Corporate Rights, Responsibilities, & Authority Flashcards Preview

WIley CPA BEC 2014 > Corporate Rights, Responsibilities, & Authority > Flashcards

Flashcards in Corporate Rights, Responsibilities, & Authority Deck (86)
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1

Describe the three levels of the corporate pyramid.

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

2

Pro forma financial statements must be reconciled with what?

They must also include comparable GAAP numbers.

3

What does the acronym SOX mean?

Sarbanes-Oxley Act.

4

Under the Sarbanes-Oxley Act of 2002, what are the requirements and responsibilities of Audit Committees?

All directors must be independent; New role: select, compensate, fire outside auditor; Set up whistleblower procedures.

5

List prohibitions observed by corporate insiders and outside auditors.

They must observe the following prohibitions: fraudulent influence; coercion; manipulation; and misleading.

6

Define the "SOX Clawback provision".

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.

7

Define "preventive controls".

"Before the fact" controls designed to stop an error or irregularity from occurring. Examples of preventive controls include locks on building and doors, password protected access to files, and segregation of duties.

8

Define "feedback controls".

A procedure in which the results of a process are evaluated and, if the results are undesirable, the process is adjusted to correct the results; most detective controls are also feedback controls.

9

Define "general controls".

Controls over the environment as a whole. Apply to all functions, not just specific accounting applications. General controls help ensure that data integrity is maintained.

10

Define "corrective controls".

Paired with detective controls, they attempt to reverse the effects of the error or irregularity which has been detected. Examples of corrective controls include maintenance of backup files, disaster recovery plans, and insurance.

11

Define "detective controls".

"After the fact" controls designed to detect an error after it has occurred (though preferably before the erroneous information is used to update the database or appears in reports). Examples of detective controls include data entry edits (field checks, limit tests) and reconciliation of batch control totals.

12

Define "feed-forward controls".

A process in which future results are projected based on current and past information and, if the future results are undesirable, the inputs to the system are changed to avoid the projected outcome. Many inventory ordering systems are essentially feed-forward controls: the system projects product sales over the relevant time period, identifies the current inventory level, and orders inventory sufficient to fulfill the sales demand.

13

Define "internal control".

A process, effected by the entity's Board of Directors, management, and other personnel, that is designed to provide reasonable assurance regarding the achievement of objectives in the following categories: effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations.

14

Define "application controls".

Controls over specific data input, data processing, and data output activities. Designed to ensure the accuracy, completeness, and validity of transaction processing. As such, application controls have a relatively narrow focus on those accounting applications that are involved with data entry, update, and reporting.

15

Define "compliance objectives" (as outlined by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Enterprise Risk Management - Integrated Framework).

Goals designed to ensure that the organization meets all legal and regulatory requirements. Compliance objectives are one of four organizational objectives, according to the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Enterprise Risk Management - Integrated Framework.

16

Define "control activities" (as outlined by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework).

One of five components of internal control, according to the Committee of Sponsoring Organizations of the Treadway Commission (COSO) model. This component relates to the policies and procedures that ensure that actions are taken to address the risks related to the achievement of management's objectives.

17

Define "operations objectives" (as outlined by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Enterprise Risk Management - Integrated Framework).

Goals that deal with the day-to-day operating activities of the organization (i.e. sales activities, warehousing, manufacturing, etc.). Operation objectives are one of four organizational objectives, according to the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Enterprise Risk Management - Integrated Framework

18

Define "risk assessment" (as outlined by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework).

One of five components of internal control, according to the Committee of Sponsoring Organizations of the Treadway Commission (COSO) model. Risk assessment is a process of identifying, analyzing and managing the risks in achieving the organization's objectives.

19

Define "risk response" (as identified in the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Enterprise Risk Management model).

Management's response to risk that is dependent on management's appetite for risk - observed risks may be avoided, reduced, shared, or accepted. Risk response is one of the three components of control identified in the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Enterprise Risk Management model.

20

Define "reporting objectives" (as outlined by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Enterprise Risk Management -Integrated Framework).

Information system goals related to the accuracy, completeness, timeliness, and reliability of internal and external reporting. Reporting objectives are one of four organizational objectives, according to the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Enterprise Risk Management - Integrated Framework.

21

Define "objective setting" (as identified in the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Enterprise Risk Management model).

Control that ensures that the company establishes objectives at each of the four specified levels (strategic, operational, reporting, and compliance). Objective setting is one of the three components of control identified in the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Enterprise Risk Management model.

22

Define "information and communications" (as outlined by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework).

One of five components of internal control, according to the Committee of Sponsoring Organizations of the Treadway Commission (COSO) model. This component involves the information and communication systems that enable an organization's personnel to identify, process, and exchange the information needed to manage and control operations.

23

Define "event identification" (as identified in the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Enterprise Risk Management model).

Events that might affect - either positively or negatively - the organization's ability to meet its objectives. Event identification is one of the three components of control identified in the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Enterprise Risk Management model.

24

Define "monitoring" (as outlined by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework).

One of five components of internal control, according to the Committee of Sponsoring Organizations of the Treadway Commission (COSO) model. This component ensure the ongoing reliability of information, by monitoring and testing the system and its data.

25

Define "control environment"

One of five components of internal control, according to the Committee of Sponsoring Organizations of the Treadway Commission (COSO) model. This control encompasses management's philosophy towards controls, organizational structure, system of authority and responsibility, personnel practices, and policies and procedures. This component is the core or foundation of any system of internal control.

26

Define "strategic objectives" (as outlined by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Enterprise Risk Management - Integrated Framework).

High-level goals that support the overall mission of the organization. Strategic objectives are one of four organizational objectives, according to the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Enterprise Risk Management - Integrated Framework.

27

Define competence in the context of designing internal control.

A commitment to attract, develop, and retain competent individuals consistent with achieving organizational objectives.

28

Define accountability in the context of designing internal control.

Holding individuals accountable for their internal control responsibilities.

29

Define inbound communications.

Communications outsiders to the organization, including customers, suppliers, external auditors, regulators, financial analysts and others.

30

Define risk assessment precision.

Whether, and the extent to which, risk can be quantified.