Corporate Governance Flashcards Preview

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Flashcards in Corporate Governance Deck (23):
2

What is the primary duty of the board of directors?

To monitor management behavior.

3

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

Oversees the board

Responsible for hiring new CEO

4

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

The audit committee appoints and oversees the external auditor.

5

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

The compensation committee handles the CEO's compensation package.

6

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

They require the board to be independent.

7

What is the main goal in an executive compensation package?

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

8

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

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

9

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

10

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.

11

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.

12

What characteristics are promoted by the COSO framework on internal control?

Reliable financial reporting

Effective and efficient operations

Compliance

13

What are control activities?

A component of internal control that includes actions being taken to promote the control environment. Management directives being carried out (controls, segregation of duties, performance reviews)

14

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

15

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.

Info system - methods and records used to identify record measure, process, summarize, present, disclose and report transactions that will maintain accountability for accounts

16

What are the basic elements of internal control?

Control Environment
Risk Assessment
Control Activities
Information and Communication
Monitoring

17

How does Monitoring affect internal control?

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

18

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

Avoid - exit the activity or Reduce - manage add controls

Share - ins or hedging or Accept the risk - is companies risk appetite

19

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

20

What is Monitoring?

Ensures internal controls are operating effectively - evaluators (competent and objective) asses controls.

21

What is normally included in the Bylaws of a Corporation?

The bylaws set forth how the directors are elected, how meetings are conducted and the types and duties of officers
in summary - the internal rules of an organization

22

What are the sequence of activities in monitoring?

Control Baseline - established starting point
Change Identification - Identify through changes that Internal controls is necessary because of changes in operating or has already taken place
Change Management - evaluating the change and establishing a new baseline
Control revalidation/update - periodically reevaluating control operation

23

What is included in the Articles of Incorporation?

Basic info
Amended by approval of shareholders
Purpose, name & address, address of each incorporator, powers of the corporation, name and registered agent of the corporation, and authorized stock and types of stock

24

The internal audit function should report to?

Audit Committee and CEO