CFE – Fraud Prevention and Deterrence — Question 26

Which of the following is TRUE regarding corporate governance?

Answer options

• A. Fraud risk management is considered to be the foundation of effective corporate governance
• B. Effective corporate governance practices are most necessary in an organization in which the owners are also the individuals responsible for setting the corporate strategy
• C. Corporate governance’s primary purpose is to ensure the accuracy of the organization’s financial reports
• D. An entity’s corporate governance structure specifies the distribution of rights and responsibilities among the different participants in the organization

Correct answer: D

Explanation

The correct answer is D because corporate governance indeed delineates the rights and responsibilities of different stakeholders, ensuring clarity in roles. Option A is incorrect as fraud risk management, while important, is not the foundation of corporate governance. Option B is misleading as effective governance is crucial in all organizations, not just those with owner-managers. Option C is also incorrect because while ensuring accurate financial reporting is important, it is not the primary purpose of corporate governance.