CFA Level I · CFA Level I Exam · Corporate Governance: Conflicts, Mechanisms, Risks, and Benefits
Compared with a company with weak governance, a company with strong governance and effective risk oversight is most likely to experience:
The company is most likely to experience fewer fraud and misreporting events. Effective oversight, internal controls and transparency detect and deter misconduct. Governance mitigates but does not eliminate manager-shareholder conflicts, and it cannot guarantee returns to stakeholders.
- Afewer fraud and misreporting eventsCorrect
- Bno conflicts between managers and shareholders
- Chigher guaranteed returns for all stakeholders
Explanation
Strong oversight, internal controls and transparent reporting reduce the likelihood of fraud and misreporting. Conflicts of interest are mitigated rather than eliminated, and returns cannot be guaranteed.
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