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BEC > B1 - Corporate Governance & Financial Risk Management > Flashcards

B1 - Corporate Governance & Financial Risk Management Flashcards

1
Q

How many objectives are in the COSO Framework?

A

3

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2
Q

What are the 3 objects in the COSO Framework?

A

ORC

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3
Q

How many components are in the COSO Framework?

A

5

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4
Q

What are the components in the COSO Framework?

A

CRIME

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5
Q

“O” in ORC

A

Operations

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6
Q

“R” in ORC

A

Reporting

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7
Q

“C” in ORC

A

Compliance

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8
Q

“C” in CRIME

A

Control environment

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9
Q

“R” in CRIME

A

Risk Management

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10
Q

“I” in CRIME

A

Info and communication systems

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11
Q

“M” in CRIME

A

Monitoring

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12
Q

“E” in CRIME

A

Existing controls

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13
Q

Who is responsible for the following:
-effectively applying IC
-Determining requirements for IC

A

Management & Board

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14
Q

Which of the components of ORC does this apply to:
Effectiveness and efficiency of the company’s operations and ensuring safeguards of the assets

A

Operations

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15
Q

Which of the components of ORC does this apply to:
Reliability, timeliness, and transparency of an entity’s external and internal financial/nonfinancial reporting

A

Reporting

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16
Q

Which of the components of ORC does this apply to:
Entity is adhering to applicable laws and regulations

A

Compliance

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17
Q

Control Environment Principle

A

EBOCA

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18
Q

“E” in EBOCA

A

Ethics

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19
Q

“B” in EBOCA

A

Board independence

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20
Q

“O” in EBOCA

A

Organizational structure

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21
Q

“C” in EBOCA

A

Commitment to competence

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22
Q

“A” in EBOCA

A

Accountability

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23
Q

Risk Assessment principle

A

SAFR

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24
Q

“S” in SAFR

A

Specify objectives

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25
Q

“A” in SAFR

A

Assess change

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26
Q

“F” in SAFR

A

Fraud risk

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27
Q

“R” in SAFR

A

Risk analysis

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28
Q

Information and communication principle

A

OIE

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29
Q

O in OIE

A

Obtain and use info

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30
Q

I in OIE

A

Internally communicate

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31
Q

E in OIE

A

Externally communicate

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32
Q

Who should be internally communicated to?

A

Internal auditors & committee

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33
Q

Who should be externally communicated to?

A

Management, CPA firm, consultants

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34
Q

Monitoring Activities principle

A

SOD

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35
Q

S in SOD

A

Separate evaluations of IC

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36
Q

O in SOD

A

Ongoing evaluations of IC

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37
Q

D in SOD

A

Deficiencies are communicated

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38
Q

Existing Control Activities principles

A

CAT P

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39
Q

CA in CAT P

A

Control activities are developed

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40
Q

T in CAT P

A

Tech controls

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41
Q

P in CAT P

A

Policies and procedures

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42
Q

Major deficiency

A

Material IC deficiency

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43
Q

What is the objective of applying the COSO framework?

A

Reduce assessed risk to acceptable levels

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44
Q

COSO Framework documentation pnuemonic

A

COPS

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45
Q

C in COPS

A

Component evaluation

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46
Q

O in COPS

A

Overall assessment

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47
Q

P in COPS

A

Principal evaluations

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48
Q

S in COPS

A

Summary of IC deficiencies

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49
Q

What is the objective of ERM

A

Strategy to balance risk and return

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50
Q

Risk

A

Possibility events will occur and affect the achievement of strategy and business objectives

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51
Q

Value creation

A

Benefits exceed the cost of resources used

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52
Q

What are signs that value is being created

A

+NPV, Profit, successful launch of a product

53
Q

Value preservation

A

Ongoing operations efficiently and effectively sustain created benefits

54
Q

Value erosion

A

Cost exceed benefits

55
Q

What are signs that value is being eroded?

A

stock price declines
-NPV

56
Q

Value realization

A

Benefits created by the organization are received by stakeholders

57
Q

Mission

A

core purpose of an entity

58
Q

Vistion

A

strategy and goals

59
Q

Core values

A

how a company achieves goals

60
Q

CCPIS

A

manage risk and create value

61
Q

C1 in CCPI

A

Culture

62
Q

C2 in CCPI

A

Capabilities

63
Q

P in CCPI

A

Practices

64
Q

I in CCPI

A

Integration with strategy

65
Q

Culture

A

collective thinking that shapes decisions

66
Q

Capabilities

A

competitive advantage

67
Q

Risk appetite

A

Willingness to assume risk

68
Q

Where is risk appetite expressed?

A

Mission and vision

69
Q

Risk Inventory

A

All risk that could impact an entity

70
Q

What is the term:
trends, events, relationships, and other factors that may influence, clarify or change an entity’s current or future strategy

A

Business context

71
Q

Risk capacity

A

Maximum amount of risk

72
Q

Risk profile

A

Type, severity, and interdependence of risk

73
Q

How many components are associated with ERM?

