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Flashcards in Business 1: Corporate Governance Deck (60)
1

Does the BOD have individual authority?

- No
- Must act as group if quorum present

2

What is the primary role of an entity's BOD?

- Safeguard co assets
- Maximize shareholder return

3

Who has the sole discretion to declare distributions to shareholders, including dividends?

BOD

4

Directors must always act in the best interests of the corporation because they are ________ of the corporation.

Fiduciaries

5

The duty of loyalty prohibits directors from _______ with the corporation.

Competing

6

The articles of incorporation may eliminate or limit a director's liability to the corporation for money damages for action taken as a director except to the extent of actions taken in _____ _____.

Bad faith

7

Officers are _____ of the corporation who ordinarily manage its day-to-day operations and may bind the corporation to contracts made on it behalf.

Individual agents

8

May the BOD remove an officer with or without cause?

YES

9

What two types of authority does an officer have?

- Actual (oral/written instruction)
- Apparent (title CEO/CFO)

10

Officers also may serve as directors, but good corporate governance would require what?

- Majority of BOD should be independent

11

SOX addresses what three key topics?

1) Corporate responsibility
2) Enhanced financial disclosures
3) Fraud

12

SOX Title III addresses what?

Corporate responsibility (audit committee and CEO/CFO representations)

13

SOX Title III. Audit committee members are to be members of the issuer's BOD but are to be otherwise what?

Independent

14

SOX Title III. Who must sign certain representations regarding annual and quarterly reports?

CEO and CFO

15

SOX Title IV addresses what?

Enhanced financial disclosures (internal controls and audit committee)

16

What does COSO stand for?

Committee on Sponsoring Organizations

17

Who uses the COSO framework?

Used by
1) Management/board
2) Stockholders

18

Is the Internal Control - Integrated Framework rules-based?

- NO, it is principles-based

19

What are the three categories of objectives within the Internal Control - Integrated Framework?

ORC
1) Operations Objectives
2) Reporting Objectives
3) Compliance Objectives

20

Which of the three objectives within the Internal Control - Integrated Framework is the focus of COSO?

Reporting objectives

21

COSO IC-Integrated Framework. What do the operations objectives relate to?

- Relate to effectiveness and efficiency of an entity's operations
- Includes financial and operational performance goals
- Ensures that assets of organization are adequately safeguarded against potential losses

22

COSO IC-Integrated Framework. What do the reporting objectives relate to?

- Pertain to reliability, timeliness, and transparency of an entity's external and internal financial and nonfinancial reporting
- As established by regulators, accounting standard setters, or the firm's internal policies

23

COSO IC-Integrated Framework. What do the compliance objectives relate to?

- Established to ensure entity is adhering to all applicable laws and regulations

24

What are the five integrated components of internal control?

CRIME
1) Control environment
2) Risk assessment by management
3) Info and communication systems
4) Monitoring
5) Existing control activities

25

What do the five integrated components of internal control apply to?

Applies to all 3 categories of entity objectives "ORC"

26

COSO IC-Integrated Framework. What are the five principles related to the control environment?

EBOCA
1) Commitment to ETHICS and integrity
2) BOARD independence and oversight
3) ORG structure
4) COMMITMENT to competence
5) ACCOUNTABILITY

27

COSO IC-Integrated Framework. What are the three principles related to risk assessment?

EAR
1) Event identification
2) Assess risk
3) Respond to risk

28

COSO IC-Integrated Framework. What are the three principles related to information and communications?

1) Obtain and use info
2) Internally communicate info
3) Communicate with external parties

29

COSO IC-Integrated Framework. What are the two principles related to monitoring activities?

1) Ongoing and/or separate evaluations
2) Communication of deficiencies

30

COSO IC-Integrated Framework. What are the three principles related to existing control activities?

1) Select and develop control activities
2) Select and develop technology controls
3) Deploy through policies and procedures

31

True or False:

There is a direct relationship between an entity's three objectives, its five integrated internal control components, and the organizational structure of the entity.

TRUE

32

The COSO IC-Integrated Framework requires what in designing, implementing, and conducting IC and in assessing the effectiveness of IC?

Judgement

33

In 2004, the COSO issued ERM-Integrated Framework to assist organizations in what?

Developing a comprehensive response to risk management

34

ERM defines enterprise objectives in what four categories?

