governance bank. Answer it, then read the explanation.
Pike Ltd, an ASX-listed company, proposes an audit committee of three non-executive directors: two independent directors and the independent board chair, who will also chair the committee. How does this compare with ASX Recommendation 4.1 (4th edition)?
Sources
- ASX Corporate Governance Principles and Recommendations, Recommendation 4.1
- CPA question bank: cpa-eg-0047
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