A

5

74
Q

What are the components of ERM

A

GO PRO

75
Q

G in GO PRO

A

Governance and culture

76
Q

O1 in GO PRO

A

Objective setting

77
Q

P in GO PRO

A

Performance

78
Q

R in GO PRO

A

Review and revision

79
Q

O2 in GO PRO

A

Ongoing performance

80
Q

Governance and culture

A

DOVES

81
Q

D in DOVES

A

Desired culture

82
Q

O in DOVES

A

Board oversight

83
Q

V in DOVES

A

Values (core values)

84
Q

E in DOVES

A

Employees are capable

85
Q

Strategy and objective setting

A

SOAR

86
Q

S in SOAR

A

Strategies

87
Q

O in SOAR

A

Objectives

88
Q

A in SOAR

A

Analyze business context

89
Q

R in SOAR

A

Risk appetite

90
Q

Performance principles

A

VAPIR

91
Q

V in VAPIR

A

Portfolio view

92
Q

A in VAPIR

A

Assesses severity of risk

93
Q

P in VAPIR

A

Prioritize risk

94
Q

I in VAPIR

A

Identifies risk

95
Q

R in VAPIR

A

Risk response

96
Q

What kind of risk preference:
increase in level of risk doesn’t result in an increase in management’s required rate of return

A

Risk-Indifferent

97
Q

What kind of risk preference:
increase in the level of risk results in an increase in management’s required rate of return

A

Risk-averse

98
Q

What kind of risk preference:
increase in the level of risk results in a decrease in management’s required rate of return

A

Risk-seeking

99
Q

What kind of risk:
exposure of the owner of the instrument to fluctuations in the value of the instrument in response to changes in interest rates

A

Interest rate risk

100
Q

What kind of risk:
Portion of a firm’s or industry’s risk that is associated with random causes and can be eliminated through diversification

A

Unsystematic Risk

101
Q

What kind of risk:
Exposure of a firm to fluctuations in value as a result of operating within an economy

A

Systematic Risk

102
Q

What kind of risk:
Political events, war, inflation, international events

A

Market risk

103
Q

What kind of risk:
Strikes, lawsuits, regulation, loss of key account

A

Diversifiable risk

104
Q

What kind of risk:
Company’s inability to secure financing or favorable credit terms

A

Credit Risk

105
Q

What kind of risk:
Debtors may not repay principal or interest due

A

Default risk

106
Q

What kind of risk:
Lendors or investors are exposed when they cannot sell securities in a timely manner and must make material price concessions

A

Liquidity risk

107
Q

What kind of risk:
Investors have to decline in the value of their individual securities or portfolios

A

Price risk

108
Q

What kind of rate:
Rate of interest charged before any adjustments for compounding or market factors

A

Stated interest

109
Q

What kind of rate:
Interest paid per period/Net proceeds from loan OR
(P X SAR)/# Periods

A

Effective interest

110
Q

What kind of rate:
Effective Period Rate X # of periods

A

Annual percentage rate

111
Q

What kind of rate:
(1+Effective periodic rate)^# of periods - 1

A

Effective annual percentage rate

112
Q

What kind of rate:
P X SAR X # years

A

Simple interest

113
Q

What kind of rate:
P X (1 + Effective periodic)

A

Compound interest

114
Q

Maturity risk premium

A

Compensation that investors demand for exposure to interest rate risk over time; risk increases with term to maturity

115
Q

Purchasing power risk

A

Compensation investors require to bear the risk that price levels will change and affect asset values

116
Q

Liquidity risk premium

A

Compensation demanded by lenders for the risk that an investment security cannot be sold on a short notice without making significant price concessions

117
Q

Default risk premium

A

Additional compensation demanded by lenders for bearing the risk that the issuer of the security will fail to pay interest or principal on a timely basis

118
Q

Certainty equivalent

A

The point at which an investor is indifferent to an expected return on an investment

119
Q

What premiums go into the require rate of return?

A

Maturity risk
Purchasing power risk
Liquidity risk
Default riks

120
Q

This would mitigate _________ risk
Investing in floating debt securities
Forward rate agreements or interest rate swaps

A

Interest rate risk

121
Q

This would mitigate ________ risk
Derivates that provide gains to the investor when the market declines
Short selling

A

Market Risk

122
Q

Short selling

A

selling an investment in hopes of buying it back at a lower price later

123
Q

This would mitigate _______ risk
Diversification

A

Unsystematic risk

124
Q

This would mitigate ________ risk
Improving credit ratings

A

Credit risk

125
Q

This would mitigate ________ risk
Adjust interest rates charged to better reflect the risk of each borrower

A

Default risk

126
Q

This would mitigate ______ risk
Allocating a greater percentage of capital to investments that trade on active markets

A

Liquidity risk

127
Q

This would mitigate ______ risk
Short selling/put options

A

Price Risk

128
Q

Put option

A

Selling a security at a specific price by a specific time

BEC (9 decks)

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