Corporate Governance Flashcards
What is Corporate Governance?
refers to a corporation’s government;
used to describe the oversight responsibilities of different parties for an organization’s direction, operations, and performance.
zpecifies the distribution of rights and responsibilities among the different participants in the organisation
and lays down the rules and procedures for decision-making
What are the core principles of corporate governance?
Accountability (Effective ownership and reporting structures within an organization are necessary )
Transparency
(refers to the clarity, accuracy, completeness, and timeliness of the financial statements and other information provided by management to shareholders, achieved by an independent audit)
Fairness
Responsibility (duty of internal parties to act in the best interest of the organization and duty of the organisation to act in soceitys best interest.)
What should the corporate governance framework ensure?
timely and accurate disclosure is made on all material matters including the financial situation, performance, ownership, and governance of the company.
disclosure requirements should not place unreasonable administrative or cost burdens on enterprises
not expected to disclose information that may endanger their competitive position unless omission is misleading - follow materiality
What are board of directors?
they oversee business operations by assessing the strategy and underlying purpose of management decision and action
made up entitys voting members
middlemen between owners and management
act as guardians of resources and assets
What does ab effective framework supporting good corporate governance practice?
Promotes transparent and fair markets
Is consistent with the rule of law
Supports effective supervision and enforcement
What rights to equity investors have?
equity share in a publicly traded company can be bought, sold, or transferred.
equity share also entitles the investor to participate in the profits of the corporation
ownership of an equity share provides a right to information about the corporation and a right to influence the corporation, primarily by participation in general shareholder meetings and by voting
What is the Treadway Commission?
National Commission on Fraudulent Financial Reporting (commonly known as the Treadway Commission)
established in 1985
established with the purpose of defining the responsibility of the auditor in preventing and detecting fraud.
What is the purpose of corporate governance?
Encourage the efficient use of resources and require accountability for the stewardship of those resources.
Who are shareholders and what are their responsibilities?
owners of corporations that are primarily concerned with maximizing the return on their investment.
as such, their responsibilities include:
Remaining informed on company operations and performance
Reading annual reports and other communications from management
Attending shareholder meetings
Electing capable individuals to serve as board directors
Holding the board of directors accountable for proper governance and oversight
Appointing or ratifying the audit committee’s appointment of the organization’s independent auditors
Voting on other significant issues, such as specific changes relating to business operations, the company’s corporate governance framework, and the rights and responsibilities of the board of directors and executive managers
What is managements role pertaining to corporate governance?
Establishing strategic goals and operating objectives under the board’s oversight
Directing employees to carry out business activities and managing their performance of those tasks
Determining the use and allocation of company resources and assets
Evaluating the organization’s successes or failures and recalibrating the strategic approach
Holding responsibility for the design and operation of the organization’s internal controls
Setting the organization’s true ethical tone
What is managements role pertaining to corporate governance?
Establishing strategic goals and operating objectives under the board’s oversight
Directing employees to carry out business activities and managing their performance of those tasks
Determining the use and allocation of company resources and assets
Evaluating the organization’s successes or failures and recalibrating the strategic approach
Holding responsibility for the design and operation of the organization’s internal controls
Setting the organization’s true ethical tone
What are the recommendations made by the Treadway Commission?
A written charter for the audit committee
A mandatory independent audit committee made up of outside directors
Adequate audit committee resources and authority
An audit committee made up by members who are informed, vigilant, and effective
What are the 6 chapters of corporate governance?
Request that governments have in place an effective legal, regulatory, and institutional framework to support good corporate governance practices (Chapter I).
a framework that protects the exercise of shareholders’ rights and supports the equal treatment of all shareholders, (Chapter II).
Address the effect of institutional investors and other intermediaries in stock markets and the resulting corporate governance implications (Chapter III).
Recognize the importance of the role of stakeholders in corporate governance (Chapter IV).
Examine the importance of timely, accurate, and transparent disclosure mechanisms (Chapter V).
Address board structures, responsibilities, and procedures (Chapter VI).
