Corporate Governance Flashcards Preview

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Flashcards in Corporate Governance Deck (18):
1

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

Oversees the Board.
Responsible for hiring new CEO.

2

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

The audit committee appoints & oversees the external auditor.

3

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

To handle the CEO's compensation package.

4

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

They require the board to be independent.

5

What is the main goal in an executive compensation package?

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

6

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

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

7

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 mgmt or have financial ties to mgmt such as compensation related duties.

8

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.

9

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

Mgmt must submit a report on the effectiveness of Internal Control in the 10k.
Mgmt 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.

10

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

Reliable financial reporting.
Effective & efficient operations.
Compliance.

11

What are the elements of the control environment?

Integrity & Ethics Competence.
The Board of Directors & Audit Committee Management's Operating Style.
Organizational Structure
Authority & Roles of Responsibilities
HR Policies

12

What are control activities?

A component of Internal Control that includes actions being taken to promote the control environment.

13

What are the basic elements of Internal Control?

Control environment.
Risk assessment.
Control activities.
Information and Communication.
Monitoring.

14

What is the significance of the Information & Communication aspect of Internal Control?

Management must have access to relevant and timely information to make good decisions.

15

How does Monitoring affect Internal Control?

Internal Control activities must be constantly monitored and evaluated for effectiveness.

16

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

Identifies Risk Factors.
Promotes risk response decisions.
Compares mgmt risk vs. shareholder goals
Aids in evaluating opportunities
Promotes quicker capital movement.
Does NOT eliminate all risk.

17

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

Avoid or Reduce.
Share or Accept.

18

What is the primary duty of the board of directors?

To monitor management behavior.