Corporate Governance, Internal Control, and Enterprise Risk Management Flashcards
(63 cards)
A process, effected by the entity’s BOD, management, and other personnel designed to provide reasonable assurance regarding the achievement of objectives
Internal Controls
A process designed to idnetify potential events that may affect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding hte achievement of entity objectives
Enterprise Risk Managemnt (ERM)
The problem that occurs when managmenet does not act in the best interest of the shareholders–may engage in self-serving activities
Agency problem
Taking too much/little risk
Shirking–an agency problem
Filed with the secretary of state who issues a certificate of incorporation; Includes:
- name of corp
- purpose of corp
- powers of corp
- name of the registered agent
- name and address of each incorporator
- # of authorized shares of stock
Articles of Incorporation
–can be subsequently amended by appoval (majority vote) of shareholders
Set forth how the directors and/or officers are elected/selected, how meetings are conducted, the types and duties of officers, and required meetings
–should prescribe the process for amendment of these rules
Bylaws
Provide the basic capital of the corporation and elect the BOD
Common SH’s
The right of common stockholders to subscribe to stock issues so that their ownership is not diluted
Preemptive right
Have no voting rights, but have preference to dividends and receipt of capital upon liquidation of the company
Preferred SH’s
Voting rights in the election of directors that allow common shareholders to cast 1 vote for each director of the of the corporation for each share of stock they own
Cumulative voting rights
Charged with running the corporation on behalf of the SH’s and other stakeholders
-responsible for providing strategic direction and guidance about the stablishment of the key business objectives
BOD
–no individual power; power resides in the Board, collectively
A case-law derived concept that provides that a corporate director may not be held liable for errors in judgment providing the director acted with good faith, loyalty, and due care; but are responsible for personal illegal actions and personal torts
Business judgment rule
Duty of BOD that they must put hte interest of the corporation before their personal interest
Duty of loyalty
An agent of the corporation that can bind with corporation with their actions within the scope of his/her autority–a corp is not bound by the actions of these people if they acted beyond the scope of their authority
- responsible for hte fair presentation of the corp’s financial reports
- fidcuiary duty to corp
Officers (CEO, CFO, etc.)
A compensation system in which management is compensated based on performance (usually accounting profit)
–may result in mgmt putting too much focus on short-term profits
BAse Salary + Bonuses
A form of compensation that provides managers with an incentive to increase stock price, but may result in mgmt taking risks/manipulating st F.S.’s to meet objectives
Stock Options
Issuing shares of stock as part of management’s compensation in the form of REstricted Stock and Performance shares
Stock Grants
Officers, employees or major stockholders that are on the BOD
Inside directors
Requires public corporaitons to disclose why or why not hte chairman of the board is also the CEO
Wall Street Reform and Consumer Protection (Dodd-FRank) ACt of 2010
The committe established by and amongst hte BOD f an issuer fro the purpose of verseeing the accounting and finacnial reporting processes of hte issuer; and audits of the financial statements of the issuer
- responsible for the appointment, compensation, and oversight of the corporations’ external auditor
- must be indpendent
Audit committee on BOD
Rules that require executives to pay back incentive compensation when there is an accounting restatement
Clawback rules–required by Dodd-Frank
A professional organization of internal auditors that issued International Standards for the Professional Practice of Internal Auditing and a Code of Ethics for internal auditors
–Administers the CIA
Institute of Internal Auditors (IIA)
Services that provide an indpendent assesment of goverannce, ris management or control processes of an organization (ex. on financial presentation, compliance, performance, and system security)
Assurance services
Services tha invovle advisory related services to improve an organization’s governance, risk management or control processes (ex. training, advising, and facilitating)
Consulting services
