Corporate Governance Flashcards Preview

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Flashcards in Corporate Governance Deck (25):

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 majority of the board to be independent.


What are the 3 committees a publicly-held company is required to maintain?

1. Nominating and Corporate Governance
2. Audit
3. Compensation


What are the 3 components of the International Professional Practices Framework (IPPF)?

1. The definition of internal auditing
2. The code of ethics
3. International Standards for the Professional Practice of Internal Auditing (ISPPIA)


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 elements of the control environment?

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


What are control activities?

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


What are the basic elements of Internal Control?

Control Environment
Risk Assessment
Control Activities
Information and Communication


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

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


How does Monitoring affect Internal Control?

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


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

Identifies Risk Factors
Promotes Risk Response Decisions
Compares Management Risk vs. Shareholder Goals
Aids in evaluating 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 is inherent risk?

The risk that exists before management takes any steps to control the likelihood or impact of a risk.


What is residual risk?

The risk that remains after management reacts to the risk, such as by implementing internal controls


What is event risk?

The risk of unforeseen events associated with a particular entity


What is detection risk?

The risk that auditors fail to detect a material misstatement in the financial statements


What is Enterprise Risk Management (ERM)?

A process designed to identify potential events that may affect the entity

Provides reasonable assurance that control objectives are achieved

Manages risk within the defined risk appetite


What is the IIA's code of ethics principles?

1. Integrity
2. Objectivity
3. Confidentiality
4. Competency


What is the proper sequence of activities in the monitoring of internal control?

1. Establish a control baseline
2. Identify the need to make changes
3. Revalidate/update the baseline