S+ORC
1) Strategic
2) Operations
3) Reporting
4) Compliance

35

What are the eight components of ERM?

IS EAR AIM
1) Internal environment
2) Setting objectives
3) Event identification
4) Assessment of risk
5) Risk response
6) Control activities
7) Information and communication
8) Monitoring

36

COSO ERM-Integrated Framework. The internal environment is supported by what eight key elements?

EBOCA HR
1) Commitment to ETHICAL values and integrity
2) BOARD oversight
3) ORG structure
4) COMMITMENT to competence
5) ACCOUNTABILITY
6) HR (risk management philosophy, HR standards, risk appetite)

37

COSO ERM-Integrated Framework. Objective setting is supported by what four key elements?

S+ORC
1) Strategic objectives
2) Operations objectives
3) Reporting objectives
4) Compliance objectives

38

The management philosophy and operating style principle of the control environment component of IC integrated framework suggests strong controls and encourages what?

Management's attitudes to be congruent with strong financial controls

39

What is the primary benefit of having a financial expert on a company's audit committee?

The enhanced level of financial sophistication of the financial expert can serve as a resource for the audit committee

40

SOX requires that the officers of a corporation be held accountable to a code of ethics. Codifications of ethical standards should include provisions for what?

- Honest and ethical conduct
- Full, fair, accurate, and timely disclosure of periodic F/S
- Compliance w/ laws, rules, and regulations

41

SOX seeks to improve investor confidence by providing greater transparency for what types of issues?

- Adequacy of IC
- Compliance of senior officers with code of ethics
- Competency of audit committees

42

The Treadway Commission was established to study factors that lead to fraudulent financial reporting. The Treadway Commission was established by whom?

Private sponsoring organizations (COSO is sometimes referred to as the Treadway Commission after its original Chairman James Treadway Jr.)

43

ABC Corporation owns many businesses along the coast of Florida. The company's management had identified business interruption events as a potential risk resulting from storm damages caused by hurricanes. Management is so fearful of the possibility of storm damage that they elect to divest the company of virtually all properties on the Florida coast. ABC's response to potential risks is known as what?

Avoidance

44

ABC Corporation owns many businesses along the coast of Florida. The company's management had identified business interruption events as a potential risk resulting from storm damages caused by hurricanes. ABC elects to insure its properties and "buy down" standard deductibles with additional premium. ABC's response to potential risks is known as what?

Sharing (insuring against losses or entering into joint venture to address risk is known as risk sharing)

45

When management uses listings of potential events common to a specific industry as a means of identifying risks or opportunities, the method is known as what?

Event inventory

46

Gathering management together to discuss or even brainstorm ideas in a structured manner is known as what?

Facilitated workshop

47

Sending out questionnaires to affected parties requesting opinions on potential events is the what approach?

Questionnaire/survey approach

48

A flow chart of activities used to identify potential risks is a what analysis?

Process flow analysis

49

Objectives are aligned with risk appetite, which drives what?

Risk tolerance levels

50

Control activities are most closely related to what?

Risk responses

51

For the components of ERM to be functioning effectively, there cannot be what?

Material weaknesses in IC

52

What is the criteria for evaluating the effectiveness of ERM?

Components of ERM framework

53

According to COSO, the use of ongoing and separate evaluations to identify and address changes in IC effectiveness can best be accomplished in which stage of the monitoring for change continuum?

Change identification

54

The COSO identifies what four stages of the change continuum?

1) Control baseline
2) Change identification
3) Change management
4) Control validation/update

55

True or false.

The existence of a published code of ethics and a periodic acknowledgement that ethical values are understood is evidence of development of ethical values and ensuring that those values are understood and taken seriously.

True

56

Periodically comparing and updating the mission, vision and values of a not-for-profit would best be classified as what sort of activity?

Monitoring activity

57

Conducting focus groups would most likely be what type of objective?

A related operating objective (focus groups would id the needs of various stakeholders and be used to improve operations)

58

Does a director's self-dealing automatically void a contract?

NO (contract can be upheld if it was fair)

59

What does the human resources principle say?

That HR policies and procedures should be fully compatible with effective financial reporting and internal control

60

Management of a company has a lack of segregation of duties within the application environment, with programmers having access to development and production. The programmers have the ability to implement application code changes into production w/o monitoring or a quality assurance function. This is considered a deficiency in what?

Change control