B1 Corporate Governance Flashcards Preview

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Flashcards in B1 Corporate Governance Deck (28):

What is the primary duty of the board of directors?

To monitor management behavior.


What is the responsibility of the Nominating or Corporate Governance Committee of the board of directors?

Oversees the board

Responsible for hiring new CEO


What is the responsibility of the audit committee of the board of directors?

The audit committee appoints and oversees the external auditor.


What is the duty of the compensation committee of the board of directors?

The compensation committee handles the CEO's compensation package.


What does the NYSE and NASDAQ require of the board of directors?

They require the board to be independent.


What is the main goal in an executive compensation package?

The package should ensure that the goals of management should match those of the shareholders.


How can an executive compensation package ensure that goals of management align with those of shareholders?

Executive compensation should create an incentive for management to govern in a shareholder-friendly way that doesn't sacrifice the long-term success of the enterprise for short-term gain.


Which influences help mold the direction that management takes?

They range from internal (Board of Directors- Audit Committee- Internal Control) to external (Creditors- SEC- IRS)

These influences should not be tainted by undue influence from management or have financial ties to management such as compensation-related duties


What is shirking?

When management doesn't act in the best interest of shareholders.

It can be alleviated by tying compensation to stock performance or company profit.


What requirements are imposed on a public company under Sarbanes-Oxley?

Management must submit a report on the effectiveness of Internal Control in the 10K.

Management must disclose significant Internal Control deficiencies.

CEO/CFO must certify that the financial statements comply with securities laws and fairly present the financial condition of the company.


What characteristics are promoted by the COSO framework on Internal Control?

Reliable financial reporting

Effective and efficient operations



What are the components of the control environment?

-Commitment to Integrity & Ethics
-Commitment to competence
-Board independence & oversight
-Organizational Structure


What are the components of existing control activities?

-select/develop control activities
-select/develop technology controls
-deploy via policy/procedure


What are the basic elements of Internal Control?

Control Environment
Risk Assessment
Information and Communication
Existing control activities


What are the main elements of the Information and Communication aspect of Internal Control?

-Obtain/use info
-internally communicate info
-comm w/external parties


What are the elements of monitoring within Internal Control?

-ongoing/separate evaluations
-comm of deficiencies


What activities does the COSO framework for enterprise risk management include?

-Identifies Risk Factors
-Promotes Risk Response Decisions
-Compares Mgmt. Risk vs. Shareholder Goals
-Helps seize opportunities
-Promotes Quicker Capital movement

Does NOT eliminate all risk


What are possible responses to risk under the COSO framework for enterprise risk management?

Avoid or Reduce

Share or Accept


What are the four categories of objectives within ERM?



What are the components of ERM?
(I.S. E.A.R. A.I.M.)

-Internal environment
-Setting objectives

-Event ID
-Assess risk
-Risk response

-Activities (control)
-Info & comm.


What are the components of ERM Internal Environment?

-Board oversight
-Org. structure
-Commitment to competence
-R/M philosophy
-Risk appetite


What are characteristics of "strategic objectives"?

-take a long time


What are characteristics of "related objectives"?

-ID critical success factors
-support strategic objectices
-fall into 3 categories


What are the 3 categories of related objectives and their elements?

-Operations: efficiency, effectiveness, profitability
-Reporting: financial/non-financial, timely, accurate
-Compliance: laws, rules, regs, taxes, EPA


What is an example of avoiding risk?

discontinue ops/product line


What is an example of reducing risk?

invest in inventory IT


What is an example of sharing risk?

buy insurance


What is an example of accepting risk?

take no action