Corporate Rights, Responsibilities, and Authority

Question 1

Under SOX 202, what are the requirements and responsibilities of Audit Committee?

Answer 1

All directors must be independent; new role: select, compensate, fire outside auditor; setup whistleblower procedures

Question 2

Describe the three levels of the corporate pyramid.

Answer 2

Bottom: shareholders (vote for directors;
Middle: directors (select officers and set broad policies);
Top: officers (run firm day to day)

Question 3

List prohibitions observed by corporate insiders and outside auditors.

Answer 3

They must observe the following prohibitions:

fraudulent, coercion, manipulation, and misleading

Question 4

Define the “SOX Clawback Provision.”

Answer 4

This provision allows firms to reclaim incentive and bonus payments to officers that turn out to have been made based on wrongdoing by those officers.

Question 5

Pro forma financial statements must be reconciled with what?

Answer 5

They must also include comparable GAAP numbers.

Question 6

What does the acronym SOX mean?

Answer 6

Sarbanes-Oxley Act